Immediate concerns around cash flow, liquidity and the bottom line will take precedence at many companies right now, but there are high-value learnings from COVID-19 that leaders should bear in mind, as well.
Two insights jump out at me right away: Not only did the crisis, especially in its early phase, thrust CFOs into the spotlight as never before, it also created a unique business environment in which CFOs are uniquely positioned to drive business value during the recovery.
Let's break that down in a little more detail.
why the onset of COVID-19 heightened visibility for CFOs
Among the more striking, and perhaps surprising, consequences of the coronavirus outbreak, at least from the standpoint of human capital, is the extent to which it thrust CFOs into the spotlight. This was true going into the crisis and as the crisis deepened — and it's truer still as we begin to move out of it. Let's start with the former.
In March, during the immediate aftermath of the coronavirus outbreak, the outlook among CFOs was grim: In one survey, 80 percent said COVID-19 would decrease revenues and profits for 2020. Four out of five voiced concerns about the possibility of a global recession in another. In fact, in a single four-week span, CFOs went from holding a broadly optimistic outlook on the overall business landscape to taking a far more pessimistic view.
Meanwhile, companies were scrambling to adjust — and as they did, the focus naturally turned to internal assessments. Key questions included:
- How comprehensive was our contingency planning overall?
- Were there "what-if" scenarios that we should have looked it more closely, planned for or prioritized?
- Did we have the IT infrastructure to support remote work at scale?
- What can we do to limit future exposures — and inoculate the business against similar shocks down the line?
All of which fall within the wheelhouse of the CFO, a role frequently spanning business strategy, financial leadership and technology decision-making. In the midst of a highly dynamic, rapidly evolving situation, the choices of CFOs at many companies were suddenly held to greater scrutiny than ever before.
Looking ahead, that attention is only going to be magnified as we transition into the next phase of the coronavirus outbreak. Here's why.
why CFOs will remain in the spotlight during the next phase, too
More than a dozen states are preparing to resume something resembling ordinary public life in the coming weeks and months. And with restrictions loosening on many businesses, economic activity is set to pick up again, as well.
Of course, that means strategic priorities are changing, as well. Expect the following shift in focus: less on backward-looking analysis (pre-pandemic preparation and readiness), more on forward-thinking strategy (post-pandemic planning and leadership). Yet even with that shift, the role of the CFO becomes still more critical.
Let’s look at three areas where CFOs will have make-or-break impact on business recovery efforts:
- Shoring up balance sheets: Some companies reportedly lost as much as 75 percent of their revenues in a single quarter, thanks to COVID-19. Naturally, these companies will be keen to put as much cash on the balance sheet as possible in order to weather the storm. That may require them to draw down on revolving lines of credit or pursue other avenues for capital: divestiture, joint ventures and more. Either way, CFOs will be key.
- Strategic cost reductions: In a recent PwC survey, the majority of companies indicated that cost-containment measures were an essential part of their business strategy going forward. Another 56 percent said they would be changing their financing plans.
- Near-term performance: CFOs are instrumental in shaping business strategy and improving productivity. In the near term, that means they'll be counted on to spearhead strategic pivots — whether that means moving production to new products and services or shifting to alternative sales and delivery channels (think eCommerce). Nearly half of CFOs also identified automation and new ways of working as strategic priorities in connection with coronavirus.
Clearly, the increased importance of protecting cash and liquidity positions, together with the need to push business strategy in new directions, will be strategic priorities for many companies. All of which points to intensifying demand for skilled, highly experienced CFOs who can help lead companies out of the crisis.
Anecdotally, my conversations with clients have corroborated this overall picture. One even went so far as to describe their CFO as "wilting" under the mounting pressure of coronavirus. However, given the documented recruitment challenges many companies are experiencing, how they intend to rapidly source their next finance leaders remains to be seen.
The recent decision at Delta — having their CFO delay retirement rather than searching for a replacement — rather vividly illustrates the depth of the hiring challenge. As solutions go, of course, this one isn't viable for everyone, and it won't be viable for anyone over the long term.
The COVID-19 outbreak has been a watershed event for us all, with impacts across the whole value chain for most businesses. In different ways, it caught nearly every company off guard — even those with seemingly comprehensive contingency plans and what-if scenarios in place going in. Others simply weren’t equipped to handle remote work at scale from an IT infrastructure standpoint. For companies in private equity, meanwhile, COVID-19 pushed deals beyond the usual three-to-six-month window and brought due diligence to a standstill (in fact, the value of M&A activity in the U.S. dropped 39 percent in the first quarter).
Yet what all of these scenarios have in common is the central role that CFOs have to play. Their actions and choices, which shaped how companies responded to the crisis once it was here, will be even more important as it begins to abate.
No one knows when business will fully restart. No one knows if, or the extent to which, the virus will have enduring impacts on our ways of working, either. But that only underscores the value of having the right leadership in place. That's advice I consistently share with my clients, and it's the only way you'll ensure a meaningful snap-back in business activity for your company going forward.
For now, until we reach the other side of this pandemic, stay safe — stay sane! — and stay healthy.