EY Study: CFOs need to make bolder change to deliver lasting transformation

CFOs that drive bolder change in their finance teams can deliver better performance today and position themselves to outperform in the future, according to the EY 2023 Global DNA of the CFO, a survey of 1,000 global CFOs and senior finance executives.

Only 16% of finance leaders surveyed perceive their finance function as best-in-class in terms of key change priorities, such as technology and operating model, and 14% say they are making bold holistic changes to transform the function for the future. Those CFOs pursuing this agenda are 1.4 times more likely to have an above-average or best-in-class finance function today and 1.7 times more likely to reach best-in-class status after transformation.

The results of the survey are also backed up by the “Six ways CFOs can increase the likelihood of transformation success” study which found that many CFOs need to develop an empathetic and authentic leadership style to build alignment around the finance vision.

Guillaume Macczak, Partner GBS & Finance Advisory Services says: “The failure of many CFOs to recognize that employee buy-in is a crucial component in deciding the success of transformative projects and might be why we see this low percentage of CFOs perceive their finance function performance in terms of transformation priorities as best-in-class”.

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CFOs face complex and contradictory demands as they strive to drive long-term value and find short-term cost efficiencies while re–inventing the finance function. The survey highlights three fundamental paradoxes within the CFO role: creating long-term value while facing pressure to cut priority investments; managing risk while driving value through bolder and more innovative change; and succeeding as a strategic finance leader and achieving career ambitions when traditional finance skill sets do not equip them with all the attributes required.

Balancing near-term and long-term investment priorities

Sharing their experience, half of respondents (50%) say they are meeting short–term earnings targets by cutting funding in areas that are also considered long-term priorities.

Environmental, social and governance (ESG) programs are the most vulnerable to such cuts, with 37% of respondents stating their organization plans to reduce or pause spending in the next 12 months, despite considering ESG a long-term priority. However, CFOs should be cautious about cutting spending in this area, given the importance of sustainability in driving long-term value. In contrast, supply chain costs are the least likely to be targeted (24% of respondents), suggesting that recent disruption has led to a prioritization of supply chain resilience and is more likely to be exempt from cost–cutting.

“Even with the introduction of mandatory ESG reporting for larger companies, CFOs may be disregarding the need to abide by current environmental standards, which could lead to fines and have financial repercussions. In addition to losing devoted clients who have become more conscious of socioeconomic and environmental concerns, this also results in prospective investors showing little interest”, said Guillaume Macczak.

Effectively balancing short-term demands with long-term value can require collaboration,cooperation and trust between finance leaders and the executive team. However, tensions and disagreements can undermine this collective effort. Sixty-seven percent of finance leaders surveyed say that there are tensions and disagreements within their leadership teams regarding the balance between short-term and long-term priorities.

The survey highlights that the CFO can play an important role in resolving those tensions and balancing short-term and long-term priorities. They can provide valuable insight on decision-making, navigating trade-offs, fostering consensus across the C-suite and helping to align decisions with the long-term value strategy.

Fulfilling this role will require a CFO with the credibility and influence to challenge the CEO and executive team. However, the research suggests that not all finance leaders are willing to voice their opinion all of the time. Less than one–third of respondents (32%) “always” speak up when they have a differing opinion from the consensus, and only 30% of respondents “always” strongly challenge members of the executive team when they disagree on a key issue.

Balancing risk with innovation and bold transformation

Overall, 72% of respondents say traditional back-office behaviors and mindsets are slowing the modernization of the finance function.

Macczak says: “In Romania the investment climate continues to be influenced by inflationary pressures and the macroeconomic outlook, placing the focus on the finance leaders to promote innovation inside their companies while preserving risk-management practices. This will assist CFOs in positioning finance as a strategic engine for long-term development”

As CFOs look to build digitized finance functions to drive sustainable, long-term growth, their top priorities are transforming finance technology and advanced data analytics. These two areas topped the list of CFO transformation priorities, with technology transformation in top place (selected by 37%) and advanced data analytics selected by 27%, alongside sustainability capability. This emphasizes the importance of data analytics in helping to shape the future of finance as a strategic business partner. However, while “talent” should also be a priority in helping to deliver a successful transformation, it is only cited by 19% of respondents.

Balancing the evolving role of the CFO with traditional skill sets

Many finance leaders view the CFO role as a steppingstone to the CEO position. Providing the strategic grounding and valuable experiences required to prepare for the rigors of the role.Eighty-four percent of respondents recognize the CFO role as highly challenging but also state that there has never been a more exciting time to be a CFO – up from 76% of respondents in the EY 2023 Global DNA of the CFO Survey. This trend underscores the significance of the CFO position in career ambitions and emphasizes the importance of preparing finance leaders for future leadership opportunities.

The evolving expectations for CFOs include expanding their knowledge in new domains, with two-thirds of finance leader respondents (66%) recognizing the willingness of companies to appoint CFOs with limited finance experience. This highlights a move toward valuing strategic and inspirational leadership over solely domain expertise, signaling a shift from the traditional perception of the CFO role.

To be a successful CFO, the research highlights the significance of emotional intelligence for future CFOs. According to the findings, the top skill or attribute expected of successful CFOs in the next five years is highly developed emotional intelligence and experience in people-issues like diversity and wellbeing. As CFOs assess potential talents in their teams, they should prioritize individuals who demonstrate emotional intelligence and the ability to connect with others effectively.