In today’s fast-evolving business environment, chief financial officers (CFOs) face myriad challenges such as driving long-term value, finding short-term cost efficiencies, and reinventing the finance function while grappling with complex and conflicting expectations from stakeholders.
According to the 2023 Global EY DNA of the CFO report, CFOs and finance leaders have the potential to unlock more value if they can adeptly address three fundamental paradoxes within the CFO role: balancing near- and long-term investment priorities, balancing risk with innovation and transformation, and balancing the evolving CFO role with traditional skill sets.
This article examines these issues using insights from 110 respondents in Southeast Asia, including finance leaders from the Philippines, Indonesia, Malaysia, Singapore, Thailand, and Vietnam.
NEAR- AND LONG-TERM INVESTMENT PRIORITIES
Some 84% of the Asean finance leaders surveyed say that the current market environment is putting increasing pressure on finance leaders to drive cost efficiencies and hit short-term earnings targets. This results in finance leaders having to pause or cut spending so that they can meet short-term earnings targets in areas that are also priorities for long-term value.
The Asean respondents in the study rate the top three investment priorities driving long-term value as: technology and digital innovation (57%), ESG programs (50%), and customer experience and product and service offerings (47%). At the same time, more than 30% say they are pausing or cutting spend in these areas to meet short-term earnings targets.
While balancing long-term with short-term priorities is a collective effort, 65% say that there are disagreements and tensions within their leadership team on how to balance these priorities. A CFO with the influence and credibility to challenge the CEO and executive team will likely be needed to build consensus, but finance leaders are not always prepared to do so. Only 38% of the respondents say they always speak up when they have a differing opinion from the consensus when the executive team is deciding how to balance short- and long-term priorities.
For CFOs to effectively influence the executive team’s decision-making, the top two attributes identified are: using data-driven insights to inform decisions and trusted relationships with the board or key investors.
BALANCING RISK WITH INNOVATION AND TRANSFORMATION
Asean CFOs are building digitized finance functions to drive long-term and sustainable growth. They identified the following top three priorities to transform their finance function over the next three years: technology transformation (such as transforming IT architecture, building cybersecurity resilience, and modernizing core finance technology), sustainability (such as building skills and capability in ESG data controls and assurance), and advanced data analytics (such as unlocking the value of financial and non-financial data to transform decision-making). However, only 17% of respondents say they deliver “best-in-class” performance when it comes to assessing how their finance function today performs against these priorities.
Even though there is significant room for improvement, only 14% of respondents are making holistic and bold changes to transform their finance function. This could indicate potential tension in the CFO’s mindset: a conflict between a risk-averse nature versus the need to embrace greater risks associated with an ambitious vision for a leading finance function.
BALANCING THE CFO ROLE WITH TRADITIONAL SKILLS
The survey also reveals a difference in the long-term career goals of respondents: 42% say the CFO role is their long-term goal, while 48% aspire to an even greater CEO role, whether in their current organization or in another. This aspiration to be CEO raises two key considerations: the need for finance leaders to elevate their skills, and the importance of developing the next generation to fill the CFO role when incumbents move to a CEO position.
The respondents identified two key challenges in achieving their priorities: finding time to build knowledge and expertise through exposure to external expertise and thought leadership access, and managing a wide range of operational responsibilities, including IT and HR. These challenges can be interconnected — as CFOs expand their operational responsibilities, they need to expand their knowledge beyond finance by acquiring skills in fields such as HR and marketing. However, their busy schedules may hinder their ability to invest in building this knowledge.
The evolving expectations for CFOs to expand their knowledge in other domains highlight a shift from domain expertise toward inspirational and strategic leadership skills, going beyond traditional finance skill sets. The study also highlights the importance of highly developed emotional intelligence and experience in people issues like diversity and well-being, which was chosen as the most critical attribute for the successful CFOs of tomorrow.
At the same time, incumbent CFOs must prioritize developing the next generation of leaders. Asean finance leaders feel that they perform well here, especially when it comes to mentoring — as much as 64% say they are investing enough time in mentoring aspiring senior finance leaders.
REFRAMING THE CFO ROLE FOR THE FUTURE
As CFOs confront the abovementioned issues, they should consider the following:
Create value for the whole organization. CFOs must articulate a comprehensive strategy that maximizes long-term value while being supported by short- and medium-term objectives. They must also provide data-driven insights to support the organization’s strategic objectives and build relationships with C-suite colleagues and senior leaders.
Drive the performance of the finance function. CFOs need to drive cultural change across the finance team to elevate the performance of the finance function. This can mean embracing new mindsets and incorporating cultural goals into leadership and incentives. Also, they can consider revising hiring, development, and upskilling approaches to future-proof finance skills. This may require assessing the current workforce to identify gaps and surpluses and implementing an appropriate workforce strategy.
Achieve career ambitions while developing future CFOs. CFOs should focus on achieving their career aspirations while also nurturing the CFOs of tomorrow. External stakeholder engagement is imperative for gaining invaluable insights into market challenges, as is collaboration with the Chief Human Resources Officer for robust succession planning and training of potential candidates.
By taking these areas into consideration, CFOs can help lead their organizations and deliver better performance, positioning themselves for success in the future.
This article is for general information only and is not a substitute for professional advice where the facts and circumstances warrant. The views and opinions expressed above are those of the author and do not necessarily represent the views of SGV & Co.
Aris C. Malantic is the Financial Accounting Advisory Services (FAAS) leader of SGV & Co.