The CFO'S Perspective

Have you ever had a conversation that went something like this?

CEO: “So, do you have an update on our insurance?”

CFO: “Well, I have good news and bad news.”

CEO: “Bad news first, please. Always.”

CFO: “I took a look at The Company’s coverages and talked with our broker. The bad news is that our insurance bill is going up, way up.”

CEO (interrupting): “By how much? We’re kind of tight right now.”

CFO: “The premium increase will be almost 40% over last year. We might want to shop it. But the good news is…”

CEO (interrupting again): “Let me guess - another invitation from the insurance broker to a charity golf event in the month of November?”

CFO: “Actually the good news is that this year we have identified some significant gaps in our coverage. We have the opportunity to close those gaps now to better protect The Company in the future from significant financial risk.”

CEO (looking unconvinced): “Oh?”

CFO: “With our new advisory board of directors, we will need D&O insurance. Also, the broker has been recommending cyber insurance for the last several years, but The Company continues to put off purchasing any kind of coverage in this area. I strongly recommend that we should cover ourselves in this area.”

Regardless of what precipitates a recession, economic ebbs and flows are to be expected over time. Recessions can be caused by a period of contraction that inevitably comes after economic expansion or a sudden and unexpected economic shock.

While the coronavirus recession is fresh on our minds, it is not the first nor will it be the last recession that today’s businesses face. Knowing how to weather a recession is an essential management skill regardless of how long it lasts. However, facing a prolonged recession poses unique challenges that can test even the most adept leaders.

Our team of experienced CFOs shares their top tips on getting through a recession and coming out stronger on the other side:

A recession or downturn in the market is one of the most demanding scenarios for senior leadership to weather because there are so many possible responses to consider. Each decision leadership makes during this critical time can have a significant effect on the company’s ability to come out on the other side at all, let alone seize available opportunities to grow in the process. So, how can you strategically invest in your business during a downturn to increase the likelihood that it will be able to emerge stronger?

It is critical to act swiftly instead of ignoring the warning signs that a downturn is coming, worsening, or may last longer than anticipated. However, that does not mean giving into kneejerk reactions. A Harvard Business Review article summarizes it best by saying,

“Inaction is the riskiest response to the uncertainties of an economic crisis. But rash or scattershot action can be nearly as damaging. Rising anxiety (how much worse are things likely to get? how long is this going to last?) and the growing pressure to do something often produces a variety of uncoordinated moves that target the wrong problem or overshoot the right one.”

Have honest conversations with your leadership team to solicit feedback on how to proceed while leaning on the data. Focus on efforts on strategically managing expenses, acquiring assets to achieve your goals, prioritizing customer relationships, and developing new markets while focusing on your core competencies.

For those not familiar with the term, a decision tree is a flow chart that works through all possible response options in a scenario to analyze resulting outcomes. Basically, it is a visual version of an “if this then that” statement across all possible alternatives.

The “branches” off each decision alternative that result use data analysis to forecast the most likely outcome of each decision. When one decision leads to another decision that must be made, that branch splits to continue extrapolating the effects of each subsequent decision. The result is a tree-like diagram (hence the name) that is easy to understand and interpret.

Decision trees can be more conceptual in nature or have numbers to back up decision scenarios, as is the case of pricing changes affecting revenue figures. For decision trees with complicated calculations, a software program can assign values and probabilities to streamline decision-making. A decision tree is a critical part of strategic planning because it allows decisionmakers to analyze the effects of a significant change throughout different areas of the business.

The current economic climate, combined with the fact that September is National Preparedness Month, has many of us thinking about how we can prepare for possible threats and business disruptions. This kind of strategic planning allows a business to approach a worst-case scenario with a growth mindset instead of fear – increasing the likelihood that your business will come out of a crisis stronger for having gone through it.

During a worst-case scenario, leadership must decide whether the organization will make the necessary adjustments needed to continue with business as usual or change how the company will operate. And while the conversation will undoubtedly include operational and capacity considerations, it is primarily a discussion about financial capabilities.

We are now seven months into the Covid-19 pandemic, and it is clear we are far from returning to “normal”; however, that may be defined. What is clear is the pandemic pushed the concept of work-from-home (WFH) from being a motivational tool and employee benefit to a way of life. Work-from-home will undoubtedly remain an essential part of company operations well after the pandemic is under control. REI, Zillow, Twitter, Square, and other companies announced a plan to work remotely indefinitely.

Moving to a remote work environment in March with little or no notice was extraordinarily disruptive and often haphazard at best. We did what we needed to operate in the so-called “new normal.” By now, most of us have settled into a regular work cadence and adapted to working apart from the rest of our teams.

According to the U.S. Census Bureau, nearly one-third of the U.S. workforce and half of all “information workers” can work from home. Though the number of people working partially or fully remote has been on the rise for years now, the COVID-19 pandemic may have pressed the fast-forward button on this trend.

With millions of people taking part in this work-from-home experiment, now is the perfect time for companies to take a fresh look at their internal control environments, especially as they relate to their WFH team members. What once worked with everyone in the same place may not be effective with a distributed workforce.

A critical self-examination of your company’s internal control environment begins with an assessment of the segregation of duties.

One of your most important tasks as a business leader and manager is mitigating risk. Understanding what kind of risk exists, planning for the impact of this risk, and executing continuity plans to keep the organization operational during a disruption is of paramount importance. The earlier risk can be identified, assessed, managed, and integrated into strategic planning, the better.

Typically, this burden falls on the C-Suite, but leaders at all levels should be included in the planning stage to ensure buy-in across the company. According to CFO Magazine, CFOs have seen risk management fall under their umbrella more over the last decade. They explain,

“The CFO’s role has expanded in recent years, perhaps most notably in the area of risk management. Finance chiefs frequently took charge of assessing and guarding against risk during the financial crisis, and as the economy has slowly recovered, few have relinquished the task. More than half of the finance executives responding to CFO’s latest Deep Dive Survey say their responsibility for risk management has increased.”

Not much has changed in the years since, with CFOs taking more ownership of risk than ever before, whether they want to spearhead this role or not.

While it is easy to task an individual with overseeing risk management, ideally, it should not roll up to a single person. An emphasis on risk mitigation should be ingrained across the organization with alignment and compliance at every level. CFOs leading the charge can get their organizations on board to share the responsibility by taking a four-step approach to business continuity planning.

Your most Important Tip: If you receive an email asking you to wire money or send gift cards, assume it is a fraud – every time. CALL the sender to confirm, at a number you know is correct.

We are seeing, and hearing about, an increasing number of online scams and other negative internet-based activity related to COVID-19 and the mass exodus from company offices to home offices.  

As thousands of information workers recreate office processes and routines to work in an online-only world, the scammers, spammers, information manipulators, and meeting hijackers have been busy as well.