3 ways CFOs can support CEOs to succeed in today’s demanding business environment

The EY CEO Outlook Pulse, a survey of 1,200 CEOs globally, highlights the key priorities of CEOs as they navigate today’s challenging economic headwinds, while setting their companies on a course for growth. But what should CFOs take away from this research? Here are my three key recommendations.

?1. Maximize the current and future benefits of artificial intelligence (AI)

It is clear from the research that CEOs have identified the huge business opportunities presented by AI. Rather than being swayed by the negative hype around AI, around two-thirds of respondents (65%) see it as a force for good, which can drive business efficiency and help to create positive outcomes for all, such as innovations in healthcare treatments. What’s more, 88% of respondents have either already made significant capital investments in AI-driven innovation or plan to do so in the next 12 months.

CFOs can support their CEOs by helping their companies to make better investment decisions in AI technologies aligned to their business strategy – whether that’s to drive efficiencies or to generate value. They should also measure the company’s return on investment. Additionally, CFOs should work with their CEOs to help successfully implement AI technologies in a human-centric way, which can help unlock the power of human creativity. When realized well, AI can give people back their time – time they can use to achieve important tasks, ask better questions and provide insights that inform more real-time decision-making.

?2. Keep sustainability initiatives at the forefront of their company’s capital allocation strategy

The world has embarked on a transition to a low-carbon economy, with far-reaching implications for businesses. Nevertheless, just 16% of CEOs surveyed said that sustainability initiatives were at the forefront of their company’s strategy, with substantial resources being dedicated to them.

CEOs are cautious about making large-scale investments in sustainability for several reasons. One is the fear of investor backlash – while investors say they want companies to invest in sustainability, companies aren’t convinced they mean what they say. Another is the pressure to hit short-term performance targets in an economic environment that is defined by high inflation and interest rates, but low economic growth. Additionally, there is some wavering around sustainability within the broader political environment as politicians wrestle with the challenge of how to transition without substantially increasing costs for consumers.?

So, where does this leave CFOs? Certainly, the 2023 Global EY DNA of the CFO Report suggests they face a dilemma. More than three-quarters of respondents (78%) said that “effectively balancing trade-offs between short-term and long-term priorities” was an important challenge for finance leaders.??

Yet, investing in long-term priorities doesn’t necessarily need to come at the expense of the short term. This is possible if CFOs help their businesses make incremental investments in sustainability as part of their normal business strategy. In fact, they can argue the case for these investments by citing evolving customer expectations and behaviors. Increasingly, customers are likely to vote with their feet and stop buying goods and services from companies that fail to demonstrate genuine progress on sustainability.

3.?Focus capital where it matters

The uncertainties of the current business environment are causing companies to be especially careful about how they are deploying their capital. The CEO Outlook Pulse found that maintaining a cash reserve for future opportunities or unexpected challenges was the top priority for CEOs (cited by 29% of respondents), followed by pursuing mergers and acquisitions (26% of respondents). ?

The advice of a CFO should be invaluable to any CEO who is trying to assess how their company’s capital should be allocated over the next 12 months. A CFO can provide clarity around where, when and how the business can generate the best return on investment. This is particularly important in light of rising financing costs.

When it comes to M&A, CFOs can be instrumental in helping their companies to reevaluate their portfolio and establish which acquisitions might add value and which existing businesses should be divested because they are no longer the right strategic fit. Here, CFOs have a great opportunity to apply their business acumen and financial analysis skills, while showcasing their understanding of the company’s overall purpose and strategy.?

The human advantage

If CFOs are to successfully influence their company’s investment strategy, and support their CEO to deliver the corporate objectives, they will likely require the backing of a great finance team. So, they should be proactive about recruiting and retaining the best talent. This can involve articulating a clear message about the culture of the organization and explaining how its people can help to build the company of the future. Additionally, CFOs should be highly digitally aware, with an understanding of how technology can be a strategic enabler of both the finance function and the business overall.????

Today’s fast-moving and unpredictable business environment is undoubtedly a challenging one for a CEO to navigate. Fortunately, there’s probably no one more skilled, or better equipped to support them, than their CFO.

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