CFO Priorities and the Post-Pandemic Recovery

Although global markets are likely months away from a full re-opening to something remotely close to pre-pandemic levels, several issues are already on the radar of CFOs as they monitor some of the risks and opportunities projected to appear on the horizon.

Economic Recovery

As Nina Trentmann reported in the Wall Street Journal in January 2021, there is some optimism that as government regulation are lifted and businesses regain traction, revenues will show substantial gains:

• Finance chiefs expect their companies’ revenue to rise by an average of 6.9% in 2021, up from a 0.3% increase forecast for 2020, according to a recent survey by Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta. 

ResearchandMarkets points out that “Recovery will be the keyword going into 2021, in the light of continued easing up of restrictions, vaccine administration, and demand-side revival. Global growth is expected to accelerate to 5.3% in 2021. The pace of recovery is expected to be much stronger for the group of emerging markets and developed economies, especially supported by high growth rates for China and India.” The firm goes on to project that “the global economy is most likely, for example, to see a U-curve recovery into 2021. If, however, downside risks materialize, there remains the chance of a double-dip recession or a W-curve recovery process.”

All of this said, CFOs will be instrumental in “monitoring potential setbacks to the economic recovery, especially in industries hit hard by the pandemic, such as travel, hospitality, and bricks-and-mortar retail,” as Trentmann concludes.

Corporate Taxes and Regulation

A recent article by Harvard’s David M. Cutler and Lawrence H. Summers projects that the cost of the pandemic to the United States alone will top $16 trillion, making it “the greatest threat to prosperity and wellbeing…since the Great Depression.” Their conclusion is clear: 

• Output losses of this magnitude are immense. The lost output in the Great Recession was only one-quarter as large. The economic loss is more than twice the total monetary outlay for all the wars the US has fought since 9/11, including those in Afghanistan, Iraq, and Syria. By another metric, this cost is roughly the estimate of damages (such as from decreased agricultural productivity and more frequent severe weather events) from 50 years of climate change.

CFOs will face the daunting task of keeping track of potential changes in taxation locally, nationally, and internationally in the case of global companies.

Similarly, regulatory changes in such key finance areas as accounting and audit are always a focal point for CFOs, and the early-stage recovery era will not change that fact. As Trentmann notes: “New leadership at the SEC could influence the agenda at the Public Company Accounting Oversight Board to include elements such as mandatory audit-firm rotation or stricter rules for auditors.” Key to these changes could be the decision to phase out the London interbank offered rate (LIBOR) by a December 31, 2021 deadline.

Expenditures

Both cash and capital expenditures will be fascinating to monitor as the recovery unfolds. Numerous studies have shown that many companies increased their liquidity in the early months of the pandemic, which will give CFOs some flexibility when it comes to reallocating those funds to reduce debt, boost pension plans, or initiate capital investments to adjust to consumer and market drives as moving to new normal picks up pace in 2021. As I have noted in an earlier blog, forecasting capital spending plans has never been a straightforward task. Still, it is undoubtedly going to become more complicated in the coming months and years.

For those companies with substantial cash reserves, the opportunity might exist for aggressive moves via mergers or acquisitions. For private companies riding on the crest of high valuations, the mercurial rise to prominence of special-purpose acquisition companies (SPACs) could prove tempting as an alternative to a traditional initial public offering. In all these cases, the guidance of an experienced, fire-tested CFO will be of critical importance.

Remote and Hybrid Work Forces

With over 40 percent of American employees working from home at the height of the pandemic, remote work is likely part of the new future of business. “Companies are going to see that some, maybe many, of the jobs they’ve always thought had to be done onsite could be done just about anywhere and could be done just as well,” explains Mark McGraw of The Institute for Corporate Productivity. 

This predicted shift to more remote or hybrid opportunities does not come without challenges, of course. As Elisabeth Joyce from research firm Gartner notes: business leaders “are evaluating more permanent remote working arrangements as a way to meet employee expectations and to build more resilient business operations.” At the same time, they face questions about “how to manage a more complex, hybrid workforce. While remote work isn’t new,” Joyce says, “the degree of remote work moving forward will change how people work together to get their job done.”

Accordingly, many CFOs will be re-assessing their use of traditional office space while assessing the risks and benefits of relocating or downsizing while providing essential strategic support in analyzing organizational productivity, technology investment, and human resource implications of a dispersed workforce.

ESG Reporting and Disclosures

It seems I cannot go a blog without mentioning environmental, social, and governance (ESG) issues as key concerns in 2021 and beyond. But as investor, bank, and government pressure on traditional oil-and-gas companies has shown, the input of finance executives on such issues as carbon emissions, workforce diversity and inclusion, and social as well as sustainability metrics will become increasingly mission-critical in moving forward.

Conclusion

As businesses worldwide slowly begin to look to a future that includes a lessening impact of COVID-19, the reality is settling in: business will never return to the normal we knew before 2020. This fact alone makes having a seasoned, experienced CFO in place all that much more important than ever in moving forward. A fractional CFO can bring the right balance of wisdom, applied knowledge, and strategic thinking to any company looking to mitigate risks and take full advantage of the opportunities that the post-pandemic world has to offer.