The Quick Read
- 71% of Chief Financial Officers (CFOs) are focused on financial and economic uncertainty. In terms of risks, only the energy crisis and supply chain issues had more financial leaders (78%) rating it as very or extremely important to their business in the coming year.
- As a result, CFOs tell us that their focus has shifted to risk aversion and crisis management – but this must be balanced with long-term, sustainable growth.
- An understanding of how to mitigate cyber threats will be critical to the CFO's risk management skills over the next 12 months, including adopting appropriate technical and cultural measures.
- Finance leaders will also need to manage the likely need for increased working capital, anticipating the need for short-term cash flow, while driving growth during an economic downturn.
Finance leaders face an increasing list of potential threats to their business, from rising cyber security attacks to global instability, economic uncertainty and disruption to energy and supply chains.
For organisations to thrive, CFOs are tasked with finding a happy medium between stability and strategic risk-taking. Achieving that balance starts with identifying potential business risks and understanding how to mitigate them.
Striking this balance is increasingly likely to be part of the CFO’s remit, according to finance executives who took part in the American Express 2023 CFO Survey.
The CFOs in this survey - based in large corporations across France, Germany and the UK - said they are increasingly likely to have responsibilities outside of traditional accounting or numbers-based tasks, including forecasting, stress testing, scenario modelling and risk management. Three-quarters (71%) of CFOs are responsible for forecasting and planning, while 44% are responsible for stress testing and business continuity. Almost half (48%) of CFOs expect to do more modelling, forecasting and data planning in the next year.
In response to the threats that businesses are facing, CFOs are looking to build more robust risk management processes, with 91% of CFOs saying it is likely their business will need improved risk management in the next 12 months.
What’s the risk?
There is a clear decline in optimism around financial performance in 2023 compared to a year earlier, with 71% of CFOs predicting the risk of an economic downturn as high or very high. A recent survey of CFOs from Deloitte found that 61% of CFOs are less optimistic about their organisation’s financial outlook compared to a year ago [1].
What’s the reward?
Finance leaders who can help businesses to identify, mitigate and manage these risks are in a better position to support strategic risk-taking that drives growth and helps their business meet its long-term goals.
The Deep Dive
The CFO role is becoming more strategically focused, with 61% of CFOs in our survey anticipating that their involvement in strategy will increase over the next year. CFOs charged with risk management need to address potential risks to understand how their business would continue to operate in the event of a cyber-attack or financial downturn, for example.
This requires the CFO to work in closer collaboration with operations and IT departments to build robust business continuity management and enterprise risk management strategies, while also building cultural and technical capabilities within their organisation. CFOs can take a lead on how their business responds to critical risks that organisations face in 2023, including:
Financial Uncertainty
Our survey suggests that 71% of CFOs see the likely risk of financial uncertainty as high or very high.
Finance leaders will need to manage the likely need for increased working capital, anticipating the need for short-term cash flow, while driving growth during an economic downturn. More than seven in ten (73.7%) finance leaders say it is somewhat or very likely they will need additional capital to meet business needs in 2023, while a similar number (76.9%) say their business will need to invest in business growth this year.
In the event of a recession or economic slowdown, the CFO is likely responsible for managing risks around liquidity, credit and access to working capital. One strategy that CFOs are adopting is planning for access to new working capital and identifying new sources of finance outside existing banks and lenders.
Energy and Supply Chain uncertainty
The world is more interconnected today than ever before. Organisations often depend on global systems and are vulnerable to risks created by geopolitical issues and uncertainty around energy supplies. Even a small event in the supply chain creates a ripple effect that can lead to much bigger negative effects for businesses.
In our survey, 78.2% of CFOs say that energy and supply chain issues are likely to be very or extremely important to their organisation in the next year. It is impossible for any organisation to completely remove the risk associated with global events that are entirely outside their control. However, finance leaders can ensure that their organisation builds robust processes to identify and manage supply chain risks in an interconnected world.
Alongside these processes, finance leaders can encourage the business to diversify suppliers or increase on-hand inventory for certain products. Encouraging the organisation to build closer partnerships with supply chain partners can also help to reduce supply chain risk.
The rising threat of cyber-attacks
Alongside managing financial risks and the fallout from the energy crisis, CFOs are working with teams across their business to understand the risk posed by a rapidly rising number of types of cyber threats. Our survey found that 62.8% of CFOs say that increased cyber threats will be either a very of extremely important issue for their business in the year ahead.
There is no way to completely avoid the risk of cyber-attack, and the level of risk is always increasing. Globally, there has been a 715% increase in ransomware attacks since 2019, according to security firm Kaspersky [2]. Hackers using such attacks can damage organisations financially but may cause damage to reputations that is even harder to recover from.
Finance leaders must collaborate with other business departments to ensure that the organisation is actively monitoring and defending against new and emerging threats. The CFO should also ensure that the organisation is regularly reviewing risk profiles with internal and external agencies.
Our survey reveals that CFOs are facing a prolonged period of uncertainty, combined with spiralling business risk. Their challenge is to balance the need to deliver stability and cost savings while ensuring the business can invest and meet its long-term growth goals.
To find out more about how today’s CFOs are turning risk into opportunity, read the full American Express 2023 CFO Survey.
Sources:
[1] Deloitte, Europe’s CFOs react defensively to the effects of inflation, 2022
[2] Kaspersky, What threatens corporations in 2023: media blackmail, fake leaks and cloud attacks, 2023