2020 has been a taxing year for Finance leaders. Managing their companies’ response to the pandemic, working to keep a healthy balance sheet, and acting as the CEOs right hand has no doubt left some finance leaders exhausted, and even overworked. All the signs are that 2021 is not likely to be much easier.
CFOs’ roles are expected to expand considerably. Many have taken on new tasks in 2020, and most expect these new obligations to carry over into the coming years. At Norman Broadbent Group, our CFO Practice partners with finance leaders every day, and we are seeing six important trends to watch out for during 2021.
The many stressors of 2020 have included the pandemic, US election, Brexit, economy, social unrest, and divisiveness, and all are now weighing heavily on an employees’ well-being. Many found themselves in a quandary as work and school went virtual, having to manage a new working environment while juggling childcare, home schooling and other family demands.
After nine months of dealing with pandemic-related stress, employees continue to struggle with anxiety and burnout, and many say they are not getting what they need from their employers, which is affecting productivity and morale. Many employees also feel forced to sacrifice their personal safety to stay employed.
CFOs recognise the gravity of the current business environment and its impact on the workforce. In fact, they are more concerned about their employees than they are about consumer issues. As a result many are taking steps to help their people in the absence of further government stimulus, including increasing support for mental health, providing childcare and offering new benefits to employees, such as reduced hours, caregiver support and temporary leaves of absence.
CFOs can work with CHROs to better understand the urgency and employee sentiment driving the need for additional employee support, as well as how their companies are designing broader benefit options for their employees.
- DIGITAL TRANSFORMATION
Customer needs and expectations changed dramatically because of the pandemic, and digital investments will remain critical to company revenue strategies designed to keep up with those changing customer needs. The shift to remote work for many people made it difficult to innovate and collaborate, underscoring the importance of new collaboration tools and workforce models.
Despite a tough year for many, companies are accelerating their approach to artificial intelligence (AI). Yet a painful fact persists: AI is hard. Too many AI investments end up as “pretty shiny objects” that do not pay off. Most companies have yet to adapt talent strategies, organisational structures, business strategies, development methodologies and risk mitigation for a world that moves at AI speed. So there’s work to be done, but the reward can be enormous: concrete benefits today and the foundation for success tomorrow.
Investing in transformation will likely continue to be a top priority for CFOs in 2021, for both top-line growth and operating efficiencies. There will be further investment on data analytics, automation, cloud, and customer transformation. How will this tech spending drive growth? With agile sprints, shorter efforts that demonstrate value along the way, that can be done in a quarter instead of in 12 months. The goal: to better serve customers, have leaner operations, more easily pivot to stay essential and be more resilient and for whatever may come in 2021.
- ENVIRONMENTAL, SOCIAL AND GOVERNANCE REPORTING (“ESG”)
In recent years, sustainability reporting has certainly developed and matured. Today, sustainability disclosure is an integral part of the best practices of any company which wants to develop and demonstrate its green or community-oriented credentials. Even despite the devastation from and uncertainty surrounding the pandemic, companies recognised the importance of environmental, social and governance (ESG) issues throughout. Creating value for a broad group of stakeholders, including investors, employees, customers, and suppliers, while continuing to manage broader societal obligations is now more important than ever for companies.
For many, the term “ESG” brings the spotlight to environmental issues like climate change and resource scarcity. These form an element of ESG, of course, and an important one, but the term means much more than that. It covers social issues like a company’s labour practices, talent management, product safety and data security. It covers governance matters like board diversity, executive pay and business ethics. But as we discovered in the past, there is often a divide amongst stakeholders on how to manage and communicate it and what the term even means.
COVID-19 has accelerated the ESG agenda
The pandemic has demonstrated our agilities in the face of extreme change and driven focus on the integrity economy. As businesses are forced to transform, it is an opportunity to embed ESG into your business purpose and strategy.
This connection between business and society will likely continue to grow in 2021, and companies should be ready. Employees — new recruits and long-tenured alike — are looking for companies that value purpose, and consumers want to believe in brands. Leading with purpose can distinguish one company from another, helping with recruitment and retention and attracting customers and building loyalty. Key to all of this is transparency. ESG is fast becoming a key part of business strategy, so companies will want to tell that story: how ESG trends are impacting strategy and operations, and what their processes are to manage ESG risks. ESG and human capital management disclosures can help improve transparency with investors and all stakeholders, but CFOs should expect more pressure for disclosures to show companies’ progress around their ESG efforts and for more standardisation.
- GREEN FINANCE
Green finance is blossoming. Globally, the green bond market could be worth as much as $2.36 trillion by 2023. It is regarded as a way of meeting the needs of environmentalism and capitalism simultaneously. At its simplest, green finance is any structured financial activity, a product or service, that’s been created to ensure a better environmental outcome. It includes an array of loans, debt mechanisms and investments that are used to encourage the development of green projects or minimize the impact on the climate of more regular projects, or of course a combination of both.
Funding sustainable development
For the United Nations, green financing plays an important role in delivering several of its Sustainable Development Goals. Its Environment team is already working with public and private sector organizations in an attempt to align international financial systems to the sustainable development agenda.
Some of the activities UN Environment is involved in include helping countries re-engineer their regulatory frameworks, so that green borrowing becomes compliant, and helping steer public sector planning in a more environmentally friendly direction.
Clean sources of energy can be brought to fruition through the right combination of planning consent, strategic priorities, and availability of capital. Such projects could be given preferential treatment to make them a more attractive option than, for example, fossil-fuel derived energy infrastructure.
Typical projects that fall under the green finance umbrella include:
- Renewable energy and energy efficiency
- Pollution prevention and control
- Biodiversity conservation
- Circular economy initiatives
- Sustainable use of natural resources and land
As companies work to develop and build on the “why” behind their purpose, CFOs — as the CEO’s partner — will have to translate this purpose into investment priorities, financial outlooks, how this manifests throughout day-to-day business operations and how they’re perceived by stakeholders.
- DIVERSITY AND INCLUSION
The social tension and unrest that were just some of the defining elements of 2020 have perhaps helped spark many company leaders to do more to better support their employees and communities. In recent months, businesses have certainly ramped up their diversity and inclusion initiatives. Their employees are not the only ones to benefit; companies are seeing the advantages of embracing the different ages, ethnicities, genders, and education levels of their employees to create an inclusive, creative and collaborative workplace.
Where previously the topic of diversity and inclusion was largely relegated to HR, now organisations have begun to understand the strategic business value of diversity and inclusion programs, and the CFO has taken a more active role. While CFOs will continue to be involved in hiring and retention decisions from a benefits standpoint, increasingly they also need to understand the value of company culture to a workforce and strive to quantify that value through programs and trainings that help their company succeed.
A culture of inclusion is an environment in which all employees feel comfortable to share their ideas, perspective, and knowledge, facilitating ingenuity and collaboration. Many organizations recognise this and are embracing strategies to actively promote an environment of diversity and inclusion, which includes:
- Recruiting and retaining diverse talent;
- Maintaining relationships with diverse suppliers;
- Offering training and mentorship to meet the diverse needs of employees.
As the workforce becomes less homogenous, companies are implementing diversity councils to create an atmosphere that yields ideas and offerings that are in sync with a changing market. Best practices include providing diversity and inclusion education and awareness, and executive management training on the value of diversity and inclusion in the workforce.
Many business leaders, including CFOs, are planning to help bridge the divide we have experienced globally this year, from the election in the US to civil disobedience in the UK and Europe. Around half of CFOs say they are increasing diversity and inclusion training for employees and creating new opportunities for them to have conversations about difficult social issues. Such efforts are beneficial to companies and to society broadly: Tolerance and unity will help improve productivity and innovation while also helping build trust and transparency with employees and other stakeholders alike.
- RETURN TO GROWTH
Seven months after COVID-19 shut down the global economy, CFOs’ outlook on revenue and growth turned cautiously optimistic. After a dismal view in March, with no CFOs expecting any increase in revenue at all, things started to pick up as companies got a better handle on the pandemic and its impact on their business. The decisions many CFOs made to unlock new revenue streams in the early months of the pandemic helped their companies survive, and by October, many CFOs were confident enough to say they expected an increase in revenue in the next 12 months. These hints of a return to growth were also evident in the decline in CFOs who saw a decrease in profit.
None of us has ever seen such a complicated and intertwined set of factors driving a public health emergency of this magnitude, let alone the resulting converging crises.
How can you make better business decisions in such a challenging environment? Become more ready and resilient in the way you respond and strategize. Scenario planning and modelling are not “nice-to-haves.” They are an essential part of running a complex business, especially when dealing with high levels of uncertainty. It is possible to build muscle for times like this, and there are steps you can take now.
CFOs can focus all these issues to help prepare their people and themselves for the future. Finance leaders need to be able to understand what is key to help bring success to the finance function and ultimately the company’s success.
CFOs will continue to focus on rebuilding revenue, customer strategies and scenario planning as they look to emerge stronger in the new year. They will keep making changes to products and services, pricing strategies and customer segments to increase revenue — and about half of CFOs see returns coming in early 2021. They will also invest in data analytics and automation to help spur growth in the next year, as well as growing their involvement in ESG and D&I efforts across their businesses, as they shepherd them towards a successful 2021.
Marcus Blackburn is a Director with the CFO Practice at Norman Broadbent Group, a market leader in Talent Acquisition & Advisory services. If you’d like to understand more about us, or discuss how we may be able to help you overcome your people or organisational challenges, please do not hesitate to contact me for an initial confidential discussion via Marcus.Blackburn@normanbroadbent.comContinue Reading