Dive Brief:

• CFOs grappling with economic headwinds are stuck between prioritizing short-term costs and long-term gains, a survey released Wednesday by Big Four accounting firm Ernst & Young found. Seventy-six percent of CFOs say the macro environment is putting pressure on them to hit short-term earnings targets, with 50% saying they are achieving this by reducing funding for areas they view as long-term priorities — areas which include ESG, technology, and talent and culture.
• Balancing short-term and long-term performance is also leading to some strain within the C-suite, with 67% of financial leaders acknowledging there are “tensions and disagreements” within the leadership team on how to do so.
• This is “translating into a lack of clarity in what gets reported, which then gives investors concerns, which (in turn) puts more pressure” on CFOs and the leadership team, said Myles Corson, global strategy and markets leader, financial accounting advisory services for EY.  

Dive Insight:

While the relationship between the CFO, CEO and the board has always been strong, Corson said in an interview, tensions may be growing between finance chiefs and other key members of the leadership team such as chief human resources officers or chief marketing officers, he said.

There are a number of reasons for why this might be the case, Corson said, such as a difficulty in communicating the finance teams’ expectations to those with non-financial backgrounds. Another factor that could be contributing to this growing tension may be due to the changing nature of the CFO role, which has evolved into a position that helps to drive and define business strategy.  

“I think there's probably still a group that is on that sort of maturity curve, building up and really feeling the validity as a business partner to be able to contribute to some of those conversations,” Corson said of the evolving CFO role. That “maturity curve” could be why only about a third of CFOs reported they “always” speak up when they disagree with a consensus from the leadership team, the study found.  

Finance leaders, who also historically bear the burden of being perceived as the “no” person much of the time, Corson said, could also be butting heads with other members of the leadership team as they pull funding from long-term prioritization areas, crucially ESG and new technologies.  

While 43% of finance leaders said ESG was a priority for the next three years, 37% also plan to conduct cuts in this area within the next year to meet their short-term earnings targets, for example, EY found. When it comes to new technologies, another 43% highlighted tech and digital innovation as a long-term priority, with 34% aiming for cuts in the next year.

“I think there's a vicious cycle here and it comes back to investor expectations,” Corson said. Investors are willing to give leadership some leeway if they understand the business’ long-term strategy, he said, but “if you can't articulate that, and they don't understand the progress you're making, they will expect to see short term performance.”

Talent and culture is also emerging as an area where CFOs are looking to cut costs, despite the importance finance leaders put on this area when it comes to transforming their business. Fifty-five percent of CFOs willing to take bolder steps highlighted culture as key, yet only 20% of CFOs overall pointed to talent and culture as a long-term priority, with 34% looking to make cuts in the near-term. This is “not a recipe for long-term success,” Corson said.

The balancing act between short-term and long-term performance is one of three major paradoxes finance leaders face in today’s environment, EY said.

Finance chiefs are caught between their traditional finance responsibilities and their evolving role as a more strategic leader within the business, as well as between “safety and boldness” when it comes to the finance function. Navigating these paradoxes effectively is crucial for CFOs to be able to unlock value in the finance function: As it stands, only 16% of finance leaders believe their teams offer best-in-class performance, EY found.

“There is an opportunity, I think, for finance to be seen as more of a value creator and support more real time business decisions that help drive growth, and to do that you need to have collaboration across service lines,” Corson said.

Notably, while challenges abound, the level of satisfaction many financial leaders take in their role has actually increased. Eighty-four percent of CFOs say they recognize the role is “highly challenging,” but still agree that “there has never been a more exciting time to be a CFO,” a jump from the 76% who said the same thing last year, according to the survey.

The survey included responses from 1,000 global CFOs and senior finance leaders, according to EY.