Deloitte: CFOs’ views on global economic conditions have dimmed

Not surprisingly, foremost on CFOs’ minds right now are talent and retention, inflation, supply-chain shortages, changes in government policies and COVID-19 variants, a new report finds. There’s also a new issue keeping them up at night: concern for leadership’s own capacity to take on yet more challenges, according to Deloitte’s Q4 CFO Signals survey.

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Talent/labor, financial performance and growth are CFOs’ top three priorities for 2022, with talent/labor outpacing “growth” nearly two to one in terms of the frequency cited, the survey found. Financial performance fell in the middle. Other priorities include strategy setting, cost management, capital allocation and IT infrastructure.

With a majority of CFOs anticipating input costs to increase—and some substantially—in 2022, it makes sense that cost management is a priority, said Steve Gallucci, U.S. and global national managing partner of the CFO Program at Deloitte.

The survey assessed North America’s top financial executives’ economic outlook, including their views on the economy and markets, financial prospects and growth for their own companies, and forward-looking strategy. In order for CFOs to guide their companies to success in 2022, they will have to prioritize investments in talent and labor–a top concern exacerbated by the Great Resignation.

“CFOs’ clear uniformity on talent/labor, financial performance and growth as their top three priorities for 2022—and strategy-setting as a fourth priority—are interesting because these issues are often associated with the CEO’s domain,” Gallucci said. “It will be interesting to see what CFOs do in the year ahead to support their companies in these areas.”   

Meanwhile, CFOs hold dimmer views of current economic conditions in North America, Europe, Asia and specifically China, according to the report.

Looking a year ahead, CFOs lowered their assessments of all the regional economies tracked by CFO Signals, compared with Q3, although by different degrees, the report said. For example, respondents’ assessments of North America’s economy 12 months out declined by nine percentage points, for Europe by eight percentage points—and for China by 27 percentage points.

The survey was conducted prior to news of the Omicron variant outbreaks, Deloitte said.

Internal and external risks for CFOs

In terms of internal risks, CFOs are especially concerned about hiring, retention, attrition, burnout, employee well-being and development, the report said.

“Related to talent were wage inflation and return-to-work challenges, including the hybrid work model,” the report stated. “CFOs also expressed concern over strategy execution, technology and the pace of digitalization and innovation, cost containment and management capacity, among other issues.”

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CFOs ranked inflation, including wage inflation, and supply chain issues as their top external concerns, with half of the respondents citing inflation and almost one-third mentioning supply chain, the report said.

Policies and regulation was the next highest category, including changes in fiscal policies and government reform measures. Geopolitical worries, COVID-19 (with an emphasis on new variants and vaccine mandates) and cybersecurity risks followed.

CFOs’ expectations for their companies in 2022

Ninety-two percent of respondent CFOs indicated their organizations will have more automation and technologies embedded in operations, and 34% expect to increase outsourcing of operations, the survey found.

Further, 41% of CFOs expect their organizations to have a smaller real estate footprint, while 88% said their organizations will use a hybrid work model consisting of on-site and work from home in 2022.

 More than half (52%) of CFOs said their organizations will require employees to be vaccinated against COVID-19 to work on-site, with an exception for medical or religious reasons, and 57% said they will require frequent COVID-19 testing of employees who are not vaccinated.

Looking ahead, expect to see:

Substantial investments in talent and labor: Some 97% of CFOs expect their investments in talent and labor to substantially increase in 2022. CFOs also raised their year-over-year expectations for capital spending, domestic wages and salaries, and domestic hiring from the last quarter.

Steadily decreasing economic expectations: Nearly three quarters (72%) of CFOs rated the current North American economy as good, down slightly from 78% in 3Q21. Just under half of CFOs (45%) view North America’s economy as better in a year, compared with 54% in 3Q21.

Increasing federal interest rate: Three-quarters of CFOs expect the target interest rate for U.S. federal funds to be increased in 2022 and to range between .26% and .5% or .51% and 1%. Nearly half (46%) of finance executives expect the rate increase to occur in the second quarter, while 23% of CFOs each expect the increase to take place in either the first or third quarter.

Implications of global tax agreement: Almost all (96%) of respondents said that the global tax agreement would have no impact on their current offshoring arrangements, nor would they make changes as a result of this agreement. 

CFOs’ relationship with the C-suite

The survey found that CFOs ranked their relationships with their CEOs as most important to their personal success. A quarter of CFOs indicated that they would like to improve their relationships with business unit leaders the most.

Chief information/technology officer ranked fourth on CFOs’ top five list of the C-suite relationships that are most important to their personal success, placing them above board directors, including the audit committee. Gallucci called this “surprising and, frankly, encouraging.”

In terms of technologies, 92% of CFOs indicated their companies would embed more automation in their operations in 2022. And IT infrastructure was cited by more than one-quarter of respondents as a top priority for 2022, most likely due to organizations’ increased reliance on IT and the rise of digitalization, the report said.

Gallucci said the findings indicate that CFOs are approaching the new year with a lot of challenges, “but they appear laser-focused on moving their organizations forward—through talent recruiting and retention strategies, capital allocation, pricing, automation and technologies and cost management in light of expectations for higher input costs.”

He added, “I expect CFOs will be taking lessons learned from the past two years, whether they’re dealing with talent/labor retention, supply chain disruptions or increased costs, as we face new variants of COVID-19 and try to understand their potential implications.”

All respondents to the Deloitte Q4 Signals survey are CFOs from the U.S., Canada and Mexico, and the vast majority are from public and private companies, predominantly with more than $1 billion in annual revenue, the company said. Participation was open to all industries except for public sector entities.

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