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Monday, January 30, 2023

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It’s not just about truck drivers and nurses. There is a severe labor shortage for many companies right now. Chief Financial Officer.

According to executive-search firm Spencer Stuart, assignments for CFO appointments across Europe, the Middle East and Africa are up about a third this time last year. As inflation and high interest rates signal the end of easy money, companies are looking for more from their finance directors.

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“The Covid pandemic highlighted to many CEOs that their CFOs were technicians rather than leaders in a crisis,” said Chris Gantt, who leads Spencer Stewart’s chief financial officer practice in Europe.

Now that businesses are scrambling to upgrade, job turnover continues. Eoin Tonge left Marks & Spencer Group Plc to join Primark owner Associated British Foods Plc, and Julie Brown decided to leave Burberry Group Plc for GSK Plc. Asos Plc is looking for a new CFO, while Ahold Delhaize has an opening as Natalie Knight looks for a US opportunity.

However, according to Rebecca Moreland, co-head of the global chief financial officer practice at search firm Korn Ferry, there is a shortage of good finance directors. Given the average age of CFOs among companies in the UK’s FTSE-100 stock index, few have ever dealt with this level of inflation coupled with the prospect of a recession.

“The CFO is not just running the finance organization, he’s almost the deputy CEO, and in many contexts he’s often the chief transformation officer,” Moreland said. “It’s quite difficult, it takes time.”

No longer the underdogs, CFOs now occupy the hottest seat in the boardroom. During the pandemic, they had to raise billions of dollars to shut down operations and lay off thousands of workers. Budgets were cut and banks were asked to extend credit lines to keep businesses afloat. Now they need to tackle economic possibilities that were unimaginable before Covid-19.

Complete silence

Nestlé SA’s François-Xavier Roger said he disagreed with the reputation of CFOs as mere bean counters. His job is to “keep calm” and take a long-term view. An important part of the role is ensuring liquidity—and envisioning every possible outcome.

At the start of the pandemic, Nestlé did not need to raise money, but the finance chief secured credit lines anyway. “When we entered this crisis, we weren’t quite sure where the world was going,” he said. “As a CFO, you need to prepare for the worst-case scenario.”

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In the coming months, as businesses look for new funding, CFOs will increasingly have to prove themselves. Banks will be more demanding on loan terms. Credit is very expensive. Even companies that were lucky enough to raise money when prices were low will face the challenge of investing to grow their businesses.

Coca-Cola Europacific Partners Plc CFO, Nik Jhangiani, made a tough call in mid-2021. While the partners were confident that interest rates would fall further, he decided to settle 100% of Coca-Cola’s bottler debt in the European and Asian markets.

“I said at some point that you’re going to be in a rising rate environment,” the CFO said. “At the time, the cost of the loan was still so low and attractive, why was I trying to get it two or three more basis points, but putting myself at greater risk?”

Today, the decision seems prudent. With central banks still raising interest rates, any company unlucky enough to refinance faces a hefty interest bill in the coming months.

Sensodyne toothpaste maker Haleon Plc, which spun off from GSK in July, raised £9.2 billion ($11.3 billion) of debt in March 2022, with an average maturity of just over eight years. A fifth of the loans are interest-bearing, while the rest are fixed. Haleon’s next major refinancing will be in 2025.

Scenario planning

Haleon CFO Tobias Hestler, 50, said much of his work deals with scenario planning.

Hestler said he didn’t think anyone could have predicted the UK’s September mini-budget turmoil that sent borrowing costs higher, and that he now worries about Covid in China and global inflation. Preparing to cool down.

“We assume we’re peaking, and it’s going to come down in the second half of next year, but then how quickly it comes down requires some scenarios,” he said.

Hestler is looking for savings in areas such as advertising, and said the company is on track to reduce its debt to three times Ebitda by the end of 2024.

Spencer Stuart’s Gaunt said boards are now looking for finance directors who are better suited to crises. He found that his current CFOs were “easy top-line growth people, rather than the real challenge of leadership, the person coming from the top”.

Esben Christensen, managing director of change and restructuring at consultancy AlixPartners, said CFOs will play an important role as the focus shifts from the company’s profit and loss account to cash and liquidity. “When we’re restructuring, the person people really want to talk to is the CFO,” he said.

Changing roles

While the role of Guinness brewer Diageo Plc CFO Lavanya Chandrasekhar has changed significantly since she began her career, there is one key responsibility that remains – a firm grip on the company’s finances. “The part that can never go away is the controllership,” he said.

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The departure of the CFO can often occur when a company is facing a financial crisis. On January 13, gambling company 888 Holdings Plc announced that CFO Yariv Dafna would step down after just two years. Since 888 bought British bookmaker William Hill’s international assets for £2.2 billion in September 2021, 888 shares have fallen by around 80%.

“It’s not for the faint of heart,” said Moreland of Corn Ferry.

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