CFO Leadership in the Wak of COVID-19

How CFOs can write a new playbook for this unprecedented time and help their companies navigate the coming months.

This is truly an unprecedented time that we are living in. The effects of COVID-19 has touched every person in our society and every company in our economy. Businesses in every sector and of all sizes are feeling the impacts of this novel coronavirus on their workforce, output, and overall financial performance, and many will keep feeling the effects for quite some time. Companies, just like people, are not immune to this virus and are turning to their leadership team for guidance and safe passage through uncharted waters.

Turning to the CFO for leadership & agility

Naturally, company CEOs and Boards will take a pivotal role in addressing the macro situation, but never before has so much been asked of the office of the CFO.  This is a time where CFO agility is in high demand, and where CFO’s leadership through the “finance lens”  is critical to the way forward.

Dealing with “events” is not something CFOs are unaccustomed to – they pivot almost daily. But now, CFOs are finding themselves with no clear path to pivot or an older model to follow for guidance. Enterprise Risk Management (ERM) platforms are only designed for dealing with relatively isolated events like the loss of a key customer, salesperson, supplier, or production line, etc. However, COVID-19 is a macro and systemic event where there is no playbook to read from and no precedent to model multiple scenarios of interrelated variables and unknowns. Additionally, the situation is so fluid that when one model/scenario is done, it is time to tweak it again.


Going Back to Basics to Build a New Playbook

At this moment, every CFO is asking, “in the absence of a playbook, where should I even start?” I believe that in this time of uncertainty CFOs can write their own playbooks using fundamental Value-Based Management (VBM) principles. By adapting to the changing world around us, while being mindful of corporate stakeholders, CFOs can mitigate as much risk as possible. This is, however, only possible if a CFO embodies leadership and agility at every step.


7 Steps For Demonstrating CFO Leadership & Agility Through COVID-19

1. Leverage core competency

The core competency of the office of the CFO has always been understanding the value creation performance of the enterprise and the ability to ‘flex’ it as circumstances change or may change. This competency is being tested now more than ever before. Despite changing almost everything else, COVID-19 need not change this analytical framework. When everyone is asking “what does this mean for us”, CFOs are the only ones equipped with the tools to extract the answer. This journey may test and expose the real state of financial competency in the office of the CFO.  The value creation analytical framework is simple: it is a “clinical journey down the income statement and then crossing over to the balance sheet”.

  1. Start from the top of the income statement, which lines up as revenues minus variable costs, minus semi-fixed costs, minus permanent fixed costs, minus interest, minus taxes, minus debt payment, and minus dividends (if any) and possible changes in each of these items.
  2. Then cross over to the balance sheet and review cash, accounts receivable, inventory and accounts payable
  3. Then plan for critical and non-critical capital expenditure (CapEx) and then review access to capital markets for debt and equity.

At each point of this journey, investigate the impact of the analysis on the corresponding stakeholder, starting from the customer to the supplier to the employee and then government and capital providers. These are also core financial risk management practices that have served the office of the CFO very well, so why would we want to deviate from this logic now? In fact, the only adjustment resulting from COVID-19 would be paying much closer attention to the impacts of more severe decisions on core company vision, values, and people form the decision arising from this journey.

2. Stay true to company vision, mission and core values

Systematic events can sometimes lead to knee-jerk reactions and bowing to “end-of-the-world is here” thinking. If an organization has been prudent in managing its costs and leverage even when interest rates are historically low, there should be more than enough room to center decisions around core vision, mission, and values. It is important to note that any decision made now that will affect stakeholders (customers, employees and suppliers) be made within the context of what has made the enterprise successful in the first place. Companies that say ‘people are our greatest’ asset, or ‘customer is king/queen’ – well, now is the time to walk the walk. Companies engaging in massive layoffs when restructuring or adjustments can be made, or who are not being compassionate to their stakeholders (e.g. refusing delays in rent payments, not paying and not even communicating with their suppliers when there is a dire need for it, pro-actively deferring interest and debt payments) will not fare well in the years ahead if they are found to abandon their core values. Now is the time when CFOs must ensure the company ‘character’ is shown along with financial responsibility.

3. Communicate effectively & frequently

Right now, every company needs to demonstrate leadership and clarity of communication. This is first and foremost the duty of a CEO, but many are also looking to the office of the CFO for guidance on the “financial” performance of the firm. This guidance must be crystal clear and delivered in a way that everyone can absorb. Not many outside the finance team can understand acronyms like EBITDA or EPS, nor do they care. Stakeholders want to know and understand if the enterprise has the financial resiliency to stay the course and what sacrifices if any, the CEO/CFO expect from people. A Good example would be:

“We have done the analysis, looked at every contract and every customer identified the riskiness of the business and their customer’s business, re-forecasted the revenue stream, looked at the health of the key suppliers, have talked to the bankers and have done multiple scenarios. Based on that analysis, our scenario is that we will be back in business in 45 days at 75% utilization and in 90 days 90% utilization. Under this scenario, we have enough cash to cover the payroll until the end of Q3. Expect to hear from me every week on Friday by 4 pm.”   

CFOs must filter out jargon and communicate properly and directly about the status, the situation, and the plan. This message should also be crafted into a songbook that the entire leadership team must sing from. If this is not done in a methodological way and without accounting for stakeholder impact, there is a potential to create needless chaos. This is especially critical when the news coverage and social media are devoid of any uplifting messages.

4. Deliver focused stakeholder communication

During a systemic event like the one we are facing, the importance of stakeholder communication has never been higher and should be a top priority for CFOs. For example: let us assume that you have built a good budgeting/forecasting platform that can generate COVID Scenario 1, COVID Scenario 2… and also has captured the critical dependencies on key customers, key people and key suppliers as a start. If then one specific product is going to be in high (or zero) demand by one of your key customers and the associated bill of materials forecast is showing a dependency on a key supplier (who may have shut down or is about to shut down), then that lack of awareness is going to have a significant impact on your ability to deliver to that customer. Similarly, if that scenario requires one of your teams to work two shifts, then it is important that the shift managers/supervisors are made aware ahead of time so they can effectively plan for the required resources. This knowledge of the ripple effects of change requires agility in the analysis as well as in acting on that analysis by touching base with these key stakeholders. For those who work in publicly listed companies, consistent, honest and credible communication with the regulators and the investor community may also be required based on insights from these types of scenarios. This is what is expected and needed from an agile CFO during this time.

5. Use the right technology

The proper use of the right technology is an Achilles’ heel for many companies – large or small. I have encountered board members, business owners and CEOs who have never truly believed in investing in what I call “technology of management”.  This encompasses the tools that a modern workforce must have 24/7 in order to truly unite business planning, empower employees, and gain real-time visibility into operations and output. This technology platform encompasses many aspects including, for example, Microsoft Office 365 for online communication, collaboration tools (e.g. Microsoft Dynamics CRM and Microsoft Teams), ERP platforms, as well as budgeting/forecasting and business intelligence applications (and spreadsheets do not count as any of this). Of course, it is too late at this very moment to implement the technology that one should have had in the first place for being “agile”, but the lesson from this event is clear – without the right technology for management, the leadership team cannot expect agility in analysis, planning, reacting, or communicating. This is a lesson that some companies are learning right now at a very high cost. Coming out of this, I suspect no CFO will have difficulty in getting approval for the technology they need to produce accurate, dynamic financial statements and forecasting scenarios.

6. Evaluate leadership compensation structure

Even before COVID-19, I had always instructed companies to ensure clarity in both salary and incentives. As well as clarity in how the scale and scope of decision making and responsibilities are critical to enterprise success. While this topic is complicated, the decisions that companies will make in response to this event are going to have significant impacts on company culture and staff morale when (hopefully by Q3) the situation gets back to the ‘new normal’. If the treatment of staff during this pandemic is deemed as unfair as a whole and without any sacrifices made by the leadership team, then consequences will be significantly negative. If a company is resorting to layoffs or pay cuts of staff at this time, it is especially incumbent on the leadership team to reduce their own pay significantly and to be open about it. This also shows character and leadership acumen. The CFO’s role is to bake these assumptions into the scenario build-up, to understand the full implications on the P&L and free cash flow.

7. Nurture your people

The ‘people’ aspect of a business is not an area where CFOs have traditionally played an important role. This is unfortunate considering in many companies, ‘people’ assets make up a much larger portion of the balance sheet – even though we don’t see or allowed to capitalize on the value of these important intangible assets on the balance sheet. Moreover, they are far more important than physical assets! The impacts of this pandemic are, of course, going to be felt the most by individual employees, meaning CFOs will need to start looking at and caring more about human resources. COVID-19 is affecting everyone on all fronts: anxiety about personal and family health, a loss in wealth due to the 25%+ drop in the stock market, continued and even higher expectations while working remotely and not being prepared or equipped for that remote work, and the effects of social isolation due to lockdown. This requires multiple interventions and assistance not only at the team level but also at the individual level. This also requires the implementation of both a top-down and bottom-up cascading strategy where every individual expects that every manager and every colleague show both empathy and sympathy while expecting performance. The most important trait of leadership is to consider and allow each individual the flexibility they want and need, while at the same time provide clarity on expectations and implications on customer response and financial performance.

In Conclusion:

COVID-19 will remain one of the most significant events we have experienced in our lifetime and the root of the most uncertainty that people and businesses will face in the next twelve to eighteen months at a minimum. It is time for CFOs everywhere, from small companies to Fortune 500 enterprises, to take the reins and guide their ships to calmer waters. Now is the time for CFOs to demonstrate leadership, agility, compassion, and raw competence in their roles. Let us all break out of our world of jargon-led number analysis, and translate our financial scenarios into words that will comfort stakeholders and demonstrate leadership, character, analytically sound decision-making and pragmatism. Let us not deviate from the paths that led to corporate success, and instead embrace and protect company values. Use this as a wake-up call to invest in the technical infrastructure needed to hedge risk and keep business afloat during times of uncertainty, risk and dispersed people. Finally, I invite all CFOs to get back to basics and create your own playbook for navigating your unique company through COVID-19. Trust in your foundational and institutional knowledge and build a path for your organization that factors in your unique scenarios and stakeholders. In a time where business leaders cannot control everything, CFOs can lead and guide with what can be controlled.

CFOs need to rise to this challenge today. There is no time to waste and simply too much is on the line.

For additional resources: CFO Corner – Becoming a Model CFO


Dr. Vijay Jog Corporate Renaissance Group

About the Author:

Dr. Vijay Jog is the founder and president of Corporate Renaissance Group (CRGroup), a Quisitive Company (QUIS) and Ottawa-based firm dedicated to transforming business management and performance. He has led CRGroup’s growth in areas of strategic finance, corporate performance and dashboards, strategy design and execution and helping clients bridge the gap between technology and finance. Dr. Jog consults with organizations around the world and is a leading author and speaker in the areas of corporate performance and the office of the CFO.