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CFO Exchange - February 16

Chief financial officers (CFOs) of high-growth software companies meet virtually in a small-group setting using Chatham House rules to exchange learnings and discuss business challenges and industry trends. Participants in this exclusive CFO peer group develop the agenda through a series of pre-interviews. Protiviti is proud to support and host members of this community.

The agenda topics for the February 16, 2022, meeting included economic uncertainty, operational efficiency and addressing ESG concerns.

Key Takeaways

  1. Protiviti’s Noah Kessler, Chris Wright and Gordon Tucker hosted the conversation surrounding high-priority CFO concerns and broader executive considerations. According to surveys the organization has conducted on both current and anticipated future risks, direct pandemic-related topics like public health practices have given way to an emphasis on people, particularly in terms of ongoing remote and hybrid work impacts. Resilience is also top of mind, with leaders focusing on whether their organizations are prepared to manage unexpected challenges in the future. With unemployment functionally nearing zero in the accounting workforce and broader issues around labor costs and talent acquisition, executives are considering these dynamics similarly to earlier pandemic-motivated recession worries in 2020.
  2. In terms of future risks, leaders are still uncertain about the long-term stability of the hybrid workforce but foresee this as a new way of doing business likely to remain influential in a ten-year outlook. Hybrid work has also instigated cultural changes within organizations, which may impact business models and corporate approaches profoundly in the next decade, especially succession planning and talent acquisition strategies. Traditional CFO considerations around capital and liquidity, as well as competitive challenges, are also present when taking a long-term perspective, with CEOs and boards focused more singularly around resilience.
  3. The discussed surveys demonstrated that CFOs were not as concerned with transforming accounting models. With accounting principles like lease accounting, revenue recognition and CECL already in place, most changes in the accounting and reporting space are likely to involve reporting non-financial data such as Human Capital and ESG. Most survey participants’ concerns suggested they presume a satisfactory standard of performance from their accounting functions and are unwilling to compromise this standard in pursuit of other goals. In other words, the areas of additional focus for finance organizations are all additive to the baseline financial reporting expectations.
  1. As valuations have fluctuated significantly since last year, officers have had to assess whether increasing or slowing investment will best support growth. The supply of capital in the changing market is a crucial factor in IPO postponement considerations, as a difficult private capital environment makes stopgap investments less viable. Pricing, too, is a pain point in some commodities and services industries. Though many organizations attempt to avoid passing too much cost onto consumers, suppliers are commanding significantly higher prices as inflation concerns continue. The CFO may have substantial influence on pricing, enabling well-informed decisions as businesses proceed in the current economy.
  2. For organizations offering SaaS solutions like CRM systems for large institutions, set contracts with 3-4% escalation ease pricing concerns, but margins have more impact, especially given the cost of talent. Tech talent are securing positions for sometimes more than 50% over their current compensation at larger organizations that can afford such premiums and are further enticed from positions at private businesses by stock offers at public companies. One member has doubled down on centers of excellence in more accommodating markets such as Mexico, Ireland and India to address their attrition issues, while others are considering widespread retention packages, though these run the risk of simply delaying departures. Clearly explaining LTI accumulation through comp consulting and one-on-one training can also enable better retention for early-career talent at public companies, as the less experienced workforce has little education on 401(k) benefits and stock purchase programs.
  3. Rather than focusing retention efforts on a handful of key roles, developing workforce skillsets and distributing high-level responsibilities across lower-level talent builds both competence and redundancy into crucial functions. Hiring at lower levels for senior-level openings can prevent unrealistic salary expectations from similarly positioned external candidates. By driving a virtual-first approach, one officer’s organization has been able to secure talent across regional markets, but some roles have required more searching to avoid expensive markets like the New York City area.
  4. To retain and incentivize top sales professionals, companies continue to reevaluate their sales compensation plans and introduce new comp plans. At least one CFO said his organization’s SaaS sales approach have shifted more towards compensating based on ARR (annual recurring revenue), with accelerated payment incentive for longer contracts. Another CFO said sales teams still have quarterly targets, but with "accelerators" added to increase ARR.
  1. Some CFOs are considering compression and multiples and their impact on potential investments. With prices and revenues rising at similar rates for one officer’s organization that went public in July 2021, their multiples ran up a nearly 40% increase for some months, followed by a dramatic compression. Valuations often factor in both revenue growth and acceleration in addition to profitability, leaving newer organizations with slower growth seeing multiples compressed relative to larger competitors. While better accretion can be helpful to some organizations, the investor emphasis on cash flow and profitability may prove a challenge to securing further investment to continue accelerating growth.
  2. In order to find areas for potential cost reductions, one participant’s organization found a substantial opportunity in their professional employer organization expenditures. By installing SaaS HR platforms and acquiring insurance elsewhere, they have been able to eliminate expensive PEO contracts while maintaining the quality of benefits. Further, this move has enabled savings from impractical costs, such as a high worker’s comp percentage for an overwhelmingly office-bound workforce.
  3. Members agreed that reducing office footprint is a straightforward cost reduction for many organizations, with several leaders suggesting they plan to utilize temporary spaces through hybrid office solution providers. Despite this, concerns remain around supporting operations for workforces distributed across multiple states, as well as building a strong and cohesive culture across home offices and new full-remote hires. Some companies are mandating two or three days in the office per week for their accounting teams to encourage more efficient and impactful communication between individuals. Beyond day-to-day considerations, hiring people who are passionate about the organization’s products and industry will provide a common ground that will ease interpersonal relationships and bring the workforce together around the mission of the enterprise.

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Leadership

Gordon Tucker
Gordon Tucker is a Regional Managing Director for APAC  with over 25 years of experience providing management consulting, internal and external audit services to software, internet, high tech manufacturing and life science companies. His experience includes serving ...
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Christopher Wright
Chris is a Managing Director in New York, leads Protiviti's global Finance Transformation and Transaction Services solutions, oversees Protiviti’s Supply Chain, Operations, People and Change practices, and serves on our global ESG steering committee. He is the firm-wide ...
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