CFO Exchange - May 18

Chief Financial Officers (CFOs) of high-growth technology companies met virtually to share leading practices, discuss and exchange learnings on challenges, industry trends and topics of mutual interest. The agenda for this small-group meeting, conducted under Chatham House Rule, was created through a series of pre-interviews. Comments from participating CFOs are summarised below.

Topics

Business Performance

Industries

Technology, Media and Telecommunications

HYBRID OFFICE STRATEGIES

Protiviti’s Gordon Tucker kicked off the conversation by sharing a survey of executives on the future of work. According to this survey, 70% of organizations are proceeding with some form of hybrid remote work model, and, despite inconclusive results on productivity, 60% said the executive office would prescribe in-office work strategies in the future. While 80% anticipated that significant retraining and upskilling will be necessary for current workforces in a changing technology environment, more than 90% agreed that the skilled labor shortage will continue in the long term. Understanding the impacts of changing technology and working models will be crucial for officers to guide their organizations successfully into the future.
As hybrid work models become more prevalent, management is reconsidering office space utilization and real estate requirements. Some are maintaining a highly voluntary policy, with models decided ad hoc or at departmental levels. Virtual-first organizations are seeking to transform unutilized space to emphasize creativity and collaboration. For those organizations, this means convening teams once a week in the office on an optional basis in an effort to bring together motivated individuals and foster a positive atmosphere.
A primary disadvantage of unstructured hybrid and remote models is in development for new talent, as learning the particulars of a business and industry is difficult when working from home. These models also impede the development of organizational culture, due to the lack of social interaction and a decentralized knowledge base. Because of these factors, some leaders are inclined to mandate on-premises work, but the cost of losing key personnel due to their strong preference for remote work is a risk in any mandatory strategy. Some CFOs feel that performance management strategies must improve to ensure that providing generous remote work models does not negatively impact productivity.

TALENT APPROACHES

For organizations with global footprints and distributed workforces, it can be challenging to develop uniform systems and processes to encourage growth at scale. Smaller organizations can more easily coordinate activities across a handful of international offices, but it can be difficult to navigate multiple countries’ business and regulatory approaches at a management level. Outsourcing some functions is viable, but providers are often large multinationals, which can lead to challenges working with regional subsidiaries and partners.
Talent shortages in emerging technologies is another pain point. While some suggest that certain areas may face shortages for up to a decade, others are more optimistic, citing changing educational costs, market downturns and the unsustainability of the highly competitive talent market.
Though turnover has been an ongoing issue for many, increasing interest in open positions is a positive sign. Highly specific skill sets for some fintech capabilities are still challenging to fill, particularly developer roles. Talent has been easier to secure for those outside of expensive markets and has improved significantly because of broader remote-enabled candidate pools.
Market conditions have a substantial impact on organizational spending power, and as such some officers are reconsidering their hiring objectives as a result. Though business impacts are still speculative to some degree, consistency in front-end demand is a sign that strategies are on track. Anticipating market impacts too heavily can cause organizations to limit their abilities to attract talent.

FINANCIAL CONSIDERATIONS

Many tech and software companies are dipping below their IPO pricing, and high-growth companies are seeing a 60-to-70% decrease in multiples, indicating a significant downturn throughout the space. Venture capital interests are now focused on reducing cash spend more than unrestricted growth or revenue, given the recent decline in the market. The spending restriction presents challenges in this high-attrition environment.
For many projects, return on investment projections are being scrutinized during the approval process, and managers are demanding more aggressive threshold for timelines on returns. This cautiousness is likely to curb interests in piloting new initiatives and engaging in experimentation, which, in turn, will limit organizations’ ability to find novel solutions for current and future obstacles.
Though market volatility often elicits strong reactions from investors and stakeholders, these reactions can often be heavily focused on the short term. One member described their organization doubling its stock price from April 2021 to yearend, only to see it drop again. Overcorrection in times of downturn can make measures like layoffs regrettable from a longer-term perspective. A mix of the current pressures from the talent market and from profitability and growth may result in missteps that leaders must take care to avoid.
Compensation structures, such as offering stock options to potential new hires, are being reevaluated. Giving equity to lower valuations may be appealing, as it can be an opportunity for stockholders to profit substantially by obtaining options during a market dip. It also can be a disadvantage because it elevates the perception of future stock performance among new talent. At least one organization is considering repricing underwater options, a process that is bound to create accounting and governance challenges. Some organizations are looking to change bonus structures to reflect direct contributions to success and rebalance the influence of overall company performance, others have adjusted across the board for retention purposes.
Officers are considering the best approaches for fundraising in the current climate, with some forcing Series D and seeking strategic deals with companies rather than venture capital. Others are considering venture debt or bridge loans with current investors. Taking on debt requires prudent attention to attached fees, runway impacts and covenants to avoid unfavorable circumstances. Keeping an open mind and not focusing too heavily on a specific funding type can help organizations secure the capital they need to weather the current market situation.

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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 ...

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 ...