Navigating spending cut battles

One task the C-suite faces time and again is where and how to make spending cuts. And, often, discussions of such cuts put CFOs in a bind. According to EY’s 2023 DNA of the CFO survey, 50% of CFOs plan to reduce or pause spending in areas that are long-term organizational priorities in order to meet short-term earnings targets. 67% of CFOs said “there are tensions and disagreements within [their] leadership team on how to balance short-term and long-term priorities.”

Resolving conflicts over spending cuts can be a challenge, but there are steps CFOs can take to do so productively.

Speak up. One key thing CFOs need to do, Myles Corson, EY Global and EY Americas Strategy and Markets Leader, Financial Accounting Advisory Services, told CFO Brew, is to make sure their voices are heard.

“You get better outcomes through diversity of perspective,” he said, and CFOs, “have this fantastic purview and perspective, based on their understanding of what has driven business performance historically, and how that is likely to impact performance going forward.”

But only 32% of CFOs always speak up when their opinions differ from other C-suite leaders’, the EY survey found. That may occur when CFOs are earlier in their tenure, or when they work for organizations where finance is not yet considered a true partner, Corson suggested.

CFOs who are hesitant to voice their opinions might find it helpful to consider the value they can provide. As the role of the CFO has broadened, so has CFOs’ insight into various sides of their organizations. CFOs are now asked to “take on more operational responsibilities,” Corson said, and “be more directly involved in setting strategy and also to respond in an agile way to evolving market conditions.” Due to geopolitical upheaval and economic shocks, such as the pandemic, he said, it is “important that CFOS and their finance teams are much more actively engaged in business operations.”

True partner. Kevin Kemmerer, CEO of software company Brightly, told CFO Brew that he relies on his CFO to present and contextualize the data the executive team needs to make decisions. “The CFO has the skill set to know what the right KPIs are,” aggregate them, review them on an appropriate basis, and “package” that information for the team, he said.

“I look to the CFO as my strategic partner to help me quantify the pros and cons of certain decisions,” he said, adding that a CFO can also act as an “early warning indicator,” who can alert him when problems first emerge.

Building trust between C-suite members is also essential for solving conflicts, Kemmerer said. “You have to have built enough trust among the C-suite that [CFOs] are willing to put the conflict out there,” he noted. He interacts with his CFO—who sits two doors down from him in Brightly’s Cary, North Carolina, office—several times a day to help strengthen their working relationship.

CFOs can also increase their credibility and influence by upskilling, Corson said. He acknowledges that it can be challenging to find the time and space to do so, and suggests that CFOs prepare their teams to take over some of their tasks.

“Build your team around you so they can take on some [aspects] of the role you need to hand off in order to focus on the new areas you’re being asked to step into,” he said.

Collaborate, friend. Another approach to reducing conflict around budget cuts is to implement a set process for making them. Brightly, for instance, uses a formal but collaborative process to help facilitate decisions around spending cuts—and the CFO is an instrumental part of it. The organization’s leadership uses a rubric with a set of criteria to evaluate its priorities and determine which projects it might need to trim spending on.

The CFO’s role in such a process, Kemmerer said, is to “bring the data to the table” and acts as a “partner to the whole team” who helps them evaluate “the potential return and the potential risk” of certain choices.

The advantage of this approach, he said, is that “it’s not really about opinion, it’s about using the best data” and the “diversity of the team’s perspectives” to “come up with the best collective decision.”

Any action around budget cuts, Kemmerer believes, should be “the responsibility of the whole C-suite, not just the CFO.” Though there are times when, as the CEO, he has to make the final call, he prefers it when the group can reach consensus.

“If you let any one person drive the decision, you’re missing out on the benefit of working together as a team,” he said.