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CEOs brace for recession, CFOs eye costs

Jan. 12, 2023

C-suite leaders are reporting cautious optimism when it comes to economic trends, which may be changing how CFOs and CEOs approach their cost optimization strategies moving forward, according to recent surveys.

CFO optimism is tentatively growing, according to a recent survey by Grant Thornton, with 45% of finance chiefs reporting they were optimistic in their outlook for the U.S. economy for the next six months, the survey of 246 CFOs found. This compares to 39% of CFOs who reported optimism in the prior quarter.

Notably, 58% of CFOs still cited cost optimization as one of their top three concerns for the next six months, according to Grant Thornton.

Changing macroeconomic trends surrounding inflation and labor may be prompting CFOs to shift their focus when it comes to trimming those costs, however. While human capital including headcount and compensation was still cited by finance chiefs as an area to cut costs, “we’re not hearing about the Great Resignation as much anymore,” Sean Denham, national audit growth leader for Grant Thornton said in an interview.

During the Great Resignation, compensation costs went “through the roof,” Denham said, as CFOs and other C-suite leaders moved to attract and retain talent.

However, discussion over this trend has quieted over the past few quarters as economic trends shift: the unemployment rate dipped to 3.5% among slowing wage growth in December, according to data released Jan. 6 by the Department of Labor. Inflation also slowed for the sixth consecutive month to 6.5% in December compared to a year prior, according to data released Thursday by the Labor Department.

Fifty-eight percent of CFOs still expect challenges in attracting and retaining talent, according to Grant Thornton. Forty-three percent of CFOs said they were looking at human capital expenses — including headcount and employee compensation — as a potential cost-cutting area, the study found. Meanwhile, 32% of CFOs said they could potentially conduct layoffs or workforce reductions in the next six months.

CFOs and other C-suiters are still juggling issues of quiet quitting and questions of remote work alongside their efforts to lower costs, which come as C-suite leaders are still expecting a recession.

U.S. CEOs almost universally expect a recession at this point — an almost unanimous 99% anticipate a coming downturn — but roughly half of those U.S. CEOs think the recession will be mild domestically, according to a recent study by accounting firm Ernst & Young.

Meanwhile, though recessions in both the U.S. and Europe are highly likely, CEOs in both of those regions anticipate to see a return to growth by either the end of this year or mid-2024, according to a survey of global C-suite leaders released Thursday by the Conference Board.

Outside of compensation and human capital, the next stage of cost optimization is really around figuring out what are the areas of discretionary spending or if there is “an opportunity to restrict third party costs,” Denham said.

This includes external consulting and technology investment, which were cited by 42% and 41% of finance chiefs, respectively, as potential places to slim down costs, according to Grant Thornton. CFOs are not looking to reduce their tech spending whole cloth, however — digital transformation still remains top of mind for financial leaders, Denham said.

“If they can put it off for a period of time, move to the back burner certain parts of their technology journey, I think they’re looking to do that because they have other needs,” he said of tech spending.

[CFO Dive]