Editor's note:This is the second installment in the "Deep Dive" series, focusing on how intensifying economic slowdown pressures challenge even the most experienced CFOs, and strategies for coping with them. InPart 1, CFO Dive detailed the new discussions surrounding the importance of C-suite mental health care that emerged after Bed Bath & Beyond CFO Gustavo Arnal's suicide in September.

Facing a looming recession, CFOs are being forced to consider whether layoffs are the difficult decisions they must make to adapt their businesses to—and in some cases simply survive—a slowing economy.

Of course, layoffs hit employees the hardest, as their jobs and livelihoods are severed. But as stewards of the organization's capital, CFOs bear immense pressure as they seek to balance employee well-being against compensation costs, and the short- and long-term viability of the enterprise.

"It's very difficult, and it's heavy, because it's about people's careers," Omar Choucair, CFO of software-as-a-service (SaaS) company Trintech, said in an interview.

Choucair noted that layoffs don't just affect employees who leave the company; remaining employees are affected too. Therefore, it's crucial for CFOs and other executives to reassure remaining staff that the company is capable of making the right decisions.

"There has to be a lot of empathy," he said. "And it's not just about the people who are being let go, it's also about the people who remain, making sure they have confidence in the company's ability to make the right decisions. But unfortunately, if your revenue is unstable, you have to make changes."

Last resort

CFOs are not the only executives who decide and manage layoffs—such decisions are typically made by "a group of leaders rather than a single individual," Eric Gonzaga, national managing principal of human capital services at Grant Thornton, wrote in an email.

"The CFO's role varies by company, but due to the nature of their responsibilities, CFOs often help leaders determine where layoffs might be necessary in terms of profitability and strategic direction," he wrote. "Revenue is a key factor in decisions, so CFOs also provide insight in this area."

Layoffs should be a last resort for companies and their financial leaders, Gonzaga wrote. He also pointed to the different pressures CFOs face today, as financial leaders must control costs while retaining top talent, which complicates the CFO's role in such decisions.

"CFOs are highly focused on economic dynamics, and I'm sure they're worried about being overstaffed, given the dynamics of the economy, but they're also balancing that—because the market for hiring and retaining talent is still very difficult," Gonzaga said in an interview.

Choucair said CFOs looking to chart a smooth financial path for their companies during turbulent economic times can first cut discretionary spending before considering layoffs. CFOs need to have a handle on their company's spending analysis, distinguishing between "must-haves" and "nice-to-haves."

Before turning to layoffs, CFOs can also take steps to improve the efficiency of compensation and benefits plans, or work with HR and business leaders to optimize cost-effectiveness from a compensation perspective, Gonzaga said.

"Nobody wants to go through a whole round of layoffs... so it's just about trying to be as efficient as possible while creating a good value proposition for employees," he said.

Layoff drums begin to beat

However, macroeconomic factors beyond the CFO's control can hit a company's books hard, ultimately forcing the issue to the surface. Choucair pointed to the strength of the U.S. dollar and its impact on foreign currencies as an example of pressure.

Many companies are already feeling this pressure: Ian Borden, CFO of Chicago-based burger giant McDonald's, said on a Thursday earnings call that foreign currency headwinds were one of the factors prompting the chain tolower its capital expenditure guidance. IBM alsowarned of the impact of the stronger dollarduring its Q3 2022 earnings call. This is also a key issue for mid-sized global companies, Choucair said. Trintech works with global enterprises and mid-sized companies.

"You can't escape it," he said of the stronger dollar and its impact on foreign currencies. "I mean, it directly hits revenue. So unfortunately, you have to think: 'What's discretionary?'"

Many companies are already cutting jobs.September layoffs surged, as persistent inflation put more pressure on the labor market; according to a report from executive outplacement firm Challenger, Gray & Christmas on October 6, U.S. employers announced 29,989 job cuts that month, up 46.4% from August's figure. Meanwhile, a September Grant Thornton survey found that30% of CFOs are considering layoffsas a recession approaches.

Companies that have already begun layoffs include payment processing giant Fiserv, which has beencutting staffto cope with the effects of inflation and currency fluctuations. The Brookfield, Wisconsin-based company reported Thursday that severance costs jumped 46% to $35 million in the third quarter as it cut jobs, according toPayments Dive, a sister publication of Industry Dive. Separately, Peloton, which has seen demand decline over the past year after a surge during the pandemic, recently said it would cut about 12% of its workforce, or roughly 500 jobs, according toRetail Dive、CNBCand other reports.

Skating to where the puck is going

At some point, the question of whether to consider layoffs becomes unavoidable. The human capital issues CFOs face—including layoffs and talent retention—are "enormous pressure" for financial leaders, Gonzaga said.

Choucair, who has 22 years of CFO experience, said he's accustomed to the pressures of the role, noting that such pressure is always present. Financial leaders need to maintain composure to cope, he said. They can't "fall into excessive worry or excessive confidence."

Financial leaders need to be able to "skate to where the puck is going," he said, anticipating and preempting necessary changes in costs or strategy, and then presenting them to the CEO and board during more turbulent times. Transparent communication is crucial for moving forward, he said.

"The more the CFO communicates with the board, the more they communicate with the CEO, that may be their best way to get through difficult times," he said.

Working closely with other executives also helps alleviate pressure on CFOs, who "often prioritize the company's needs over their own," said Karen Quint, consultant in the financial officer and board practice at leadership advisory firm Spencer Stuart.

This means their primary focus is often their responsibility as stewards of the company, she said. Building strong partnerships with leaders such as the chief human resources officer (CHRO) is one way to ease the pressure of difficult choices like layoffs.

"I think strong partnerships across the C-suite are critical, and clearly HR is a key partner in that," Quint said. "And most CFOs do view the CHRO as a key partner in these decisions."

Empathy: resisting short-term cuts and disruption

While collaboration is key, the best CFOs are helping to creatively address and solve layoffs and other issues, Quint said. That means more than just presenting the numbers.

"It's not 'Here are the numbers, we have to hit them, so you go deal with it,'" Quint said. "It's 'Here's the reality, here's what we're seeing, let's discuss how to respond.'"

Educating other leaders in the business about the company's needs and gaps can sometimes help avoid layoffs. For example, having the full picture can enable the business to discuss and consider alternative actions that can be taken before layoffs, said Brian LaRose, CFO of pet retailer PetCo.

"Is there something that's not in the plan that we can access, whether it's funding from suppliers, or changing the product mix, changing product prices?" he said in an interview. "Are there cost savings in the supply chain? There's always something you look for first."

LaRose has been CFO of PetCo for just over a year, having taken over the company's top financial position just as the macro environment began to deteriorate, facing challenges from the start. LaRose pointed to his strength as a financial leader in relationships, but also spoke of the difficulty of learning the role while supporting the rest of the executive team as the macro environment began to worsen.

"How do you rationalize your stock price, your shareholders, the overall state of the economy, and what you're doing inside the company?" he said. "The easy thing to do is just 'burn the boats,' start cutting costs, and sacrifice everything for the company's long-term goals."

Resisting that temptation and instead developing or continuing to execute a long-term strategy that better serves the company is crucial for CFOs, LaRose said. Creating an "emotional flow chart" can help them—and more importantly, other executives—step through whether the company is operating efficiently, has the right resources, and is sized appropriately for the environment, he said.