Growth, Inflation, and Capital Access: The Triple Game CFOs Face in 2022
Based on CFO roundtable discussions and Pulse Survey data, Wes Bricker, Vice Chairman of PwC US, analyzes the core challenges CFOs face in 2022: inflationary pressures (79% of CFOs expect inflation to remain high by year-end), talent competition (83% view it as key to growth), and ESG strategy implementation (only 34% of CFOs consider it important). The article emphasizes that CFOs need cross-departmental collaboration to balance short-term cost pressures with long-term value creation.
Editor's note: Wes Bricker is Vice Chair of PwC US and Co-leader of US Trust Solutions. This article reflects the author's personal views.
Over the past two years, the future of work, environmental, social, and governance (ESG) performance, and growth and tax issues have consistently been core concerns for CFOs as they chart new paths for their companies. Entering 2022, these issues are expected to remain on the agenda of financial leaders, but this year CFOs and their peers face new headwinds, with inflation becoming a major concern. PwC's Pulse Survey shows that talent, transformation, and growth are the top issues executives are focused on this year. These complex challenges further increase the difficulty for executives to build trust with stakeholders and deliver the sustained results they expect.
Recently, I hosted a series of CFO roundtables, engaging directly with financial leaders from companies of various sizes, industries, and regions. Based on these conversations, I believe CFOs should focus on the following points as 2022 progresses.
The Interplay of Inflation, Capital, and Growth
Inflation is a major concern for CFOs—consumer prices rose 7% year-over-year in December, the fastest pace in nearly 40 years. As a result, many companies are raising prices and considering cost cuts. Although the Federal Reserve has announced plans to raise interest rates, I expect that growth sustainability, inflation, and access to capital will significantly interact this year.
CFOs and other executives have not been this concerned about inflation in a long time. But after inflation surged in late 2021, the vast majority of CFOs (79%) in PwC's Pulse Survey believe inflation will remain high at year-end, a proportion much higher than the expectation of all executives (69%). Companies face rising costs for products and services, and now talent costs are also rising. Many CFOs are concerned about margin pressure and have already planned price increases. In fact, 59% of CFOs say reassessing pricing strategies is very important for growth this year, and 53% say they will prioritize adjusting pricing to maintain or improve margins. However, only companies with pricing power can pass costs on to consumers without worrying about harming sales or even reputation.
Rising inflation could also push up the cost of capital and stimulate demand for capital, thereby intensifying the tightness of capital supply. Margin pressure may also reduce operating cash flow used for investment plans, forcing companies to seek external financing or even spurring more M&A activity.
Returning to the Workplace and Workplace Transformation
How work will evolve this year remains uncertain for many companies: new variants, a competitive labor market, record quit rates, and ongoing concerns about employee well-being all complicate return-to-work plans. Companies know they need to pay more for core talent, and many have budgeted for salary increases this year.
In the Pulse Survey, most CFOs (83%) say hiring and retaining talent is critical to growth this year, and two-thirds plan to invest in talent to achieve growth goals. But they face significant challenges: the labor market is extremely tight. 63% of CFOs say talent acquisition and retention challenges are the biggest risk to achieving growth goals this year, much higher than the proportion of all executives (48%). Financial leaders may take a long-term view—developing broader talent strategies, managing corresponding compensation and its impact on profits—but their concerns highlight a shift in talent thinking. Talent, digital transformation, supply chain, and now inflation are all core business issues on the agenda of the entire C-suite. CFOs need to collaborate with peers in HR, operations, tax, and other departments to address these challenges in a holistic, coordinated manner. Taking a unified approach to business issues is essential for success and for building and maintaining trust.
ESG: From Commitment to Action
Environmental, social, and governance (ESG) issues have long been a priority for institutional investors and have now entered the broader corporate agenda. The survey shows that 60% of executives believe ESG and sustainability issues will become a core part of long-term planning by year-end. This is crucial because ESG issues can have a material impact on a company's core strategy and long-term value creation.
However, CFOs report that their companies are at different stages in implementing ESG initiatives. Only 34% of CFOs say advocating ESG issues is very important to their company's ability to grow this year, compared with 43% of all executives. CFOs are busy dealing with the short-term urgency of inflation, pricing, and margin pressure, focusing on cost control. But CFOs must maintain focus on long-term value creation strategies such as ESG. They should remember that strategic ESG initiatives benefit not only the company's stakeholders, communities, and broader society, but also the company's bottom line. CFOs also need to proactively address any new disclosure rules and regulatory changes related to ESG.
Financial leaders need to address these complex and intertwined issues holistically when making decisions. When I speak with CFOs again this spring, I look forward to hearing more about what is on the minds of financial leaders.