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In this episode of The EY Better Finance podcast, we are joined by Deirdre Ryan, Global Finance Transformation Leader, and Andrea Gronenthal, Americas Strategic Tax Transformation Leader from the EY organization, to delve into key findings from the EY Global DNA of the CFO survey.
The episode also features insights from two seasoned global executives : Joseph J. Wolk (Joe), the Executive Vice President (EVP) and Chief Financial Officer (CFO) of Johnson & Johnson, and Nick Priday, the CFO of Dentsu Group Inc., who were interviewed as part of the research.
During the discussion, Deirdre and Andrea examine three paradoxes that CFOs confront on a daily basis: balancing short-term and long-term value, navigating the tightrope between safety and boldness, and transitioning from a traditional skill set to assuming a strategic leadership role.
Enjoy this engaging exploration of the challenges and complexities faced by today's CFOs, and the multifaceted role they play in shaping the future of finance.
Key takeaways:
Balancing long-term thinking with short-term results can be essential for maintaining success, building trust with stakeholders, and adapting to unplanned challenges in the business environment.
Creating a culture of trust, open debate and diverse perspectives within leadership teams can be important for making informed decisions and choosing the best opportunities for the organization's success.
Forward-thinking CFOs plan for the future by envisioning the future state of their finance function, embracing emerging technologies, and cultivating the necessary skills and capabilities to drive transformation and support the business' long-term success.
For your convenience, full text transcript of this podcast is also available.
Myles Corson
Hello, I am Myles Corson from EY and you are listening to the EY Better Finance podcast, a series that explores the changing dynamics of the business world and what it means for finance leaders of today and tomorrow, sharing insights from global leaders on key topics affecting the world of corporate finance.
In this episode, I am delighted to be joined by Deirdre Ryan, EY's Global Finance Transformation Leader, and Andrea Gronenthal, EY's America Strategic Tax Transformation Leader. You will also hear excerpts from interviews with Joseph Wolk, Executive Vice President, EVP and Chief Financial Officer, CFO at Johnson & Johnson, and Nick Priday, CFO at Dentsu Group. These interviews were recorded as part of the EY Global DNA of the CFO survey, which was released in June 2023 and featured surveys of over 1,000 CFOs and senior finance leaders. The research is available at ey.com/CFO.
Today's discussion highlights some of the key findings from the research, including three important paradoxes that CFOs are required to balance on a daily basis, which are near-term versus long-term value, safety versus boldness and strategic leadership roles versus traditional skillsets. I am excited to share the conversation, so let us jump straight in. Well, Deirdre and Andrea, welcome and thanks for joining us.
Deirdre Ryan
Thanks for having us.
Corson
So let us start with the first paradox, balancing short-term performance with long-term investment. The study found that more than three quarters or 78% of respondents stated that effectively balancing trade-offs between short-term and long-term priorities is an important challenge for finance leaders. To explore this further, we asked Joe Wolk from Johnson & Johnson to share his perspectives. Here‘s what he had to say.
Joseph Wolk
We all like to think, we think about and prioritize the long term and I think that takes a heightened importance at a company like Johnson & Johnson that has been around for 137 years. It is something that if we don’t approach it in that manner, we’re really not being consistent with the principles laid out in the Credo and those are largely focused around the patients that we serve and the doctors and physicians that we help provide for better health, but also the employees that enable our success as well as the communities in which we work and live, not to mention the shareholders. We are very fortunate and that we have cultivated a long-term investor mindset and so many of our investors have been with Johnson & Johnson, not just for years but for decades, and so that gives us a little bit of, I’d say, latitude with respect to things like inflation, things like a war, things like the COVID[-19] pandemic that they understand and largely, I would say in my role, what I found is investors are very reasonable and accepting as long as you are being transparent with them, right. So, they understand that you are going to have things that happen in business that are unplanned. It is really how do you manage them without compromising the long term that ultimately leads to success. We’re in an industry with life sciences that requires protracted development timelines. You have to think long term, otherwise you just won’t simply be successful for any extended period of time. That being said, I do not want to ignore the fact that short-term results are important. There is with that change a heritage of being long-term with respect to performance. I think there is also the dependability and the consistency that comes with the company.
Corson
So Deirdre, Joe shared some great perspectives there. In your conversations with CFOs, how do you see them balancing the short-term and long-term priorities?
Ryan
You know, Myles, every CFO I know is really struggling with this, but I do think that with the current pace of change, Cfos and their executive teams do understand the importance of long-term investments, setting those investments and sticking to those particularly in the technologies that are ultimately going to help them remain competitive. As an example, I know this is such a hot topic, but it is not a question of if they are going to leverage Gen AI (generative artificial intelligence) in finance, it is a question of when. That being said, I think the best CFOs are really clear on the outcomes they are driving towards both the short-term outcomes and the long-term outcomes and the benefits to their organization, and that’s regardless of whether it is an investment in technology, whether they are investing to upskill their talent or something else. Ultimately, as Joe said and he was spot on, they just need to be transparent about their priorities, whether they are shor-t or long-term priorities.
Corson
I also wanted to pick up on Joe’s comment on managing short-term disruptions without compromising the long-term. It was interesting that 50% of the respondents to the CFO survey said they are meeting short-term earnings targets or the pressure to reduce costs by cutting funding in areas that are also considered to be long-term priorities. So, Andrea, how do your clients evaluate those decisions and how do they stay the course for the long term?
Andrea Gronenthal
Well, Myles, those that do it really well have a short-term and a long-term strategic plan, and those should be adaptable to changes in fact, and you really would only touch the long-term strategy as a last resort and the way they make their decisions around this is having very good forecasting and insights into the data and getting that information very quickly so that they have the ability to adjust and make those adjustments before it would impact the long-term strategic plan.
Corson
Great. So let us move on to the second paradox, safety versus boldness. The research shows that CFOs that drive bolder and more innovative agendas are more likely to have a higher performing organization now and in the future. Higher performing cultures require different views combined with the ability to align behind common objectives. When speaking with Joe, we asked him “how important is it for CFOs to be able to challenge the CEO (Chief Executive Officer) and executive team when there are differences of opinion on the way forward?” Here’s his response.
Wolk
It is critically important to have not just the CEO and executive team, but any leadership teams within an organization to have I think that element of trust as well as that opportunity to debate topics that are difficult, that are gnarly. The one thing that most companies like Johnson & Johnson have, is the benefit of having great opportunities in front of them. There is no lack of good opportunities that we could capitalize on. What’s going to distinguish us as well as for other companies is how do you choose the truly great ones. You know, I think about some of the technology investments we are making across our organization. I have a particular passion about finance transformation that we are doing within my function, but I think it permeates through the whole business and how we run the performance at Johnson & Johnson, but there is also supply chain needs, there is IT needs especially as artificial intelligence and machine learning is emerging to have a healthy debate and say which one is going to benefit the shareholder, the patient most, is really the one that should win out and so I would like to structure my team and I think it happens here with the CEO, whether it was Alex Gorsky or Joaquin Duato, in a manner that allows for good intellectual debate. There is going to be differences of opinion, there is going to be different passion levels, and it’s making the case sometimes objectively with numbers and sometimes because we just know it is the right thing to do and balancing those different constituencies to a healthy tension that exists. I really love what Lincoln did when he developed the cabinet when he became (U.S.) President, he put in political adversaries. Now, I won’t say it is as contentious in a boardroom or in an executive committee as that, but he put in political adversaries because they would give him a different perspective, ultimately knowing that he owned the final decision but that decision would be much more informed because it was not just a myopic view, and I think that’s what I have had certainly the benefit here at Johnson & Johnson of working In those types of environments over and over again as I have made my way through the organization.
Corson
I really like Joe's comments about the CFO’s role in bringing objectivity and balancing the different stakeholders. How important is the CFO relationship with other executives in the board and how can CFOs strengthen these relationships, Deirdre?
Ryan
I mean, it is critical right, that the executive team respects each other but to Joe's point, respect isn’t passive agreement on all the topics. Honestly, the best organizations openly debate and consider all their options and it helps to know each other, to know each other as people and to really believe that each executive is bringing their perspective on what’s best for the organization, not just the organization, all its constituencies, their shareholders, their employees, the recipients of their products and services. Those conversations, as we refer to them, healthy tension in those conversations, really lead to the best decisions.
Corson
So, on the topic of innovation, 72%, almost three-quarters of the survey respondents said that traditional back-office behaviors and mindsets were slowing the function’s modernization. So, we also asked Joe, “does finance have an aversion to risk and can it hinder innovation?” Here’s his response.
Wolk
I would say the role of a finance leader – the role of the finance department is really to take informed risk, right. And so how do we think about this relative to prior corollaries, prior situations that were similar experiences that we have had and how does that measure up to other opportunities we have? At the end of the day, if I think about our research and development for health sciences, life sciences, it’s about having a transformational impact for the patient that exceeds the current standard of care. If I apply that kind of same mindset to finance, what I would say is we are not in the business of debits and credits. We are in the business of life sciences and so we want to make sure that we are providing information that’s timely, that’s accurate and enables the best decision possible at the time. We are not going to get 100% of these things right, but kind of streamlining our processes so that we are providing a robust financial services, but not more than is really needed relative to the other mission of the company and that’s to provide improvement in healthcare.
That being said, again with Johnson & Johnson, there is a trust mark and I think as I know some of the folks on my team, whether they be from audit or the controllership or tax, these are industry voices. They lead consortiums and folks want to know what Johnson & Johnson is doing in respective areas. We feel we have to go in and earn that trust mark each and every day, each and every quarter, each and every year. It’s something we do not want to abandon. So, we have got to make sure that the debits and credits are accurate. That gives us the right as a finance organization to kind of go explore and learn the business much better so that again we can get back to helping make better decisions with our business partners. So, I would categorize it much more as we are stewards of informed risk-taking versus what is commonly applied, or finance is just risk averse. They are there to say no. Yeah, there is times when we have to play goalie, but most times we should be fashioning ourselves as an enabling investment, not delaying it.
Corson
Andrea, it was really interesting to hear Joe explain the license to innovate is built on the foundation of trust. What have you seen to help finance leaders balance the need for innovative change with a natural inclination for being disciplined?
Gronenthal
Myles, there’s pretty much three things that I see. Number one, they have to have the strong fundamentals. They do have to have the debits and credits, right, so that you can trust the data. Secondly, they need to be good leaders of people so that the people that go on the journey to innovate trust his or her leadership and thirdly, the CFO needs to understand the overall business vision and how that applies to finance so that the people he’s telling that story to, trust that the journey matters.
Corson
So, building on that point of vision Deirdre, it was interesting to note that only 16% of those surveyed assess their finance organization as being best in class, but perhaps more troublingly, only 14% actually had a bold transformation agenda. What do you see as being the top priorities the CFO should be addressing when it comes to finance transformation?
Ryan
Myles, you know I love this question. I really think that first CFOs need to understand what their finance function needs to look like in five years, not just today, but what they need to look like five years out to support the business and remain competitive and then they need to put a plan in place to work towards that and not just a one-line vision, but a really practical plan. For example, what data do they need to drive insight, the insight that Andrea was talking about and how should they combine their financial, operational and external data to drive that insight? They also really need to understand the technologies that are going to enable transformation, not just their core financial system, but all the digital technologies that surround their ERP (enterprise reporting planning) like GenAI and we know that clients who are adopting emerging technologies are outperforming their peers. They need to get ahead of that, and as they continue to automate, they need to understand how to structure their organizations to be efficient and cost-effective. It’s not just a question anymore of should my teams be onshore, should my teams be offshore? It’s about the digital shore in addition to the other two. So, I really think good CFOs also understand the skills they need to start building now to drive towards that vision of what they have to look like in five years. For example, do they have data mining capabilities and team members who can effectively communicate where they are headed. We talk about good storytellers. In addition to the debits and credits that Andrea referred to that the CPAs (Certified Public Accountant) and the MBAs (Master of Business Administration). They need all of that.
Corson
That is a fantastic tee-up for our third and final paradox, which is this balance between the strategic leadership role and the traditional skillsets and as the CFO role expands, so do the skills needed in order to take on these new roles. When speaking to Nick Priday from Dentsu, we asked him for his views on different or additional leadership skills CFOs need now that were needed in the past, and here is what he had to say.
Nick Priday: And I think the as well as storytelling, I think the skill which is required by a CFO is to be able to take very complex topics at times and be able to explain them very simply and very clearly and very quickly. Often the attention span for people who have complex financial matters is relatively limited and I think being able to explain things in that way very concisely is important and often being able to tell a story might help in terms of how you might articulate those type of issues. It sort of required me to have a much broader approach, which I think that obviously once you have gone through that journey, you sort of try to maintain and keep that broader mindset when you are applying it to other sort of items which may come up and need maybe not quite the same level of the focus and attention, but nevertheless, I think it stands you in good stead having navigated something like that and I think the other thing from my personal perspective over the last few years is just a really much deeper understanding of cultural differences. I have gone from being the CFO of an international business with international leaders typically, which have been UK (United Kingdom), Europe or US-based (United States) despite being part of a Japanese group and on this advent of one company, one Dentsu, obviously much more engagement with colleagues in Japan and as part of my onboarding and getting to understand more about our Japanese business in particular, we have used a book called The Culture Map by Erin Meyer to really try to help provide a simple framework. I think there is eight axes in this Culture Map book, which basically you look at different nationalities and what characteristics they typically exhibit. Everyone’s an individual so people do not necessarily are not the same as the country which they may come or almost closely relate to. Well, I think that is being the biggest thing for me in terms of being effective, in terms of strategic input and even finance function specific decision-making. How decisions are made in different cultures is incredibly interesting and incredibly important to understand if you want to be effective and progress, get decisions made. So in Japan there is a famous phrase of Nemawashi where people socialize and engage one-to-one on topics before the formal meeting which may be called to drive an outcome and it really does not work that way, and I mean every single one of my colleagues in Japan has a consensual approach to decision-making rather than a top-down approach and that has been the biggest thing for me to lean into over the last couple of years to make sure you can continue to be effective and understanding those cultural differences has been critically important.
Corson
So Andrea, communication and culture are two key areas that successful CFOs get right. So probably no surprise in the survey that the finding that the top skills are attributes expected of successful CFOs in the next five years were highly developed emotional intelligence and experience in people issues like diversity and well-being. How important do you think emotional intelligence is for senior finance leaders, and can you share examples of how you have seen CFOs display emotional intelligence in practice?
Gronenthal
Yeah Myles, emotional intelligence is absolutely critical for CFOs in today's environment. One of the examples that I have seen recently is I had a client who has developed a finance transformation program, multiyear. It’s gonna have a huge impact on the people and the CFO was very focused on one, first developing a vision that everybody could rally around and then communicating that vision and appreciating the impact on the people and how it was going to impact each individual, did an excellent job at that and he outlined a journey that got everyone on board for this long-term difficult transformation that they were going to do and then within about six months of that occurring, the company needed to adapt to what was happening in the marketplace and they needed to accelerate taking out some of the headcount and additional infrastructure so that they were responding to what was happening in the market conditions and because everyone had been on board with the transformation and understood the journey, it was just very interesting to see how the big changes in the near term were accepted without a lot of resistance or angst because they understood that it was a part of the journey. It was really focusing on the emotional intelligence and making sure that there was really an understanding of the people impacts that I think that allowed that CFO to be successful.
Corson
It was also clear from the research that CFOs find the role challenging but rewarding and there are high levels of satisfaction. The main challenge to being a CFO today was identified in the survey is finding time to build knowledge and expertise through exposure to external expertise and access to thought leadership. So, Deirdre and Andrea, as we wrap-up, what would be the advice you each give or have for aspiring CFOs? Deirdre, I’ll go to you first.
Ryan
You know, I honestly think it goes back to what I was saying earlier, aspiring CFOs have to really understand what it is going to take for the finance function to support the business, not just today but into the future and there are so many aspects of what finance is being asked to do that additionally, it’s important to have the right team around you with the right skillsets to drive success. Personally, I am a huge fan of CFOs having had a number of roles having worked in a BU (business unit), worked at corporate, worked in operations. I just think it gives them the well-rounded perspective that will ultimately drive success.
Corson
And Andrea, same question to you.
Gronenthal
I will pile on to what Deirdre said. I think it is about being curious and understanding broadly what is going on in the business, and outside of the business, being that lifelong learner and seeking to understand more broadly than the core finance organization, I think is critical to being successful today.
Corson
Thank you for sharing that and we asked the same question to Nick and he had some really fantastic insights. So, we will hear from him now.
Priday: The first thing I would say is you have got to take ownership for your own career and you got to be proactively seeking out opportunities. You got to be really curious. I think if you want to be a CFO, you have to really understand the business drivers, what are the important drivers, whether a business is going to be successful or not and that takes you away from the core competences of what you need to do to be successful from an accounting perspective or a treasury perspective, investor relations, and so I think people showing a real curious interest to understand those different disciplines, but then more importantly the drivers of what makes our business successful, I think it is important. So your proactivity being curious.
Corson
Deirdre and Andrea, thank you so much for joining us today and sharing your insights on what CFOs are facing and what they can do in order to make the changes that are needed to be ready for the everchanging role of the CFO. It has been a real pleasure having you both on and thank you.
Ryan/Gronenthal
Thank you, Myles. Happy to be here. Thanks.
Corson
I would also like to add my thanks to Joe and Nick and to the other CFOs that we interviewed for the DNA of the CFO survey and you can read more of their comments in the written report, which again is available at ey.com/cfo.
If you have enjoyed this or any episode of the Better Finance podcast, please leave a rating review and do not forget to subscribe so you receive future episodes. You will find related links in the show notes on ey.com/better finance. As always, thank you for listening. If you have any ideas or topics you would like to see covered, or guests you would like to see featured, please do not hesitate to reach out and I look forward to speaking to you next time.
