The top concern for CFOs this year is talent management, according to a survey by Protiviti and NC State University’s ERM Initiative.
By the numbers: Not only do talent and succession challenges represent finance leaders’ most pressing risk concern this year, but also, four of their top 10 risks for 2024 relate to people management and organizational culture.
Why it matters: Managing shifts in labor expectations and addressing succession challenges are crucial for organizational performance and resilience.
Bottom line: An effective human resources strategy will help organizations navigate rapidly changing global markets, particularly when addressing uncertainties around two other key issues on CFOs’ radar—economic conditions and inflationary pressures, and cyber threats.
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As wars, re-routed container ships, breakthroughs in artificial intelligence (AI), the biggest election year in world history, central bank decisions and other warning lights blaze on risk dashboards, CFOs reserve their most significant concern for the ultimate driver of organizational performance and resilience: people.
The ability to attract, develop and retain top talent, manage shifts in labor expectations, and address succession challenges is the top concern for CFOs this year, according to the results of the latest Executive Perspectives on Top Risks Survey conducted by Protiviti and NC State University’s ERM Initiative. The study assessed the top risks on the minds of global leaders for 2024 and the next decade, through 2034. (Talent management challenges are with us for the long haul: Finance leaders also identified people as their top risk concern looking out 10 years to 2034.)
The emphasis on people says a lot, given the collection of other risks CFOs, their C-suite colleagues and boards contend with each day. Not one, but two regional military conflicts threaten to escalate. A third war, given rising tensions between China and Taiwan, could arise at the slightest provocation. The hermit kingdom in North Korea continues to be unpredictable, and attacks on container ships in the Middle East are forcing many to reroute around Africa, adding 10 days to their journeys and, in the process, inflating costs by at least 15%. The FBI director recently warned Congress that hackers affiliated with the Chinese government are preparing to inflict “real-world harm” on U.S. citizens by targeting critical infrastructure. And, of course, the buzz around the potential of generative AI (GenAI) to disrupt industries, professions and organizations is ubiquitous.
This risk backdrop tells me that even with all of these issues on the threat horizon, CFOs view talent and organizational culture (another top risk concern this year) as the foundational enabler of their organization’s ability to address, manage and adapt to these myriad risks—including two other issues flashing red on CFOs’ risk dashboards, according to our survey: economic conditions and inflationary pressures, and cyber threats, including those that upend stakeholders’ growing expectations for identity protection and those that require CFOs to make disclosures in public filings.
Talent and Culture
Not only do talent and succession challenges represent finance leaders’ most pressing risk concern this year, but also, four of their top 10 risks for 2024 relate to people management and organizational culture. CFOs also view as top concerns potential increases in labor costs, resistance to changes in the business model and adjustments to core operations, and the organization’s culture not supporting the timely identification and escalation of emerging market opportunities and risk issues. This last concern around culture is especially notable because rapidly evolving geopolitical, economic, political, social and environmental risks may require swift strategic and operational adjustments that are only made possible by early recognition, as well as timely escalation to and consideration by decision-makers.
Talent management also underpins an organization’s ability to evaluate, adopt and optimize emerging technologies. Leveraging advanced technologies requires new skills that may be in short supply, requiring reskilling of the current workforce. And you won’t find cybersecurity and data privacy experts, cloud architects, data scientists, prompt engineers (who design inputs for GenAI tools that will produce optimal outputs), or other AI and machine learning specialists walking the streets in high numbers, résumés in hand. These technology skillsets are extremely difficult, and expensive, to source, as fresh research shows.
It seems that everyone and their uncle are looking for the same talent. Moreover, these challenges will only increase in 2024 and beyond as the baby-boomer generation of workers begins their transition into retirement, without a commensurate number of new professionals entering the workforce to replace them and provide for growth.
But risk always presents opportunity. Talent and culture risks require CFOs to play central roles in overhauling outdated workforce-planning approaches. This involves working closely with the CHRO to design data-driven talent strategies that feature redesigned job roles and enterprisewide skills inventories as well as rolling talent forecasts and skills modeling capabilities—which often incorporate FP&A and scenario planning concepts. CFOs continue to prioritize investments in next-generation talent capabilities while helping HR leaders develop advanced skills analytics and talent KPIs that drive more reliable talent forecasting and scenario planning.
Closer to home, finance leaders recognize that current, traditional pipelines are not delivering enough finance and accounting talent. The ranks of undergraduate accounting majors have thinned at the same time that finance groups are striving to integrate diagnostic AI, GenAI and other advanced technologies into their IT ecosystems. As a result, finance leaders are strengthening succession planning and leadership development activities while investing in the upskilling and reskilling needed to help rising finance leaders progress faster and more effectively.
Uncertain Economic Conditions
CFOs also recognize that a high-performing organization helps sustain performance during economic turbulence. While inflationary pressures and interest rate risks continue to show signs of easing, we’re not quite out of the forest. A recession could be triggered by any one of numerous unstable variables, including wider conflicts in the Middle East sparking a spike in oil prices or an unexpected central bank policy shift following a series of unfavorable reports on inflation or labor costs.
CFOs can address uncertainty by focusing on operational resilience. This means remaining focused on a variety of cost-optimization efforts, rooting out new cost-reduction opportunities that position the organization to improve profitability by pursuing technology cost containment, conducting procurement spending analyses and achieving working capital management improvements. It also means fortifying supply chain resilience by deploying innovative risk management approaches.
This work requires the deep and nuanced understanding of the increasingly interconnected nature of risks and their economic implications that the CFO can offer. For example, when attention fixated on Houthi attacks obstructing Suez Canal shipping traffic, savvy finance leaders considered alternatives while simultaneously assessing drought-driven Panama Canal transit reductions (which could reduce traffic there by a third or more this year, according to McKinsey), U.S.-China trade limitations, and friend-shoring/near-shoring trends.
Data Security and Privacy
Cyber threats also rate as a top risk concern for CFOs this year. That said, finance leaders tend to view the magnitude of cyber threats a bit less severely than do CEOs and some other C-suite executives. This is likely due to the CFO’s deeper knowledge of the organization’s cybersecurity efforts, which may give them more comfort not only about risks, but also about mitigating controls. Finance groups work closely with CIOs and CISOs to quantify cyber risks and fund information security investments to address these threats (and their potential impacts) more frequently than do other C-suite leaders.
Finance leaders also view related data privacy risks, including those that arise due to a cyber breach, as a growing concern. Data privacy compliance requirements continue to expand, as do privacy risks driven by the adoption of GenAI. Yet stakeholder expectations for identity protection are also changing in meaningful ways. When organizations fail to address these customer and shareholder expectations—convictions that are often more stringent than regulatory mandates—customer loyalty, brand image and, ultimately, shareholder value can suffer.
To sum things up, as CFOs look for new ways to mitigate the knock-on effects of cyber threats, technological disruptions, central bank policymaking and geopolitical developments this year, they should start by looking to the complement of people and talent the organization has in place. An effective human resources strategy will help organizations find, develop, keep, protect and engage their most important assets in navigating rapidly changing global markets.
This article originally appeared on Forbes CFO Network.
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