As recession chatter continues, finance executives are beginning to make preparations for what looks to be a continuation of downturning markets at minimum. While strategies differ, a new survey from Grant Thorton found nearly a third of CFOs would lay off some of their workforce to counter the consequences of a recession. The survey also found a mere 39% of CFOs said they have an overall optimistic outlook on the U.S. economy over the next six months, a number that has fallen 30 percentage points since September 2021.
While layoffs may be a short-term fix to balance sheets and cash flows, companies that choose layoffs will put themselves in steep hiring competitions to refill their workforce post-recession — a competition that’s already impacting organizations across the board now.
“Instead of resorting to layoffs, CFOs should be focusing their efforts on ways to optimize costs like benefits and engage the people they are worried about losing,” Tim Glowa, principal of human capital services for Grant Thorton, told CFO. “It may be a natural impulse to consider workforce cuts in the face of a steep economic downturn, but for many organizations, layoffs can be avoided by pulling the right levers before a downturn starts to impact growth.”
Grant Thornton also asked CFOs about how a potential economic downturn will impact human capital plans in the next six months. A majority of respondents identified either challenges to attract and retain the right talent or an expectation of higher worker retention rates as the economy slows down and job markets shrink.
Glowa suggested companies reevaluate benefit offerings for their workers, as he claims companies “routinely waste money on benefits that employees don’t want or value to the tune of $1,500 or more per worker annually.”
While the issue of managing remote employees and creating a virtual workflow has already been tackled by most organizations, according to Grant and Thornton, CFOs are now focusing on costs and foundations around the employee, regardless of their workspace. “I don’t think it’s managing [the] remote workforce itself that’s the issue — companies have had time to adjust to that reality,” said Glowa in the survey. “With CFOs focused on cost, I think it’s a confluence of issues.”
Potential cutbacks on commercial real estate are on some companies’ agendas but not to the extinction of the office, according to Glowa. “Many companies want employees back in the office — and some employees want to be there — but employers can’t ignore employees’ preference for flexibility in where and when they work,” said Glowa. “For many companies, that means less need for office space. But how much less? And where?”
Craig Foster, CFO of photo and video editing software developer Picsart, spoke to CFO about preparing for a recession while also hiring the best talent possible. His software-as-a-service company is leveraging data to help make decisions that keep a dwindling recession in mind. Software attribution scores allow the company to see how many times a feature is being used or the popularity of a new feature the company invested in. With its own data, the company is making AI-powered business decisions.
“We ask if there’s an intrinsic return on all of these different components inside of the product or in marketing them,” said Foster. “Is this an investment that has a return? Are we over-indexing on spending in a certain area where we need to think about cutting back or reallocating resources into something that will have a higher return?”
Remote work is another way to limit spending, Foster said. “We can now acquire talent anywhere, so it’s given us tremendous access to new talent pools that were probably unavailable, or that we weren’t thinking about before,” Foster said. “There are some cost savings associated with that.”
In CFO’s annual survey of finance chiefs released on September 1, a quarter of CFOs said they would reduce or eliminate hiring and retaining talent to fight inflation. While labor markets tighten, skills like data analysis and accounting were favored over leadership and industry knowledge by survey respondents.
As automation sweeps its way through financial processes, some CFOs look to incorporate more technology in their processes as a way to balance productivity should they have to pursue layoffs. Almost half (47%) respondents in the CFO survey said their organizations were in the implementation stages of new technology.
While the CFO survey found a majority of finance executives would pursue tactics other than layoffs should a recession materialize, one respondent said the unpredictability of economic regression may lead to things changing quickly.
“The biggest challenge will be managing really unknown economic headwinds,” wrote the finance executive. “[There] seem to be mixed signals like never before. Pressure to increase wages to match the inflationary environment while dealing with a slowing of the economy. Uncertainty is higher now than anytime I remember in the last 20 years.”