First-Time CFOs Get a Crash Course in Managing Inflation, Volatile Markets
For the 64 companies in the S&P 500 and Fortune 500 that appointed new CFOs last year, the turbulent economy provided on-the-job training
By Kristin Broughton and Anna Mutoh, published: The Wall Street Journal, Feb 23, 2023
Deere & Co. incurred higher costs to expedite shipping for parts to factories and deliveries to customers.
Photo: STAFF/via REUTERS
The past year has been a tumultuous period for the global economy—and an opportune time for finance chiefs to cut their teeth.
Newly minted chief financial officers last year received a crash course on how to manage high inflation, rapid changes in consumer spending, the effects of a strong U.S. dollar on corporate earnings and volatility in capital markets. In 2022, 64 CFOs at S&P 500 and Fortune 500 companies stepped into their roles for the first time, down 26% from the prior year, according to the executive search firm Crist Kolder Associates.
Overall turnover in finance offices ticked up late last year, as executives faced the prospect of recession after two years of navigating the financial pressures of the pandemic. That provided an opportunity for up-and-coming finance talent to step up, particularly internal candidates familiar with their companies’ cultures and business models, according to Cathy Logue, head of the chief financial officers practice at the recruiting firm Stanton Chase.
What first-time CFOs often lack in terms of experience they make up for in other marketable skills, including strong backgrounds in analytics, Ms. Logue said. “By and large we’ve seen the traditional role of the CFO changing,” she said. Companies are also appointing women and people of color as first-time CFOs, she said.
Additionally, companies are interested in deputy-level candidates who have a background in investor relations, said Josh Crist, co-managing partner at Crist Kolder. “Those players are the most successful in making the leap,” Mr. Crist said.
CFO Journal spoke with several first-time CFOs at big U.S. companies about the challenges they faced last year, and what it means for their career paths. Here’s what they said.
Joshua Jepsen, Deere & Co. CFO
Photo: DEERE & CO.
Joshua Jepsen, Deere & Co.
Age: 44
Career path: Mr. Jepsen took over as CFO in September after serving as deputy CFO for six months. Before that, he worked in Deere’s investor-relations division and previously spent time in business-line roles across the globe. He joined the company in 1999 as an intern at Deere’s engine factory in Torreon, Mexico.
Macro challenges faced as CFO: Deere, like other manufacturers last year, faced higher material and freight costs, as well as elevated overhead expenses due to pressures across its supply chain. Meanwhile, the company confronted stronger demand from agricultural customers aiming to capitalize on high commodity prices.
Critical decisions made as CFO: Mr. Jepsen allowed the company to incur higher costs to expedite shipping for parts to factories and deliveries to customers. To offset those costs, the company raised prices, in some cases by a larger amount than it had done so previously, he said.
Deere’s total costs during the fiscal year ended Oct. 30 jumped 19%, to $43.5 billion. Total sales and revenue increased by the same percentage, to $52.6 billion. Profit climbed 20%, to $7.1 billion.
“Stepping back with a little bit of time to reflect, that was 100% the right thing to do to take care of customers,” Mr. Jepsen said. Supply-chain and inflationary pressures have eased in recent months, but are expected to remain elevated throughout 2023, he said.
Lessons from the first year: Regularly assess and give priority to what’s most important, and manage your calendar accordingly, he said.
“Each day, trying to make those decisions—it’s not easy. It means you’re saying no to things, and to people. And I think culturally for us at Deere that’s hard. But it’s an important trade off to make, to really spend time on those things that are most impactful,” he said.
Flavia Pease, CFO at Charles River Laboratories
Photo: CHARLES RIVER
Flavia Pease, Charles River Laboratories International Inc.
Age: 50
Career path: Ms. Pease took over as Charles River’s CFO last spring. Before that, she spent more than two decades at Johnson & Johnson, including most recently as group CFO of the company’s medical devices unit.
Macro challenges faced as CFO: The company’s biggest headwind was recruiting and retaining employees in a tight labor market, particularly for entry-level technician positions, according to Ms. Pease. Some of the hiring pressures have eased in recent months, as big companies across industries have announced layoffs, but competition for talent remains elevated, she said.
Critical decisions made as CFO: Charles River last year boosted wages for all employees to keep pace with labor inflation. The company—which provides contract laboratory services for drug developers and biotechnology firms—also raised prices in its contracts with clients to offset the higher labor costs. Customers have been amenable to paying higher prices, in part because they are facing inflationary pressures of their own, Ms. Pease said.
During the quarter ended Sept. 24, revenue increased 10%, to $989.2 million. Profit fell 7%, to $96.5 million.
Lessons from the first year: When the economic outlook appears murky, part of a CFO’s job is to provide reassurance, Ms. Pease said, noting that she’s spent a good chunk of her time over the past year talking with investors, analysts and employees.
“In a year of a lot of volatility and a lot of noise, the role of the CFO is to spread the gospel, so to speak, on our company’s investment thesis. Why are we an attractive investment? What differentiates us?”
Mandy Yang, CFO of Enphase Energy
Photo: Enphase Energy
Mandy Yang, Enphase Energy Inc.
Age: 47
Career path: Ms. Yang stepped into the CFO role in February 2022, after joining Enphase in 2018 as chief accounting officer. She previously worked as group controller and senior director at Tesla Inc. but left that job to follow her former boss, Eric Branderiz, who was named Enphase’s CFO in 2018. Mr. Branderiz stepped down last year.
“I worked for the right leader,” Ms. Yang said. “It was a huge opportunity at Enphase for me to contribute.”
Macro challenges faced as CFO: Enphase sells devices that convert energy generated from residential solar panels into electricity for home use. The company also sells backup battery systems. Enphase faced pressure last year from higher costs and the effects of a strong U.S. dollar. But high inflation and a jump in energy prices, particularly in Europe, also accelerated demand for the company’s products, pushing the company to expand its manufacturing capacity and boost production.
Enphase generated $634.7 million in net revenue during the quarter ended Sept. 30, compared with $351.5 million a year earlier. Profit during the quarter was $114.8 million, compared with $21.8 million during the prior-year period.
Critical decisions made as CFO: Ms. Yang was responsible for the financial analysis behind the company’s decisions last year to expand its capacity, including the addition of a contract manufacturing facility in Europe. Enphase is also adding six new manufacturing lines across three contract-manufacturing facilities in the U.S. in response to climate-related tax incentives signed into law by President Biden last year.
“We managed to navigate through the macro challenges, and were able to capitalize on the market conditions,” she said.
Lessons from the first year: Ms. Yang said she never had career ambitions to become a CFO, but a passion for numbers, financial analysis and solving accounting problems led her to her current job. “I’m learning. I’m still trying to embrace the role,” she said.
Ken Jacobson, CFO of Avnet
Photo: AVNET INC.
Ken Jacobson, Avnet Inc.
Age: 45
Career path: Mr. Jacobson, who had previously served as interim CFO from 2017 to 2018, stepped in officially as CFO in September. Since joining Avnet in 2013, he most recently was vice president of corporate controller and before that was vice president in finance and accounting. Before Avnet, he was director of external reporting and technical accounting at First Solar and started his career in 2001 at PwC as an auditor.
Macro challenges faced as CFO: The distributor of electronic components has been growing steadily over the past few years amid strong demand in electronics. But Mr. Jacobson has faced a challenge in deciding how to balance long-term investments for growth and future operations such as IT systems and warehouses, while also meeting short-term needs such as working capital and shareholder return programs. This has been especially hard in a cash-flow-constrained environment with higher interest rates. Mr. Jacobson says Avnet’s interest expenses on its debt have almost tripled over the past year.
“The good thing is we’re not alone in it, but it definitely is challenging.”
Critical decisions made as CFO: The management team asked employees to return to office three days a week in the Americas. While there was some attrition in the beginning, it hasn’t been as bad as other companies, Mr. Jacobson said. Free lunches and team events are some of the tools to lure employees back to the office.
The balance of power between company and employees has been coming back to “a nice place,” and there has been an uptick in collaborations over the past six months, said Mr. Jacobson. He added that the company’s goal is to get back to its prepandemic policy, which was already flexible.
Lessons from the first year: Mr. Jacobson says he was pleasantly surprised that what helped him step into his new role was his relationship with colleagues across divisions beyond finance, including sales, marketing and inventory management, as well as customers and supplier-partners. Having that network proved to be helpful in dealing with the challenges over the past six months, he said.
“When there is trust, you can make a lot of things happen.”