Finance Leaders Forge Unique Paths Amid Rising Interest Rates and Inflation

Today’s CFOs are being expected to navigate a seemingly endless series of new challenges. From the pandemic to the so-called “Great Resignation” it triggered, not to mention supply chain complications, labor shortages, and geopolitical events, finance leaders must now also grapple with compounding economic factors including rising inflation and interest rates that hit a 40-year high in April.

What’s more, there’s no quick end in sight to any of the factors ramping up pressure on organizations of all sizes and shapes, nor are there easy solutions.

In a recent Fortune Emerging CFO virtual event sponsored by Workday, corporate finance leaders from AT&T, loanDepot, and Ryder discussed how they’re thinking about the challenges ahead and what they’re doing to best position their companies for continued uncertainty. The common themes through the wide-ranging conversation included a focus on handling uncertainty—as well as an emphasis on transparency, talent, and technology.

Pascal Desroches, CFO at AT&T, characterized the causes of the economic climate as structural, beginning with pandemic-related disruptions of the supply chain followed by the “Great Resignation.” 

“We are just at the very early innings of this problem,” he said, noting recent COVID-19 shutdowns in China and a disruption of the supply-demand dynamics in energy caused by Russia’s invasion of Ukraine. “I’d be surprised if we are out of the woods on this in the next 12 months.”

Nicole Carrillo, executive vice president and chief accounting officer at loanDepot, noted that the current economic climate has little in common with any period in the past several decades, leading to a dearth in data around how consumers and credit perform in this environment. As a former bank CEO, Carrillo’s instinct was to figure out how to create a financial model to project credit losses and forecast and manage cash flow, a situation that places a strong emphasis on having comprehensive and accurate data.

“We have our expectations of 2023 which are a little bit higher than 2022, and we’re looking at how we can best use this time to invest and grow our business and serve those clients,” she said.

John Diez, executive vice president and CFO at Ryder, said freight markets and lingering supply chain issues suggest that inflationary pressures will continue into 2023. And he warned that companies need to be prepared for the long-term structural shift ahead and a long-term inflationary environment, with wages likely being the largest component. 

“That’s something all businesses need to plan for in the long haul,” Diez said. “Unfortunately, many businesses are going to go out of business if they don’t manage and plan for it effectively.”

Transparency Among Employees, Customers, and Organizations

Whether it was fostering dialogue with customers, employees, or both, the finance leaders emphasized a renewed commitment to improving communications amid challenging times.

AT&T took consumers’ situations into consideration when adjusting prices, encouraging some customers to upgrade to plans that have a lower monthly charge than their current plan, and other customers to upgrade to a plan that would provide them with more features than their current plan. “We’re trying to cushion the blow by providing more value and more attractive returns for the incremental amounts that they’re paying,” Desroches said.

Diez emphasized transparency in Ryder’s approach to price increases. With approximately 50,000 customers—many of them small and medium-sized businesses in the United States, Canada, and Mexico—the transportation and logistics company has sought to educate them on the environment as they look to renew leases on commercial vehicles or expand their fleets. The effort is crucial, Diez said, adding that the company’s costs for vehicles have increased by double-digit percentages.  

“A lot of our time right now is being spent on educating the customer base, working with them, and creating strategies that mitigate the inflationary pressures that they’re feeling so that they could pass it on to their customers,” he said.

Likewise, loanDepot has emphasized an educational approach—for both loan officers and customers, Carrillo said.

“It’s not an easy conversation like it was a year-and-a-half ago of, ‘Great, 30-year fixed refi, here you go.’ We need to be more creative because the rates are not where they were,” Carrillo said, adding that providing context about why interest rates are climbing has been important on the customer side, as well.

“For us, the transparency is coming with the time and the care and the education that we take with each of our clients as they try to go through what is for many people a milestone and monumental point in their life,” she said.

Using Data to Provide Actionable Insights

Taking into account data sets that go beyond traditional financial metrics also provide transparency for companies seeking a path forward. 

Employee surveys have been helpful in understanding employees’ concerns, as well as identifying potential business opportunities, Carrillo said. In response to survey data, loanDepot rolled out additional benefits focused on wellness and mental health, an area of importance for employees.

Carrillo added that loanDepot’s employees helped identify new home equity line of credit (HELOC) products as a need for customers. “Customers were trying to access the new wealth they had in the appreciation of their home, and it was getting very difficult,” she said. “The information we get from our employees directly is sometimes the best nonfinancial data that I can rely on.”

For AT&T, Desroches said consistent monitoring of its Net Promoter Score was important to confirm what the company is seeing in quantitative metrics such as subscriber gains and customer likes. “It’s a useful tool because, ultimately, if your customers are not satisfied, you have a looming problem,” he said.

Finding and Deploying the Right Technology

Technology was a critical component of Ryder’s operations during the pandemic, Diez said.

Ryder, which deployed Workday Financial Management over the past couple of years, has seen improvement on the customer service side and its own finance function’s ability to execute, “whether it’s closings, whether it’s debt offerings, whether it’s anything else that comes our way,” he added.

“Clearly, the technology that’s in place today is much more advanced than what we had even coming into COVID-19 [and it] has provided us plenty of opportunity to gain efficiencies,” Diez said. “Having the right technology platform to build on is key. Without that, I think you’re going to be challenged.”

Few sectors saw a more dramatic impact to their businesses than the mortgage industry. 

LoanDepot’s Carrillo credited the low-interest environment of the past few years to a boom in mortgage refinancing—up 60% over the past two years. In response, the company ramped up its technology and talent spend.

“We were hiring as fast as we possibly could, putting in technology innovations as fast as we could in order to meet the customer demand at that unprecedented time when people wanted to take advantage of these interest rates,” Carrillo said.

But the rapid rise of interest rates led to a nearly 60% decline in mortgage refinancing over the past few months.

“Obviously, when that much of your business declines, there’s going to be an impact on people,” Carrillo said. “You need fewer people, you’re doing less volume, but we try to figure out how we can repurpose them.”

For those who remain, Carrillo added, the employee retention risk is significant, and cloud technology provided a path forward for loanDepot.

As its mortgage business grew, the company looked to make improvements in technology to handle its increasingly sophisticated needs. That meant deploying Workday Financial Management to replace the company’s 10-year-old legacy accounting system. Now, Carrillo added, “With Workday financials, our finance team has achieved significant automation efficiencies and incredible optionality—and we do so operating virtually. I can now offer this as a key advantage as part of our talent retention.”

The technology gave Carrillo another tool to help retain employees. “It’s really their option if they’re going to work from the office or work remotely because they’ve proven that they can be incredibly effective and efficient remotely now,” she added.

Building the Finance Teams of the Future

Another top concern for CFOs is talent—how to attract, retain, and develop it—and finance leaders now expect more from their finance teams. Accounting skills, of course, remain important but are no longer enough on their own.

• When it comes to talent, Carrillo said she values job candidates who bring creativity to problem-solving and strong communication skills. “In this remote environment, especially with accounting and finance professionals, communication has become even more important,” Carrillo said, adding that she values insight that goes beyond the numbers. “I want you to explain it to me because I want to know you can explain it to your business partner in a way that they’re going to understand it as well.”

• Diez said he looks for individuals who seek a long-term role at the company, “whether it’s within finance or even moving into operations,” as he has done in his own career. “One of the things we always ask is what are they looking to get out of their career, and understand what their desires are, making sure they’re in alignment with us.” On the hiring side, he added, it’s important, especially in a tight labor market, to be attractive to prospective hires. “You’ve got to make sure that your compensation is right so that you can compete in this marketplace,” Diez said.

• Desroches similarly sought a financial storytelling ability. “Numbers always tell you a story,” he said. “Are you able to articulate that crisply to leadership and to your business partners?” Noting the growing use of machine learning and artificial intelligence, Desroches added that finance teams of the future should also be comfortable using data and interpreting it to create value. “We are looking for literacy in data as a big part of the future of this organization,” he said.

An element of employee engagement deserved more attention, Desroches said. “One of the things that as a country we’re not talking nearly enough about is our employees’ wellbeing,” he said, adding that employers are now expected to address issues that in the past had been the purview of government. “That puts additional burdens on the organization as a way to try to differentiate yourself to employees in a very tight labor market.”

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