CFOs In The Age Of Volatility: Q&A With McKinsey’s Ishaan Seth

Ishaan Seth, the global co-leader of McKinsey’s Strategy & Corporate Finance Practice, discusses CFOs’ evolution and what they can do to be successful leaders during precarious times.

Global Finance: What are CFOs talking about right now?

Ishaan Seth: I’ve been in over 150 conversations with CFOs this year. We’re hearing, “Wow, we haven’t quite seen anything like this—or at least not in a long time.” The volatility and uncertainty are fairly unprecedented. Multiple shocks are hitting the system all at once: climate change, the shift to net zero, digitization, the invasion of Ukraine, the Covid-19 pandemic, major supply-chain shocks, inflation and significant labor attrition. Perhaps the biggest shift we’ve seen is in the mindset of employees and future recruits. So that’s the big message: a lot of uncertainty and a sense that they’re running from one fire drill to the next.

GF: Do reactions vary in different parts of the world? 

Seth: 100%. A metals and mining producer in Chile is having an easier time due to currency and global demand than an automotive supplier or original equipment manufacturer in Europe. Think titanium- and palladium-chip manufacturing and the constraints on that supply chain—a big chunk of that production is in Ukraine and Russia. If you’re a consumer-packaged goods company, given the inflation that we see, you’ve got serious impacts on your expense line, and you’re trying to balance how you’re going to price your product to make up for that.

GF: How much has the CFO role changed in the past five years?

Seth: The most successful CFOs are playing well beyond the boundaries of their formal role. We discussed a mindset shift in a recent article I co-authored, Strategic Courage in the Age of Volatility. Often, CFOs are the naysayers. They’re trimming back on budgets or saying ‘no’ to an investment ask or proposal. But given the volatility, the pace of decision-making is much more rapid. A CFO must be able to look at the glass half full and half empty. You’ve got to be able to look at that proposal asking for $10 million and ask, “What if we gave you $25 million? What would that deliver?” Or, say a plan is approved, “What would it take to get the product into the market in 12 months instead of 24?”

Also, this is not just about the senior team. Talk to your frontline. Know what the cashiers are saying; know what the bank teller is saying; Find a way to connect the dots within the organization. I was recently at a session with a large bank that brought together all its global country heads to discuss what they’re seeing with regulation, payments, trade flows and consumer sentiment. The idea was very simple: “How do we get better insight? We’re sitting on this enormous amount of knowledge within the organization. How do we harness that?” Moving beyond conventional ways of looking at the world is a newer muscle for some. 

GF: How are CFOs tackling ESG as a top challenge and priority?

Seth: The most important thing CFOs can do around ESG is help create the narrative, or the “investor thesis,” on why it matters. The challenge is getting from point A to point B when that journey map doesn’t exist. CFOs can play a fundamental role in saying, “Where do we want to be a decade from now?” Once we have that, ask, “Which businesses do we need to deprioritize? What are the new businesses we need to build? How do we think differently about the supply chain? And how will we finance the enormous investment required?” CFOs are uniquely positioned to take the elements of that roadmap and translate it into language investors understand. They also need to convey where it begins to show up in the revenue line, whether in year three, year four, or year five. There’s a way to describe these things to investors and bring together multiple ways of strategic thinking that CFOs are well positioned to do.