For so many British citizens and companies, the year 2022 was akin to an unrequested roller-coaster ride. Not only did politicians come and go at bewildering speed but so did policies and predictions as to the direction of the economy.
As hard as it may be to believe now, back in early January last year the mainstream view of forecasters was that as COVID-19 receded, the economy would enjoy a firm boost as the pent-up demand of consumers, compelled by circumstances to build up their savings as there were far fewer opportunities than normal to spend, would be released to spectacular effect. A little more than six months later, the same oracles and prophets were telling us that with war raging in the Ukraine, inflation resurgent, and energy prices destined to reach unimaginable levels, we were heading towards a recession faster than Usain Bolt in his prime. What was a CFO to do in response?
If 2022 was the roller-coaster, 2023 looks likely to be something closer to a Mystery Train. Not The Mystery Train in the sense of the slightly seedy late 1980s movie of that name, more like the sort of experience that children had in yesteryear at fun fairs of old, when you knew that the train would enter at some point and emerge again eventually at another end, but what you would see between that start and that finish was almost impossible to predict in advance (although in practice it mostly involved passing through material which looked as if it might have been acquired second-hand from the set of a particularly dire Doctor Who episode). You bought your ticket, and you rode your luck.
The big clue that we are squarely in Mystery Train territory comes from the unusual reluctance of the commentator classes to make firm predictions about the year to come this time round. With a few honourable exceptions, the economics profession has taken a pass on 2023. Those who are sort of obliged to put some numbers in the public domain have not rushed to do so at any visibility or at volume and have hedged what they have done with so many conditionals as to not only cover their backs but virtually the entirety of their bodies. What the Treasury, Office of Budget Responsibility and Bank of England have said is not entirely consistent with one another. The Treasury offers the impression that it wants to lower expectations so that if we reach next Christmas without much of the population being destitute and driven to eating grass it can be presented as a sort of triumph. The Bank of England, by contrast, really does appear to be constructing a bunker into which it can retreat and has the PR messaging of Private Fraser in Dad’s Army namely “we’re doomed, doomed, I tell you”. The Office of Budget Responsibility seems inclined to split the difference and cross fingers. The small army of independent economists that exists today are happily all over the shop as well.
Still, the sturdy CFO has long appreciated that economists exist to make weather forecasters (and even astrologists) look accurate. No one has ever built a business by outsourcing strategy to them. In the age of The Mystery Train, what might the shrewd CFO do to protect against unpredictability?
Here are five ‘rules’ which are as good as any not just for CFOs but for UK boards more broadly.
First, stay calm. The most dramatic (and invariably the most negative) economic predictions are the ones that will secure the large headlines. This does not mean that they are any more valid than more sober observations. In times of potential turmoil, employees look to those in very senior positions to offer realism, but also reassurance. Come across like Sam the Bald Eagle, not as a headless chicken.
Second, be extremely adaptable. The chances of the numbers which you are currently working with at the start of 2023 still making lots of sense by the middle of this year, never mind the end of it, are, bluntly, remote. Budgets in 2023 will need to be a process, not an event. There will probably have to be constant adjustment. This is easier said than done in that bureaucracies of all forms like budgets. They provide a (frequently superficial) sense of certainty. Yet as the array of plausible possibilities for the UK economy in 2023 range from a sharp downturn to a striking consumer resilience depending on when inflation is perceived to have peaked and how swiftly it might recede, then drawing up the annual budget and treating it as if something that Moses handed over to the CEO and CFO in an act of kindness from which any deviation will invite the vengeance of an angry God is not to be advised. Every board meeting in 2023 is destined to evolve into a budget planning meeting of some formula. This is not a situation which reflects badly upon the CFO. It is precisely what should be happening.
Third, accept that instinct will matter more than normal. This may be slightly tougher for CFOs to swallow being rational creatures of data with decisions taken on the basis of high-quality evidence. Setting even some of that to one side and accepting that instinct has to play a larger part this year than it would it more settled times sounds like the sort of behaviour that the marketing department might engage in but being extremely adaptable means allowing more instinct into the equation.
Fourth, plan for the upside. With the end of the Christmas season, financial operatives across the UK will return to draw up detailed schemes for how they can retrench in the event of a harsh recession. It is absolutely right that they do so. It would be a dereliction of duty (indeed of the Risk Register) if they did not. It is also, though, worth remembering the wise words of General Dwight D. Eisenhower who once intoned that: “Plans are worthless, but planning is everything”. In these wild Mystery Train conditions, a company also needs a blueprint for if times turn out to be rather better than expected. Being caught out if the demand for your services is too strong is to be avoided.
Finally, the quality of people matters the most when what will be needed from them is least certain. This is valid (obviously) for CFOs themselves but applies with similar intensity across the company. The worst possible moves that a business could make in 2023 would be (a) to make staffing cuts in anticipation of an economic slump that has does not arrive, (b) to fail to invest in new personnel and (c) lose the confidence of those who remain with you, who will thereafter be looking for the chance to move on once the corner has been turned decisively and there are brighter times on the horizon.
CFOs have had a lot thrown at them since early 2020. Most of them have come out the stronger for all those slings and arrows of misfortune. All aboard the Mystery Train 2023 for yet another outing.