The CFO Corner · 2023-03-07 · 16 min
Key moments - from our scoring
Substance score
58 / 100
Five dimensions, 20 points each
Dr. Bill Conerly brings Fortune 500 planning experience and economic forecasting expertise to bear on CFO decision-making in uncertain times. His central thesis centers on the delayed recession timeline - he expects contraction to begin late 2023 or early 2024, moderated by a still-tight labor market masking the full impact of interest rate increases. The conversation pivots to a critical insight: CFOs are underutilized as strategic advisors. Working with employee retention expert Dick Finnegan's framework, Conerly argues that CFOs should quantify the true cost of turnover, including training, supervision overhead, and crucially, the institutional knowledge that walks out the door when employees leave. This reframes retention from an HR problem into a financial one. The discussion then addresses technology's role in finance transformation. Conerly observes that a 40% swing in the labor-to-technology cost ratio over three years means automation ROI calculations from years past may no longer hold. Yet he distinguishes between automating transactional accounting work (likely to be displaced) and analytical decision-making (requiring human judgment for forecasting, variance analysis, and creative problem-solving). Auditory AI's role in aligning chart of accounts with industry benchmarking exemplifies how technology augments rather than replaces CFO judgment.
He believes the U.S. is headed for a moderate recession beginning late in 2023 or early in 2024, though the timing is delayed compared to peer forecasters due to the tight labor market continuing to absorb some shock from higher interest rates.
True turnover cost includes not just hiring and training expenses, but also the cost of reduced productivity during the first six months, errors made by new employees, supervision overhead, and the institutional knowledge lost when experienced employees depart - typically a much larger total than companies initially estimate.
Conerly recommends CFOs develop contingency plans in advance by sketching out specific decisions about staffing, inventory, and credit practices; pre-made plans allow faster and smarter responses during actual downturns compared to making decisions under panic.
The cost of labor has risen significantly while the cost of technology has declined; over three years, Conerly found a 40% swing in the relative cost equation, meaning automation projects that didn't pencil out then may be financially viable today.
Transactional tasks like accounts payable processing and data entry will be automated, but analytical work - determining whether numbers are correct, identifying cost reduction opportunities, and making strategic decisions - will remain human-dependent for the foreseeable future.
Our reviewer’s read on each dimension, with quotes from the episode.
The episode contains several substantive ideas about recession planning, employee turnover costs, and technology ROI that would be useful to a CFO, but they are delivered at a relatively high level of abstraction with limited depth. The discussion of contingency planning and the anecdote about the 40% swing in technology-to-labor costs are concrete, but much of the conversation retreads familiar territory (recession forecasting, labor market tightness, automation trends) without novel frameworks or surprising data points.
the difference between a company that survives a recession and a company that fails in a recession...The difference is how fast they respond to the change
over three years, there was a 40% swing in the cost of technology compared to the cost of labor
The episode recycles well-known economic concepts (recession risk, labor market dynamics, automation replacing routine tasks) and relies heavily on the guest's published book and prior consulting frameworks rather than fresh thinking. The insight about CFOs quantifying turnover costs is useful but not novel, and the technology-vs-labor cost comparison, while concrete, is straightforward economic logic rather than counterintuitive thinking.
the future is uncertain, not only about the economy, but about the course of technology, social attitudes, competition, government
There are a number of mundane tasks that I think are going away
Dr. Conerly has legitimate operational experience as an SVP at a major bank and worked in corporate planning at Fortune 500 companies, giving him genuine practitioner credibility. However, he is now primarily a consultant and thought-leader rather than an active operator managing a business, which limits his ability to speak from current, hands-on decision-making at scale.
He has worked in economics and corporate planning at two Fortune 500 corporations and at a major bank where he was senior vice president
I'm a consultant, I'm a lone eagle with some poor people in the background
The episode includes some concrete examples (the manufacturing job shop, the 40% cost swing over three years, the $16/hour drive-through operator, the AP function improvements in India) but lacks hard data on the central claim about turnover costs and relies on secondhand knowledge (Dick Finnegan's retention expertise) rather than direct metrics. The recession forecast and labor market analysis are vague on timing and magnitude beyond "late 2023 or early 2024."
over three years, there was a 40% swing in the cost of technology compared to the cost of labor
a drive-through operator in Michigan, I just saw it yesterday, starting at $16 an hour
Nick asks reasonable opening and contextual questions but rarely probes deeply or challenges claims. He allows the guest to meander through anecdotes without pushing for specifics (e.g., no follow-up on which companies Finnegan studied or what the actual turnover cost multiplier is). The host does pivot topics competently but misses opportunities to pressure-test assertions or explore contradictions in the guest's economic outlook.
Does Dick Finnegan touch on the, does he try to quantify the cost of the institutional knowledge that walks out the door every time we lose an employee?
What's your thought about what roles technology play, not just in the office of the CFO, but in accounting and finance, corporate finance in general?
Computed from the transcript - who did the talking, and the words that came up most.
Dr. Bill Conerly connects the dots between the economy and business. He is a business economics consultant, a Senior Contributor to Forbes, and holds a Ph.D. from Duke University. He has worked in economics and corporate planning at two Fortune 500 corporations and a major bank, where he was a senior vice president. In this conversation, Nick interviews Dr. Bill Conerly, a business economics consultant who helps business leaders understand how the economy is impacting them. Dr. Conerly works with CFOs in corporate America, providing forecasting and suggesting items that should be on their to-do list, such as addressing the tight labor market. He believes the US is headed for a recession in late 2023 or early 2024, but it will be moderate. Despite the inverted economic outlook with respect to low unemployment rates, he thinks this supports his thesis as layoffs headlines always come before actual layoffs, and initial claims for unemployment insurance are headed down. Dr. Conerly advises CFOs to think flexibly in an uncertain environment and to be prepared for multiple scenarios. In Bill's opinion, the institutional knowledge that employees possess is important.
Transcribed and scored by The B2B Podcast Index.
Welcome to the CFO Corner. I'm your host, Nick Ezzo. In the CFO Corner, we sit down with CFOs and corporate finance professionals and advisors to hear about the innovative approaches and technology they use to scale and grow their organization. With me today is Dr.
Bill Conerly. Dr. Conerly connects the dots between the economy and business. He's a business economics consultant, a senior contributor to Forbes, and a Duke University PhD.
Go Blue Devils. He has worked in economics and corporate planning at two Fortune 500 corporations and at a major bank where he was senior vice president. Welcome Dr. Conerly .
Hey, good to chat with you Nick and feel free to call me Bill. All right, Bill, thanks. First of all, why don't you tell me about your current role and what you do. I'm a consultant, I'm a lone eagle with some poor people in the background.
I help business leaders understand how the economy is impacting them. So I do forecasting, but I also suggest to people items that should be on their to-do list. For instance, the tight labor market. Is that something that is going to be a concern in the rest of 2023?
Is it something that's going to be a concern for the rest of the decade? So getting the right priorities of things to address is part of my service to business leaders. And I know you work with CFOs. Specifically, how do you work with CFOs in corporate America?
Well, CFOs are oftentimes the company's channel to the outside world. In that they are paying more attention to interest rates, usually financing opportunities, but they're also alert to the economic data. So one of the things that CFOs are always asking me is, hey, are we going into recession? If so, when?
Because the sharp ones are saying, well, what is my cash position gonna look like if we have 30% drop in orders over the next year? So they're pumping me for a forecast. So I will add that the best of them are not betting their company on any one guru's economic forecast. Well, I know you're not a fortune teller, tarot card reader, soothsayer, magic crystal ball reader, but here we are in February 2023.
Can you give me your... Oh, you've got a crystal ball. I've got the crystal ball here. I stand corrected.
You are a crystal ball reader. So if you've had appeared in your crystal ball this morning, what did it tell you about the outlook for 2023 and beyond? I think that the US is headed for a recession. I think it begins later than most of my colleagues think.
I believe it's going to start late in 2023 or early in 2024, be moderate. But it's also important to understand where a particular company sits in the overall economy. The most interest rate sensitive parts of the economy, like mortgage brokering, selling new houses, that sector is already cratered. And now we're going to see other interest sensitive sectors like business capital spending have an effect.
And then later on we'll get to the ripple effects. So each CFO probably understands a little bit of this, but it's worth pausing and thinking, okay, are we an early stage victim of higher interest rates or a later stage company that will suffer from the ripple effects as the interest rates continue? So in the previous recessions we've experienced like from the 1980s, the 1990s, and 2000s and beyond, it's been marked by high unemployment, which is interesting now because because looking at the news today, Wall Street Journal, New York Times, unemployment rates are at a historic low, a 50, 40, 50 year low.
How do you interpret that inverted economic outlook for the country with respect to unemployment rates? Yeah, I believe that supports my thesis that we're not in a recession now in February of The layoff headlines always come before the actual layoffs. Legal requirements to announce this stuff ahead of time. But there's a measure of the initial claim for unemployment insurance, which is a really good leading indicator of the economy.
And those numbers are headed down rather than up. And some of what's happening is people are getting laid off, but some of them are walking across the street to a company that still has open positions. So because of the tight labor market, I think the effect of the higher interest rates on the overall economy will be delayed from what many people are expecting. So from a CFO's perspective, how do you run a business in uncertain economic waters or it's uncharted waters today?
So how would you advise a CFO to think about things in the future? It's a very challenging position. You're being asked to choose door A, B or C and you don't know which door to choose. Yeah, you know, when I was when I was a young economist, I wanted to be like the go to guru whose numbers were right all the time.
And that bus kind of left without me. So what I decided was, well, let's help business leaders figure out what to do in an uncertain environment, wrote a book on that subject. Let me grab a copy here. There you go.
The flexible stance. There you go. Shameless promotion right there, the flexible stance. Buy it on the stance.
We're all doing a little marketing. But- That's right. Nothing wrong with that. But the point is that the future is uncertain, not only about the economy, but about the course of technology, social attitudes, competition, government.
And I advise people to think, okay, what are we going to do if something changes? And on the negative side, like recession, sketching out a plan, all right, what would we want to do if we have an average recession? What do we wanna do about staffing, about inventory levels, about trade credit practices? The list varies from company to company, but thinking through it ahead of time is valuable.
And it's valuable for two reasons. First of all, as I was writing that book, I got on the phone to bankers that I knew and asked them, hey, what's the difference between a company that survives a recession and a company that fails in a recession? And the bankers, mostly dealing with like medium-sized businesses, the bankers routinely said, The difference is how fast they respond to the change. How fast they respond to the change.
And if somebody has taken a single sheet of paper and sketched out, here's what we will do in a recession, they will typically respond faster. They don't have to start from scratch thinking about it. But there's a second advantage, which is. They tend to respond smarter, because we're in a panic, not meeting Wall Street expectations, or maybe can't make payroll or somebody's breathing down my neck, the bank is going to send us to special assets.
We don't make our best decisions in a panic. So doing the contingency planning in a relaxed time, have a cup of coffee or other beverage with key team members, sketch out what you would do. A plan can be developed that is consistent with a company's long-run strategy core value. Well, given the fact that the CFO is supposed to minimize risk in addition to managing cash and things like that, the CFO is kind of expected to think of all these different contingency plans and to own those plans.
In your opinion, how does the CFO best support the CEO and thereby transfer properties to the board itself? Well, I think that CFOs have more to offer their company than many of them are delivering and to some extent that could be a CEO who wants to keep the CFO in a box. No, this is your area. You don't step over here.
Let me give you a good example. We have been through the last couple of years, a very tight labor market and recruiting is difficult. Employee retention is probably the best thing to do about that. Keep the people you already have and have trained.
There's a friend of mine, Dick Finnegan, who is an expert on employee retention. And the first thing he does when he comes into a company says let's get the CFO here. And most people think retention is an HR job. The line managers who are actually trying to get work done, it's a problem for them.
But Dick's point is that the CFO can help understand what is the cost of employee turnover. Not just what does it cost to hire somebody, but what is the cost of training? Estimate what is the cost of having somebody in that first six months of coming up to speed in terms of supervision, errors that are made that are just sort of normal for a new employee. And Finnegan says the CFO really ought to help put a number on the cost of turnover.
And with that number in place, then the whole company can say, ah, this is a much bigger number in Finnegan's experience. It's a much bigger number than anybody expected. So I would, I think in an ideal company, the CFO area is used for a broader range of analytical tools, because typically the HR people and the operating people don't quite have the analytical tools that the finance area does. Yeah, well, we've, I want to touch on tools in a second before we go there.
Does Dick Finnegan touch on the, does he try to quantify the cost of the institutional knowledge that walks out the door every time we lose an employee? Yeah, I think so, because that knowledge has to be, you know, replaced somehow. Right, and it didn't come at no cost, right? It was acquired over several years, and so having that institutional knowledge and the culture or just walk out the door, I think is it.
Yeah, if you had to write down, if you had a line on the balance sheet under assets of institutional knowledge of our existing employees, you want to take a ride off every time somebody walks out the door. Yeah, yeah, exactly. So you talked about tools for a second. This is, you know, I work for a technology company, Auditory AI.
You can see my logo right behind me over here. So what's your thought about what roles technology play, not just in the office of the CFO, but in accounting and finance, corporate finance in general? How does technology help or hurt? I I don't know.
Well, it's obvious that, you know, we're becoming more technologically dependent. My grandfather made a living doing arithmetic as a bookkeeper, you know. The green eyeshades and the paper ledger. Exactly, a pencil and a paper ledger, you know.
That job is no longer available no matter how good you are at arithmetic. But there's a pace to change and the pace seems pretty fast. But let me tell you a story. I'm going through a manufacturing company that's basically a job shop.
They're doing projects for specific customers that need things. I am looking at a machine operator writing on paper log that he has finished a project for the ACMEKA, and he's going to a project for the Baker. The finance officer is giving me a tour and I'm like, hey, did you ever think about automating that? Barcodes or something like that?
This was a few years back. but the finance officer said, yeah, we looked into that, but it didn't quite pencil out. Oh my God. Well, I can believe that a particular automation didn't pencil out.
But then I asked, how long ago did you look at it? She said three years ago. Then I did a calculation using public data of the average change in the cost of personal computers and software way down, the average change in the cost of employees way up. And I found that over three years, there was a 40% swing in the cost of technology compared to the cost of labor.
Which says to me, if you do an analysis and something does not quite pencil out, three years ago, it probably pencils out today. Yeah. Specifically in the last 12 months. Right.
Particularly with the advances in AI, but even more mundane forms of things, the optical scanning, the recognition of different objects. Yeah. The tight labor market you talked about earlier, literally, a drive-through operator in Michigan, I just saw it yesterday, starting at $16 an hour. That's a far cry of when I was a drive-through operator making $3.
35 an hour. Given that fact that the curve is an intersection point between the cost of labor going up and the cost of technology coming down, will robots take away accounting and finance jobs? Yeah, my first reaction to that is, well, maybe they should. There are a number of mundane tasks that I think are going away.
I was meeting with a group of accounts payable managers speaking to them. And this was 10 years ago. And I heard about how much they had driven down the cost of the AP function in their different companies. And first they were outsourcing a lot of work to India.
And then they brought in technology and cut costs there. So I think that I don't know how much further gains there are in the typical shop, but I think that we're not going to outsource the, uh, the analytical side. Yeah. We're going to make it easier to do the analysis, but you need, uh, I think a human being for quite some time to figure out, Hey, is this where, is this number where it should be.
So part of the accounting function is what is the number? And that I think is going to get automated more easily. But what should the number be? Can we bring this cost down?
Can we bring that revenue up? That is a long way from being automated. Yeah, it's not automated today. I mean, human judgment cannot be supplanted by technology.
Even like the idea of possibilities when you talk about where should this number be or where could this number be? The whole idea of imagination and creativity. Yes, there are AI bots that will create a Winnie the Pooh in the Van Gogh style or whatever, but creativity, that's mimicking creativity. It's not actual creativity.
I was working with a company, if I may, and they did not have a good sense of whether their manufacturing costs were higher or lower than others in their industry. I said, well, we can't get right to your niche, but we can get to a broader category that includes your industry, and we can actually pull down from government website, average percentage of sales spent on manufacturing labor, devoted to inventory, devoted to things. But it was a pain for that company to align their own chart of accounts with the government statistical categories.
But I think it would have been useful. And hopefully AI like the stuff you do would make it fairly straightforward of, oh, here's this industry classification. Here's a company finances. Let's do some magic to align them as best we can and give the company an idea of, are there costs above their peers or below their peers?
Yeah, for sure. So Bill, this is gonna, it's been a fantastic interview. It's gone by so fast. I can't believe it.
I've learned so much today. Thanks again for joining us today. Ladies and gentlemen, please thank Dr. Bill Conerly for joining us today and please enjoy the rest of your day.
Great chatting with you, Nick.
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