CFO Insights Executive Roundtable discussion (SPEECH) STEPHEN PHILIPSON: Good morning, everyone. Welcome to our CFO Insights Executive Roundtable. I'm Stephen Philipson, I head U.S. Bank's Commercial Products Group which sits within our Corporate and Commercial Banking Division. And I'm joining you today from our trading floor here in Charlotte, North Carolina. And I'm happy to be joined by a handful of very prominent chief financial officers to discuss some of the findings of our annual CFO survey. For those of you who aren't familiar with the survey that we conduct, we engage an outside third-party research firm and we survey 750 senior finance professionals consisting of chief financial officers, treasurers, and other senior finance professionals across the corporate spectrum from middle markets companies to Fortune 100 companies. And we take their temperature on the current environment and how their priorities have changed in the last year. And interestingly, relative to our last survey which we conducted about 16 months ago, we saw a big shift in CFO priorities, and their focus shifted from a primary focus on revenue to a primary focus on risk management. And that's not surprising given the barrage of headwinds that have hit this year over the course of 2022, everything from supply chain issues to inflation, the war in Europe, labor shortages, not to mention the most aggressive Fed tightening cycle that we've seen in decades. And any one of those headwinds would be a lot, let alone all of them in a single year. So with that in mind, we are going to hear today from our featured CFO panel about their views on the current environment, how they're approaching some of the challenges that we're all being confronted with, and their outlook for the future. So without further ado, I'd love to introduce our esteemed panel, starting with Phil Donaldson CFO of Andersen Corporation. Andersen is a leading maker of windows and doors for residential and commercial customers. And very proud to say that we're embarking on our-- the 100th year of U.S. Bank's relationship with Andersen, which is really exciting to celebrate together. Janet Lewell who is the U.S. CFO of Deloitte, and as most of you probably know, Deloitte is one of the world's leading audit consulting tax and advisory firms. Jon Segner, CFO of BI Worldwide, is a global leader in sales incentives and employee channel and customer engagement. And then finally, our very own Terry Dolan, CFO of U.S. Bank, and Terry has served as our CFO dating back to 2016. So as you think about the organizations represented by these four individuals, in addition to these companies operating in markets all over the world, collectively, these companies employ over 460,000 individuals and have over 500 years of collective operating history. So we have got a truly esteemed panel here and I think we're going to have a lot of great insights from this group. And in terms of our format for today, I'm going to ask four to five targeted questions that we've compiled based on the survey results, and we'll hear feedback from the individual CFOs. And then in addition to that, many of the over 600 attendees that we have today have submitted questions that we'll try to go through as well. And I group the survey-based questions into two categories. One are near-term challenges and then the other long-term challenges or opportunities. And I'm going to start with the near-term challenges, and this one is on the topic of the economic outlook and risk mitigation. And there was a clear shift in this year's survey from the one that we conducted 16 months ago. And it appeared that CFOs were moving from offense to defense in preparation for a tougher economic backdrop. So I'd love to know what our CFOs are seeing in their businesses in terms of the economic outlook and how you're positioning accordingly as a CFO. And we'll start with Phil. Windows and doors business, you're on the front lines of the economy, construction. We'd love to hear what you're seeing and what your outlook is. PHIL DONALDSON: Great. Thanks a lot, Steve, and great to be here and just thanks for mentioning-- we're really proud of our nearly 100 year relationship with the U.S. Bank and look forward to celebrating that next year. The timing is perfect for this question. I'm going to spend the whole afternoon with our executive team on 2023 operating budgets. So maybe I'll start by saying I think the last two and a half years have presented challenges and opportunities unlike anything in my nearly 40-year business career, nearly 20 of those years as our company's CFO. I think what we're going through is really perhaps the most unusual combination of factors that are both tied to the economy and economic policy that we've seen in maybe more than a generation. And as you just said, housing and the related building products represent a significant percentage of overall GDP. And our industry transitioned from almost a complete shutdown in the early stages of the pandemic very quickly into a period of significant growth as consumers turned inward and invested more in their homes. And I think broadly speaking, we've seen dramatic growth in the durable goods spending in the economy, and that's been certainly driven in part by the COVID stimulus payments. But all of that really led to supply chain challenges globally, and those have been further compounded by inflationary pressures, all of which has impacted our industry to a great extent. Unfortunately, I'd say, the combination of inflationary pressures along with these really significant increases that we've seen in interest rates have had a dramatic impact on housing affordability. As an example, in the beginning of this year, a $2,400 mortgage payment would afford a consumer a $554,000 mortgage. So $2,400 for $554,000 mortgage. By October this year, that same $2,400 mortgage payment would afford a $373,000 mortgage. And so that impact is really causing the overall market for new and existing homes to slow pretty markedly. And a slowdown in housing has generally led the U.S. Economy into just about every recession over the last 100 years. So we do expect that we'll see recessionary conditions. I expect it to be sharp, but certainly not as prolonged as what we saw in the Great Recession a few years ago. I think how long and how deep ultimately will depend in large part on the Fed's position, vis-a-vis, the notion of a hard or a soft landing. So back to your question, our posture has certainly shifted from offense, which we've been able to play over the last couple of years as we're really focused on growth, to now where we're bringing some of what I call defensive levers that we learned how to use during the Great Recession, and we're bringing those back into our planning process for next year. Recessions are inevitable. Housing, just like the economy, is cyclical. And certainly over the years, we've learned a lot of good lessons, like the importance of pruning our costs before we head into these downturns. We're also paying close attention to working capital and liquidity. We've been doing a certain amount of pre-recession scenario planning to make sure that we have a really solid playbook that identifies both the recessionary levers that we might need to pull, along with, more importantly, a clear picture of the strategic priorities that we want to continue to invest in through the cycle. And the key this time around, I think, is finding that right balance between the offensive investments and the defensive levers so that we can navigate this recession in a way that we all come out stronger. STEPHEN PHILIPSON: Yeah, and I could see that-- the necessity for that balance, because I think something that a lot of folks are concerned about is that we all talk ourselves into a recession. And so ensuring that you're not overdoing the defense and maintaining an offensive posture in the right spots will be very important. PHIL DONALDSON: Yeah. You don't want to overcorrect, and at the same time, you never want to waste the good opportunity that a recession presents. STEPHEN PHILIPSON: Yeah. So Terry, you're the guy writing those higher-cost mortgages. We've-- [LAUGHTER] We've got, as a bank, great insight. A big consumer business, a big commercial business, big payments business. What are we seeing at the bank and what are your thoughts in terms of the outlook? TERRY DOLAN: Yeah. First of all, I would reiterate what Phil had talked about. It's been a very interesting, very challenging time over the last two and a half years. From a banking perspective, we prepared for the worst in 2020, we came through that in part because of the government stimulus programs and what the Fed ended up doing in terms of putting a lot of liquidity into the system. We ended up coming through that very well. And in 2021, we saw a very sharp recovery, and that has continued into 2022. But if you end up looking at what we are seeing, we do have a business that spans across many different areas. Phil talked about the housing market and what's happening with respect to home sales and valuation. And clearly the inventory is still fairly limited there, but homebuilders are pulling back and you're seeing the impacts of that with respect to both the valuations with respect to the home and the rising mortgage interest rates that you end up talking about. But I would say that in our consumer businesses, we continue to see a lot of strength. It's a very interesting time because while everybody is preparing for a recessionary environment, we still see a lot of things that would suggest strength. And we oftentimes talk about it as a growth recession, which is a little bit of an oddity. So on the consumer side, the consumer balance sheet is quite strong. The amount of excess savings that a customer has today relative to pre-pandemic is still 1.2, 1.6 times what they had on a pre-pandemic level. And the debt levels of the consumer are relatively low relative to pre-pandemic, and certainly into the-- earlier in the 20s. So the balance sheet of the consumer is very strong, and we continue to see the benefit of that because consumer spend has continued to be relatively strong across many sectors-- not all sectors. What we are seeing is that excess savings levels are starting to come down as that spend has continued, which you'll pull some of that liquidity out of the system. And we're also seeing a shift, clearly, in the consumer behavior in terms of what they're spending on. A year ago, they were very focused on what I would say durable goods and housing and things like that. They are shifting, and oftentimes, discretionary spend. Today, it's very much more focused on non-discretionary spend-- food, energy, things like that. But they're also continuing to spend on services, in particular, travel. Americans like to travel, they like to take their vacations. They spend two years not being able to do that and they are continuing to make that shift towards travel and entertainment and lodging and those sorts of things, so we're continuing to see that spend. On the business side, again, businesses generally are very strong. But clearly, we are seeing a shift away from a focus around what I would say growth to a little bit more of a defensive play. We're seeing companies wanting to build a little bit more liquidity and fundamentally being prepared. So it's really an interesting-- a really interesting time. I would characterize-- and we oftentimes talk about with our board and with investors, et cetera, is that it is a time when our credit losses are very low, it's a time when consumer spend continues to be pretty strong, that businesses, while being cautious, are still doing quite well. And yet we're faced with a situation where the outcomes in terms of what could happen are very wide. And so when we think about our own business, it could be anywhere from an economy that continues to grow to a mild recession, slash, soft landing, whatever you want to call it, to even a hard recession. And one of the things we have been doing is really spending a lot of time from a risk management perspective preparing for that wide range of scenarios that could occur. Like Phil said, we want to make sure that if the economy continues to move along, that we're able to take advantage of that, but also to be in a position to react quickly in the event that a recession does occur. Now maybe it would be helpful from our perspective-- our outlook, economic outlook is a recession is around the corner. Whether it's six or nine months down the road, we do believe that there will be some form of recession. Our expectation is it will be a relatively mild recession or a soft landing if the Fed is able to kind of engineer that, but we all know that the Fed tends to overengineer most things, and so I would expect that-- our expectation is that we will see some form of a recession and we're taking the steps necessary in order to be able to manage through that. STEPHEN PHILIPSON: Thanks, Terry. It is such an unusual time because to your point, it could be-- this growth recession, we're seeing so many indicators that don't feel recession-like. But every-- the patterns of cycles tell us that we should be entering one, and given what the Fed's actions are, we should be entering one. TERRY DOLAN: Yep. You have the Fed raising rates, you have an inverted yield curve, you have just a lot of different things that would suggest that a recession is-- that we're already in a recession in many respects. Things that are buoying, I think, the economy today is the amount of excess savings, the consumer spend that's continuing to occur. The labor market is very tight, and I know that we'll probably talk a little bit about that, but the labor market being very tight, there's still a lot of job openings. And so we're not seeing the typical recession where the pressure on employment starts to occur and unemployment starts to move up. We're just not seeing that yet. And until we see that, until the Fed actually sees a little bit of a softening on the employment side of the equation, I think that they'll continue to be in a more restrictive mode, but we'll wait and see. STEPHEN PHILIPSON: Yeah. And that's a great transition, the discussion about the labor force. And that was, I think, one of the most interesting data points to come out of the survey as we think about near-term challenges that-- in our survey, talent shortages was-- that was identified as the top risk for CFOs and finance professionals. And you don't typically think of talent management historically falling squarely on the shoulders of a CFO, but it is clearly on the minds of our CFOs. And we'd love to hear your thoughts, Janet, just how you're thinking about recruitment, retention, other aspects of talent management. I mean, in your business at Deloitte, talent, that is your top asset. So I can think of no other company that is probably as front-of-mind other than Jon's company, and we'll get to Jon next, but I'd love to hear your thoughts on how you're approaching that at Deloitte and how you're thinking about that. JANET LEWELL: Definitely. STEPHEN PHILIPSON: And what you're hearing from clients as well. JANET LEWELL: Thanks, Stephen, and hi, everyone. You're absolutely right. I mean, talent is absolutely top-of-mind. Given Deloitte is a professional services firm, people are our business. I mean, for us, talent is everything. So in my role, I find-- I look at this in a couple of dimensions. First, firmwide, we need to ensure we're balancing the supply and demand. So supply of our people that we have ready to serve our clients, as well as, then, what the demand really is in market for auditors and accountants and consultants. And then a little closer to home, I look at specific talent challenges within the finance and administration organization that I'm responsible for. So if we break this down, I mean, if we start with recruiting and retention, our experience as a firm, we definitely are not immune from the competition for talent. And there were definitely challenges that were exacerbated by the pandemic. We have been making ongoing investment in recruiting, so we've definitely ramped up our recruiting arm. And then a real focus on retaining talent. And what I'm seeing is an increasing focus on the intangibles. So things like really focusing on the sense of community and team, the importance of being part of an organization with a real sense of purpose, and the quality and the priority we're making around work-life balance. And then, of course, pay matters. So we do perform ongoing market assessments to make sure that we're paying our people fairly. And when warranted, we make and we have made market adjustments. I think it's also important to note that we've really examined our policies. Now that sounds very basic, but think about how much we've had to modernize our policies for a hybrid world. So we asked, we asked our people, what would make a difference? And as a result, we have provided more and enhanced disconnect days. We've established things like commuting allowances, wellness allowances, and other factors that were designed to address the things that our people told us were most of interest to them. We've also taken a very flexible stance on being in office versus being remote. We are prioritizing flexibility. I expect that we will continue to focus on flexibility. And what makes the most sense based on people's roles, based on their clients' needs, based on the team needs and their individual preferences. And then if we broaden out to our overall talent models, we are actively transforming our talent models. We're growing and evolving offshore, and in finance, we're exploring nearshore. We're definitely investing in the recruitment and development of our finance professionals, particularly around specific skills around advanced data analytics capabilities. And then if we look beyond core competencies in finance, more than ever, I see us prioritizing softer skills or the traditional softer skills around our team's ability to deal with ambiguity, strategic focus, our ability to inspire, develop people, and drive change, and lead large teams. So I do feel and see that talent management is increasingly important in the CFO role. For me it's a daily challenge, but also an opportunity these days. STEPHEN PHILIPSON: And it's interesting, the focus on developing those softer skills because it's in a new-- what, for some, is a very new physical environment where everyone might not be together in the office and trying to develop those leaders that can demonstrate those skills in a hybrid environment or a remote environment. It's obviously very different dynamics than it would have been pre-pandemic. JANET LEWELL: You're exactly right. I mean, we talk all the time about us being traditionally-- I mean, Deloitte's been around for 177 years, and we've operated under what we call an apprenticeship model. And that's the best way of teaching-- what we thought it was the best way of teaching the softer skills is to have somebody tucked alongside you every day. But we've had to adapt and find new ways of ensuring that we're developing our people with those types of skills. STEPHEN PHILIPSON: Yeah. So Jon, I'd love to turn to you. Talent retention and engagement, that is your business. So I'd love to hear your perspectives, how things have evolved over the past-- over the course of the past couple of years in terms of the demand from your clients for those services, and how you see it playing out in the context of a recession. JON SEGNER: Thanks, Stephen, and thank you, U.S. Bank, for sponsoring this, and thanks to my esteemed colleagues. That's the tough part about going last, is I actually need to sound as smart as they do, which is going to be a challenge. So the environment in the employee market is-- I think Terry pointed that out, it's surprisingly similar, as we head into this recession, as it's been over the last several years where the employee seems to be holding most of the cards, and there are still twice as many jobs out there as there are people willing to fill them, which is a crazy situation when we're talking about an impending recession. So we-- as Janet said, we also evaluate the market for employees, and we've been bumping up our pay pretty consistently over the last couple of years trying to keep up with the market. And we're June 30 year-end and we have-- our operating costs for fiscal '23, which we're now in, which is mostly comprised of people, are going up about 13%. And that's, what we believe, the market is, although we still have-- I guess chronic is the right word. It makes us sound like lousy managers, but we're always looking for people, particularly in the developer area and customer-facing people because those are difficult jobs, and I think they wear people out maybe quicker than some of the other jobs. So as we increase those costs related to people, I think it's important to keep in mind what we do and what we tell our customers with regard to employee engagement and incentives, is that it's not all about pay. And we all know this, the surveys continue to bear it out, that employees want work that is meaningful, they want open communication, they want feedback, they want to work for a company that actually has a mission and tries to do good in the world. So I think we can get stuck on straight compensation levels, but we always need to keep in mind that employees, when they're asked about where comp falls, it's usually somewhere between 5 and-- number 5 and number 7 on the list. And the others I named are consistently higher-- it depends on the current environment, sustainability is up there now as well. So moving on to what our customers are talking about when it comes to engagement, in the spring of 2020, we were very concerned as the pandemic was hitting that many of our customers would pull back on their spending for engagement and incentives, and obviously the travel went right out the window because we use travel-- group travel for top performers in many of our incentive programs. So we were preparing for the worst. And as it turned out, most of our customers doubled down on engagement and realize that the pandemic was a hardship on employees around the world. So they actually ended up spending more on engagement and trying to be supportive to their employees, which surprised us. And it also exacerbated our staffing levels. So we kind of went from looking inward and being concerned about what their cost structure would be like to turning around and trying to help our customers make the most of their employees that they have and keep them happy and support them through this pandemic. And now we're still seeing a pretty robust employee market. So our customers are continuing to try to retain employees. Through engagement and now with the explosion of travel, the mode of spending on these destinations is pretty crazy. It's really hard to book destinations nowadays because they're in such demand because of all this pent-up travel. So the employee market and retaining talent is something that I'm intimately involved with and you really don't think of the CFO talking about engagement and keeping their employees happy, but like Janet said, I think if you're not paying attention to that, then you're missing a big part of what makes your company successful. So that's how I would answer the talent question. STEPHEN PHILIPSON: Yeah. I mean, it's been a fascinating couple of years in that respect. And I'm curious, just looking forward, Phil, again, your business, you're the tip of the spear and the leading edge of the economy, and as we've talked about, homebuilding certainly has been impacted to some extent by the rise in rates. And you have 13,000 employees. Is that labor picture easing at all in your business? PHIL DONALDSON: Well, I appreciate the question because a different facet for us is the fact that 80% of our employees have to come to work every day in our factories, our warehouses and distribution centers, or in the field. And customer-facing roles, one of our divisions, Renewal by Andersen, the Window Replacement Division, we have thousands of installers across the country who have to go out and take out those old windows and put the new ones in. And so it is a major, major challenge. It's a challenge for the builders. I think immigration policy plays a role in that to a certain extent as well, perhaps more so for the builders than it does for companies like mine as manufacturers. But we've had to change literally everything in the way we go about recruiting over the last few years as a result of these macro changes in the environment. To the point where today, our talent acquisition team is larger than it's ever been. I don't know how many hundreds of people in our company are in full-time recruiting roles. And we've even had to implement specialized teams, teams that focus on specific areas of recruiting such as manufacturing, warehousing, logistics, a team dedicated, for example, just to recruiting truck drivers across the country because there's a major, major shortage of truck drivers and we have about 450 drivers in our fleet. So in the old days, people would line up around the block to get jobs in our manufacturing plants. Today, we do television advertising, radio advertising, social media, billboards, even truck billboards, on-campus recruiting, you name it. And you've got to keep that pipeline and build it. We still, in the office environment, like we've already talked about, are doing tons of things to stimulate retention and employee engagement. We use Net Promoter Score and the direct feedback as a means of giving us that feedback to promote employee engagement. So it is an all-out war for talent attraction and retention, no doubt. STEPHEN PHILIPSON: It should keep Jon's business in demand for sure. PHIL DONALDSON: Absolutely. STEPHEN PHILIPSON: So as we shift to what I characterize is as longer-term challenges and opportunities, one interesting result of the survey was around ESG. And it's interesting, because I know every client meeting I go to with a CFO or treasurer, there's not one meeting where the topic doesn't come up in some form or fashion. But what we saw in the survey was that CFOs were actually paying less attention to ESG than they were in last year's survey. And I'm curious how our CFOs are thinking about managing ESG in the CFO role and have your priorities around it changed or evolved at all in different ways as a result of some of the near-term risks that we're facing in the economy, and some of the changes in the market backdrop, whether that's the commodity markets or supply chain. And Terry, I thought we'd start with you and I'd love to hear your perspective. TERRY DOLAN: Sure, thanks, Stephen. And I was-- maybe I'll just start by saying I was struck by a few things that Jon talked about with respect to talent management, and there were some very key words there in terms of what attracts employees, what retains employees. And he talked about what is the company's stand for, its purpose, its sustainability, and its focus around things like that. And one of the things I would just say about ESG is there's many facets to it, but it is something that is critically important not only to our customers, to us as a business, but to our employees. And so because of that, I think it's something that, from a CFO perspective, I wouldn't take my eye off of that. Even when you go through more challenging times, you might change your priorities a bit in terms of what you're going to focus on, but I certainly would stay very focused on all the aspects of ESG as you move forward. One of the reasons possibly in terms of why a little bit less emphasis today versus a year ago, clearly the economy has changed and we need to be focused around risk management and those sorts of things. So I understand that. The SEC had just come out with a lot of its rule promulgation, and there was a pretty heavy focus around what sort of disclosure you have to have around environmental factors and those sorts of things. So a year ago, maybe that has changed a little bit, but again, I wouldn't take my eye off the ball. When you go through difficult times, governance becomes a very important aspect of running your business, making sure that you're focused on the right things, you're doing the scenario analysis and keeping your board up to speed and being able to provide them with the information that enables them to be able to provide you as a CFO with the type of guidance necessary in order to really add value to running your business maybe from a governance-- You think about social responsibility-- again, coming back to some of the things that Jon talked about earlier, but diversity, equity, and inclusion is an example of something that's critically important, I think, to all businesses. Certainly from our perspective in the banking industry and across the United States, our company needs to reflect the communities that we serve. And so it is something that is very important to us and to our employees, that in terms of how we think about diversity, equity, inclusion within our employee base, within our-- how we run our company, it really needs to be a part of our DNA, and it's one of our five core values that we articulate. And so-- and when we think about our strategic-- things that are of strategic importance or priority, it is clearly one of the top three or top five within our company, and so we don't take our eye off the ball. The environmental aspect. I think, again, part of the emphasis a year ago was the focus around the SEC and where they were at that particular point in time. With the most recent elections, I don't think that there is going to be a significant change with respect to the focus. I think there's going to be a strong focus around environmental aspects, environmental finance, climate change. In fact, Biden, in his conversations with the President of China, wasn't-- his primary focus was around climate. And what are some of the things that we as two countries need to work on in order to be able to move that initiative forward? So that tells me that that's going to continue to be a very strong focus of the administration and something that we need to continue to pay attention to. Within our company, I would say that over the course of the last 18 months or so, the environmental aspects, whether it's climate change or environmental finance and how we can help our customers move forward on that, has probably increased in intensity as opposed to decreased. And despite all the different things that we have going on as CFOs of our organizations, we need to continue to be very focused on all of those aspects, the environmental aspect being something that's going to continue to be very important. So I would say in terms of U.S. Bank or in my role as the CFO being more engaged in that. And there's different things that you have to think about. You have to think about, do you have the right talent, the right skill set, the right resources within your organization in order to be able to be responsive to have the right focus around the priorities regardless of whether it's environmental, social, and governance? And part of that skill set is-- again, as a bank working with our clients and our customers, we are seeing it continuing to gain traction across many industries, and it's going to continue to be an area of focus. We continue to ramp up what I would call the environmental finance aspects of it. How do we partner with clients to help them on that journey? But how do we also provide financing that is really environmentally friendly or whatever may be the case? So I would say that it is as much a focus today for us as it was a year ago, and I think it's even more so, and from a CFO perspective, I don't think you can take your eye off of that ball as you continue to think about the next three to five years of the organizations that you serve. STEPHEN PHILIPSON: You almost wonder-- the survey data indicating that it was less of a focus, if it's not so much it's less of a focus, but it's more become table stakes for so many organizations. That it's not that it's not a focus, it's that-- it's not this specialty focus anymore, it's almost part of the job regardless of the organization that you're in. Jon, you mentioned sustainability as being very important to employees. How are you all thinking about it today versus a year ago? How are you advising clients around it particularly as it pertains to the work that you're doing for them? JON SEGNER: Well, the sustainability and the larger ESG question is a part of almost every single RFP that we see for our customer base. So if we're not paying attention to it, then we're unable to answer that question. But from a more philosophical standpoint, it's meaningful to the new generation of employees that we're trying to recruit. So as-- I cited a few things, and as you mentioned, sustainability is one of them, but diversity and governance are also extremely important for the newer generation of employees as they come in because it's almost always part of their questioning when they come in for interviews and look at us, look at our website and see what kind of a company we are. So it's-- as you say, it's more table stakes now, and I think companies are integrating that strategy into their overall strategy versus it kind of being an add-on and I guess maybe lip service was something that we paid to those issues years ago. But now it's part of our culture. We actually modified our value statement to include components for ESG, and it's resonating with our employees. And our customers are seeking answers as to how we measure it and how we report it. So it's become a part of the normal process, and we just evaluated ERP systems for a couple of our international subsidiaries, and ESG reporting was integral to those systems. So it's part of the normal process. So I think you're absolutely right, Stephen, when you say it's not something that's got special focus, it's part of the business focus. STEPHEN PHILIPSON: Yeah, yeah. PHIL DONALDSON: So-- JANET LEWELL: Stephen? Oh, go ahead. STEPHEN PHILIPSON: Go ahead, Janet. JANET LEWELL: No, I'm just going to say-- STEPHEN PHILIPSON: No, please, go ahead. JANET LEWELL: I was just going to say that this survey result did surprise me a little bit, and so perhaps it was just in the way it was phrased. Because, I mean-- and maybe because we're part of a partnership, but I do see it a little differently. I mean ESG is a huge priority across our firm. It's so incredibly important to our people. And if anything, I think it's become even more of a priority this year. Part of the reason I know is because we've gone on record with a 2030 sustainability plan. And we've got some pretty bold ambitions across all of our stakeholders, and we really need to keep pace to ensure that we're going to meet those goals by 2030. So just a few thoughts here. I mean, I do think that finance has a critical role in helping to meet ESG and sustainability commitments. I mean, clearly we've got the responsibilities around reporting and providing forward-looking analysis. But I think also advice on strategic direction, necessary investments that need to be made. When we think about reporting, our finance team is leading the effort to build out the whole reporting framework for ESG. This involves working across the whole firm, a range of stakeholders, including our purpose office to really evaluate the measurement approaches we have, the controls and processes that are necessary, that we need to achieve the desired reporting. And something's new that I wouldn't say is yet popular, but maybe some of you are dealing with this as well. Internally we're implementing what we're calling green fees. And this involves the internal allocation of fees to drive accountability and actions across our businesses for the costs of travel-related emissions. So things associated with air, car, hotel, basically travel. We are about to charge those costs directly to the cost centers of those that are really driving them. So incenting better behavior by really shining a spotlight on the ESG implications of their own travel-related decisions. And we're making real investments in this area. Our board recently approved a very substantial investment in scaling our sustainability and climate change offerings that we provide to clients, recognizing that our clients have needs for focus and help on their own ESG efforts. STEPHEN PHILIPSON: No, I mean, that's really phenomenal work, and it does say a lot, because to your point, you're a private-- you're a partnership. This isn't to satisfy public shareholders. I mean, this is truly values-driven efforts that you all are undertaking. JANET LEWELL: Yeah. STEPHEN PHILIPSON: So Phil, I'm curious, our other three CFOs are more in the professional services, financial services area, you're a manufacturer. How are you thinking about things? PHIL DONALDSON: Well, I think it's no less relevant today than it was a year ago. And while as a large private company we don't have the same external investor expectations and pressures that maybe our public peers face, I think that's a gift. For us, it gives us a chance to focus on what really matters. And while ESG is a relatively new term, I'd say, for generations, our company has focused on environmental stewardship, on being a great corporate citizen, being a special place to work. Our company is headquartered on our country's first national scenic waterway. And so conservation and the importance of that resource conservation, environmental stewardship-- really, right in our backyard. Maybe just a couple of examples of social practices. First of all, we have a long history of leading pay and benefits for our employees. We have a legacy of profit-sharing with our employees that goes back to 1914. We have a legacy of philanthropy. Two large Andersen foundations are part of our company's very ownership structure. And so giving back to communities where we live and work in tens and tens of millions of dollars a year is a very, very important part of our company. But Terry mentioned the importance of DEI and I want to underscore that as well. We have to look like the markets and the customers that we serve as an organization and recognize that diversity is a gift because it brings diversity of thought, diversity of perspective, creativity, and ultimately the energy that drives us forward. And I'll brag a little bit, our company was recently recognized by Forbes as among the best employers for women, also among the best employers for diversity. We've been designated one of the best places to work for LGBTQ+ equality by the Human Rights Campaign Foundation's Corporate Equality Index. We're a Yellow Ribbon company, recognized for our commitment to veterans, service members, and their families. And it also flows into corporate governance, both diversity on the board, but just as important, governance practices that really underscore and empower the kind of sustainability actions that you need to take very broadly. And again, for us, it starts with our value system and the ability to focus on what really matters. STEPHEN PHILIPSON: It's an impressive track record and clearly an impressive culture that you've built at the company. I want to shift to one more topic in the context of long-term challenges and opportunities, and that's digital transformation. And we saw in the survey that CFOs were much more confident in having transformed their operations from a technological and a digital standpoint relative to the last survey 16 months ago. And presumably, remote and hybrid work through the pandemic was a big part of that in instilling that confidence. And I'm curious-- and Janet, we'll start with you on this one, what challenges remain for CFOs in this regard, particularly as it pertains to remote work and thinking about corporate real estate and what the future of that looks like? JANET LEWELL: Well, I would say there are no shortage of challenges, but I think that we've been helped by the fact that there were significant transformation efforts well underway even from before the pandemic took hold. So thankfully we'd already started down the path of things like finance transformation, systems and processes and automating the way we work, the way we report, the way we forecast. Our talent transformation, taking a serious look at our future of work, thinking about where and how we work, how we serve our clients, and how we develop our people. And IT transformation. I mean, we had just moved to a global operating model and-- with a move to the cloud. But I would say that COVID definitely did accelerate transformation in a number of areas. So like I suspect many of you did, we shifted our work model to 100% virtual pretty much overnight. And our travel, especially internal travel, it just stopped. It completely stopped, abruptly halted by the pandemic. And it really put this whole area, the whole travel area under the spotlight. I mean, travel had been such a part of our culture pre-pandemic. So when we've been able now to return to more normal operations, it's helped us to achieve some of our pre-planned reductions around internal travel that's really necessary for us to align with our ESG goals. And it showed us we really didn't need to travel as much as we thought we did. And so now we're embracing a hybrid work model. We're combining in-office, client site, and at-home work sites depending on your specific roles and requirements. But you referenced real estate, and I would say that the pandemic and the shift to hybrid has definitely upped the attention on our real estate footprint. And so when I think about what we're doing here, we're really not making abrupt changes to our real estate footprint. I mean, if we look back from before the pandemic, our people weren't always in the office then. And we'd already been challenging some of our needs and moving to more of what we call the community hub format. So having offices that were focused on collaboration opportunities and away from the traditional office and workstation format. So what you're seeing today is that we are moving out of some spaces and we're expanding in others, and that will continue. We describe it as that we're making prudent real estate moves very closely aligned to our future of work transformation. Considerations about how we think our work will shift in the future. How our talent will shift, our anticipated client needs and patterns, and what we're learning today from living in our hybrid model. I would say it's a complex and definitely can be an emotive topic without doubt. And so when I think about finance specifically, I would say that we still have transformation priorities. I'd say our finance priorities are around really transforming our finance organization to support Deloitte's overall growth. As we continue to scale firmwide, we're making sure that our capabilities and our processes scale appropriately, but it's not just about more people or throwing more people at the function, but that we have a finance function that's more streamlined, standardized, automated. And this includes adopting a world-class system for planning and forecasting. So it integrates data from all firm systems, it automates the data collection process, and it uses machine learning to enhance predictive capabilities that will help our businesses and hopefully facilitate better decisions. So the objective is also to have a world-class cost-effectiveness profile with a shrinking expenses-to-revenue ratio while delivering an even better experience for our business and our people. So that is a challenge. STEPHEN PHILIPSON: It sounds like the right conditioning you want to go into tougher economic times, though, in terms of lowering expenses, becoming more efficient, and operating in an automated manner where you can. JANET LEWELL: Yeah. And just breaking the linkage between just growing count with growing revenue. STEPHEN PHILIPSON: Yeah, yeah. So Jon, I'm curious in your business, how is that adoption of technology digital tools, how is that impacting how you all are approaching things? JON SEGNER: Somewhat similar to what Janet had talked about where we're trying to figure out what new work looks like. And we are also a hybrid model where we mandate folks in the office on Tuesday, Wednesday, Thursday, and Mondays and Fridays are optional. We're test driving our new snow policy-- today, as a matter of fact, in Minneapolis. Yesterday afternoon we declared a snow day, so folks were challenged to make sure that they are able to work from home. So we're quite a bit smaller than my peers here. So we embraced Teams just before COVID hit, which was very fortuitous. And I'm sure we still suffer from some of the technological issues that everybody does. It's amazing, we think we're a long ways into this process, and I think all of us have been on meetings where the electronics don't work and the connectivity doesn't work. I think we would all be a lot further along than that, but we've got a technology person for this meeting for that very reason. So I think we're not as far along as we all maybe think we are. And we try to use technology and digital transformation to make our businesses better, obviously. And I think we are mostly successful, but we got a long ways to go. There's still data in multiple different disparate systems, and it's a challenge to pull all that data together even with ERP systems and connections with our customers-- I'm kind of bouncing all over the place on this question, but it's-- STEPHEN PHILIPSON: No, it's all very relevant. JON SEGNER: So yeah, we're-- STEPHEN PHILIPSON: --definitely challenging. I think everyone can sympathize with. JANET LEWELL: Yeah. STEPHEN PHILIPSON: Well, I love-- we've got a few minutes left, and I'd love to do a quick lightning round with some questions that were submitted by participants. And Phil, maybe we'll start with you. Do you believe there will be a continued trend towards de-globalization? PHIL DONALDSON: Well, I think we're all talking about it. In our industry, in our business, we don't have significant reliance on global sources. But in certain areas we do. I think necessity sometimes is the mother of invention, and I think when you think about what happened-- if you take China as an example with a zero-tolerance policy around COVID, a lot of what we have seen and a lot of the supply chain challenges, inflation associated with shipping containers and things of that nature is a result of that. But I think the critical ingredient to de-globalization, if that's going to happen in any way, shape, or form, is we have to be able to build the capacities in the domestic sources, whether it be labor capacities, machine and manufacturing capacities, technology capacities, and the like. And so I don't think we're going to see this rapid trend. Certainly happy to see the summit that's taking place this week between President Xi Jinping and President Biden which hopefully will tone the rhetoric down just a little bit and allow countries and industries within those countries to be able to engage in better long-term planning. STEPHEN PHILIPSON: Yeah. Oh, for sure. And then Terry, I think you spoke to this a bit, but when will Fed funds peak and at what level? TERRY DOLAN: Let me get out my crystal ball here and see what I can come up with. STEPHEN PHILIPSON: And are you willing to bet the whole balance sheet on it? [LAUGHTER] TERRY DOLAN: I'm willing to bet your balance sheet on it, let's put it that way. [LAUGHTER] It's a great question. I think one of the positive things that we saw in October, at least from the most recent inflation numbers, is that we saw a little bit of a break. They started to come down a bit. And the benefit of that is it gives the Fed the opportunity to be able to look at their policy, their monetary policy and where rates have been moving and maybe soften that a bit. The Fed always says that they're going to be data-driven and it's good to see the softening of the inflationary pressure a bit. That said, what we are certainly expecting is that we're going to see roughly 50 basis points here in December, and very likely another 25 basis point movement in February and March. And then I think that steps it down for the Fed. So it's not an abrupt stop, it's kind of steps it down. It gives them the opportunity to be able to do that. So my expectation is you're looking at 4.75, probably 5% from a Fed funds perspective in terms of where it ends up peaking. That said, ultimately I think what the Fed is really looking for is not just inflation, but is there a softening of the labor market? Does wage inflation-- or the inflationary aspect associated with wages start to soften and come down. So certainly things that we end up looking at, in addition to the inflation metrics, CPI, PPI, and all the other acronyms, but what jobless claims, job openings statistics, and information like that? But our expectation, again, peaks at 5%, holds there for a while. And then I don't know whether we'll see a decrease in rates in 2023, I think it will depend upon whether that recession develops and to what extent. But we would expect to see some alleviation of Fed funds rate either later in the year or going into 2024. STEPHEN PHILIPSON: Yeah, it has been very welcome the past week just seeing the inflation data start to not look good, but at least look better, start to hopefully turn the corner a bit. TERRY DOLAN: Yeah. Seldomly you have a banker say that declining rates is a good thing, but I'm happy to see the tenure come down a bit because it brings a little bit of order to the capital markets and provides companies that opportunity to have that alternative as well. STEPHEN PHILIPSON: As a capital markets guy, I'm even more relieved. [LAUGHTER] So it looks like we're at the top of the hour. And I first want to thank everyone who participated in the survey and those who dialed into today's panel to hear from our experts. And I want to thank these four CFOs. I certainly got a lot out of this just hearing your perspectives and your views. I really feel-- it was a privilege to hear from you today. I can't thank you enough for your partnership with U.S. Bank and all that you're doing in leading your companies. So thank you very much, and thanks, everyone, for being here today. JANET LEWELL: Thank you. TERRY DOLAN: Thank you, Stephen.