Only 8% of CFOs Check Whether the Money Worked

Capital allocation is the core job. Almost nobody grades it afterward.

Ask a finance leader what they own and capital allocation will be in the first sentence. Ask how they know last year’s allocations paid off and the room gets quieter.

‍

The admission nobody is making loudly

EY surveyed 1,050 CFOs. More than half said their capital allocation strategy needs to be completely rethought. Four in five said the process needs improvement. Just under half said it actually achieves the total shareholder return goals it exists to serve.

And 53% said that even where the process is documented, it is not consistently followed.

The number that explains the others: only 8% run postmortems on allocation decisions. Ninety-two percent of finance organizations deploy capital and never systematically go back to see whether the return showed up.

This is not incompetence. It is a habit formed under specific conditions, and the conditions changed.

‍

Why the habit formed

Short-term rates sat near zero from 2008 through 2016, then again through 2020 and 2021. When capital costs nothing, the time value of money is close to a rounding error, and the discipline of grading a decision against its hurdle loses most of its point. If the money is free, a mediocre return still beats leaving it idle.

Consider who was in the room during those years. The average new CFO today is 48.2 years old, which puts their entry into the workforce around 2000. They saw normal rates as analysts, when they had no authority over anything. They were promoted into real capital allocation decisions during the cheap money era.

So this is not a generation that missed high rates. It is a generation that missed high rates while holding the pen. The judgment that gets formed in the years you first have authority is the judgment you carry, and for a lot of the current C-suite those years had no cost of capital in them.

‍

Why it matters now

The Fed raised rates in September, the first increase since July 2023, and markets are pricing more. Set aside what happens next. The direction reversed, and a process that 56% of CFOs already describe as needing a complete rethink is now operating in conditions it was not built for.

The specific exposure is not bad decisions. It is undetected ones. An allocation made at a hurdle that no longer applies does not announce itself. It shows up as a business line that quietly underearns for three years while the capital that funded it is treated as spent and settled.

Without postmortems, there is no mechanism that surfaces it.

‍

Three questions that separate the capable from the credentialed

These work for a sitting CFO, a first-time one, or the VP of Finance about to be promoted.

1. Walk me through an allocation that did not work. Not a failed acquisition everyone knows about. A project that got funded, delivered something, and still did not clear the bar. If they cannot produce one, either they have never looked or they are not telling you. Both are the answer.

2. What hurdle rate do you use, and when did it last change? The number matters less than whether there is one and whether it moved when conditions did. A hurdle that has been the same since 2019 is a hurdle nobody is using.

3. Who gets told when a funded project underperforms? This is a governance question wearing an analytical costume. In most companies the answer is nobody, because the person who championed the investment is the person who would have to report it. The CFOs worth hiring have built a path around that.

‍

The close

Capital allocation is the one responsibility that genuinely belongs to the CFO and nobody else. By their own account, most of them think the process is broken, and almost none of them check the results.

That was survivable when money was free. The cost of capital just moved, and the discipline that should have been built during the cheap years is the thing nobody got reps at.

Worth a read if you are hiring a finance leader, or trying to work out why last year’s investments are harder to defend than they should be. Contact us if you want to pressure test how a candidate actually thinks about capital.

‍