CFOs: Optimism on the Rise, Committed to Efficiency Post-Recession

FLORHAM PARK, N.J. and NEW YORK, Jan. 28 /PRNewswire/ -- As Chief Financial Officers emerge from the ups and downs of 2009 and shift to a new decade, they reveal a continued up-tick of optimism toward both the U.S. economy and their own companies.  According to findings from the fourth quarter "CFO Outlook Survey" conducted by Financial Executives International (FEI) and Baruch College's Zicklin School of Business, CFOs are looking up, but remain committed to utilizing some of the important lessons learned during the downturn and keeping companies streamlined.  Their views on staffing are mixed.  In exploring what steps companies are currently taking toward environmental responsibility, the survey uncovered varying drivers behind those actions.

Following an eight quarter decline beginning in 2007, the CFO Optimism Index for the U.S. economy rose in the third quarter and continued that rise in the fourth, increasing from 54.20 in Q3 to 56.98 in Q4 2009.  Similarly, CFOs' financial prospects for their own companies rose another three points to 67.09 over Q3's 64.10.  Despite an improved overall outlook, U.S. economic growth remains at the top of list of CFOs' concerns (38% rank as their number one economic worry for 2010), and one quarter of CFOs (26%) cite consumer spending/demand as their top concern.  Specific business challenges on CFOs' minds include competition (25%) and expense control (23%).  With regard to a timeline for recovery, over one half of CFOs (58%) believe a U.S. economic recovery will be realized by the end of 2010; however, nearly one-quarter (22%) do not believe it will occur until the first half of 2011.  

"The findings of our Q4 survey demonstrate that CFOs overall closed 2009 with a much improved sense of optimism that when it began, but they are realistic about the challenges that still lay ahead," said John Elliott, Dean of the Zicklin School of Business at Baruch College.  "CFOs are indicating that they have learned lessons from the downturn and can face the coming year looking forward to the opportunities at hand."

Fewer Layoffs Planned, but Hesitancy to Re-hire

In the shadow of 2009's dismal unemployment rates, hiring prospects at respondents' companies show modest signs of buoyancy in 2010, with 44 percent reporting an anticipated increase in hiring at their companies.  This joins the finding that the majority of CFOs (62%) indicated they do not plan any layoffs for the coming year.  However, 27 percent admitted it is "too soon to determine" if they will conduct layoffs.

Retrospectively, three out of four CFOs (77%) indicated they were forced to cut back on staff during the course of the downturn.  When those companies that had reduced staff were asked what they will do prior to rehiring new full-time employees, nearly half (49%) say they do not plan to replace the positions.  In addition, at least one-fifth plan to reinstate overtime for existing employees (31%), hire part-time employees (23%), and/or make current part-time employees full time (21%) before rehiring new full-time employees.  These facts put the positive hiring plans of 44 percent of CFO respondents in perspective.

CFOs to Increase Spending, Retain Efficiencies

While recent quarters' surveys painted a picture of unrelenting cutbacks, CFOs looking toward 2010 anticipate positive increases in a number of areas.  Key areas of expected increases include:

• Net earnings expected to rise by 22 percent (more than double anticipated Q3 mean increase of 11%)
• Revenue anticipated to grow by 10 percent
• Capital spending expected to grow by 8.9% (compared with an increase of 1.1% in Q3)
• Technology spending anticipated to increase by 6.1 percent
• Inventory anticipated to increase by 2.5 percent (compared with Q3, where CFOs predicted reductions of -1.9%)
• Hiring expected to grow by 2.9 percent (up from 1.7% in Q3)
• Price of products expected to grow by 1.13 percent (up from the Q3 projected increase of 0.7%)

When CFOs were asked this quarter to identify areas for increases in 2010, marketing and advertising and business acquisitions were also top of mind, with 39 percent of CFOs planning to increase marketing and advertising and 33 percent of CFOs planning increases in business acquisitions. In addition, while 37 percent of CFOs reported they will cutback on executive perks, a small number of respondents remain (4%) who plan to increase executive perks in the coming year.

"The return to a place where CFOs are anticipating increased earnings and revenue provides encouragement that those companies that have endured the downturn are ready to come back strong," said Marie Hollein, CEO and President, Financial Executives International.  "As far as the new normal is concerned, efficiency is the name of the game."

When asked what their organizations would continue to do as they begin to emerge from the recession, nearly nine out of ten CFOs reported that they would continue process efficiencies put into place during the downturn.  Two-thirds (66%) said they will continue technological efficiencies, and one-third (34%) plan to continue the restructuring of their business.

CFOs Taking Steps to Be "Greener" but Debate Continues Over Regulation

As the global conversation on sustainability heats up, this quarter's survey examined what steps companies are taking to become more environmentally responsible, and why they may be taking them.  The most frequent "green" action among respondents' companies is reducing energy consumption in company facilities (48%).  This was followed by reducing waste in production and packaging (30%) and promoting incentives and initiatives encouraging customers to be "greener" (21%).  Least popular initiatives were reduction of greenhouse gas emissions from factories and plants (6%), and supporting legislation on environmental issues (7%).  

While few are actively supporting legislation on environmental issues, sentiment toward governmental regulation of environmental responsibility is split among CFOs.  Though nearly half (49%) believe regulation a bad response, more than one-third (37%) support government incentives to spur innovation, 14 percent support limits on emissions, and 9 percent support cap and trade and other financial incentives.

Perhaps disappointingly, 28 percent of CFOs indicated that their companies are not taking any actions to make their companies more sustainable.  With regard to those companies who are taking actions, the survey revealed a number of motivators.  More than one-third cited cost efficiencies as the main driver, 31 percent refer to personal priorities of their leadership as the cause, 29 percent say enhancement of public perception is the reason, and 24 percent point to a desire to emerge as a committed leader in the industry.

Additional Findings:

Other topics examined in this quarter's survey included International Financial Reporting Standards (IFRS), CFOs' perceptions of Barack Obama's presidency nearly one year after his inauguration, and the impact of the SEC's enhanced disclosures on risk, compensation and corporate governance in annual reports.   With regard to IFRS, an overwhelming majority of CFOs (80%) are confident that IFRS will be adopted, but do not know when. CFOs' perceptions of President Obama remain low, with 64 percent reporting their U.S. economic outlook has weakened since he took office.  

Full survey results and historical data comparisons are available at www.cfosurveys.com or from Nicole Madison at [email protected]. The study is also available online at the Financial Executives Research Foundation bookstore and on the Baruch College home page at www.baruch.cuny.edu.

Overview of the Survey:

This quarter, the CFO Outlook Survey, conducted by Financial Executives International and Baruch College's Zicklin School of Business, interviewed 371 corporate CFOs electronically from January 2 – January 13. CFOs from both public and private companies and from a broad range of industries, revenues and geographic areas, including some off-shore companies, are represented. Survey respondents are members of Financial Executives International.

Financial Executives International has been conducting surveys gauging the country's economic outlook from the perspective of CFOs for more than 11 years.

About FEI

Financial Executives International (FEI) is the leading advocate for the views of corporate financial management. Its 15,000 members hold policy-making positions as chief financial officers, treasurers, and controllers. FEI enhances member professional development through peer networking, career planning services, conferences, publications, and special reports and research. Members participate in the activities of 85 chapters, 74 of which are in the United States and 11 in Canada.

Financial Executives Research Foundation (FERF) is the non-profit 501 (c)(3) research affiliate of FEI. FERF researchers identify key financial issues and develop impartial, timely research reports to FEI members and non-members alike, in a variety of publication formats.

For more information, visit www.financialexecutives.org.

About Baruch

Baruch College is a senior college of the City University of New York. The Zicklin School of Business at Baruch College is the largest and most diverse AACSB accredited collegiate school of business in the nation. Baruch has a long tradition of producing accounting and finance graduates who become leaders as CPAs and CFOs.

For more information, visit www.baruch.cuny.edu.

Media Contacts: Nicole Madison of FD +1-212-850-5647; Kristen Lewko of FD +1-212-850-5756

SOURCE Financial Executives International (FEI)