CFOs: Optimism on rise, committed to efficiency

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 percent rank as their number one economic worry for 2010), and one quarter of CFOs (26 percent) cite consumer spending/demand as their top concern. Specific business challenges on CFOs' minds include competition (25 percent) and expense control (23 percent). With regard to a timeline for recovery, over one half of CFOs (58 percent) believe a U.S. economic recovery will be realized by the end of 2010; however, nearly one-quarter (22 percent) 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 percent) 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 percent) 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 percent) say they do not plan to replace the positions. In addition, at least one-fifth plan to reinstate overtime for existing employees (31 percent), hire part-time employees (23 percent), and/or make current part-time employees full time (21 percent) 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 percent)
• Revenue anticipated to grow by 10 percent
• Capital spending expected to grow by 8.9 percent (compared with an increase of 1.1 percent 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 percent)
• Hiring expected to grow by 2.9 percent (up from 1.7 percent in Q3)
• Price of products expected to grow by 1.13 percent (up from the Q3 projected increase of 0.7 percent)

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 cut back on executive perks, a small number of respondents remain (4 percent) 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 percent) said they will continue technological efficiencies, and one-third (34 percent) 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 percent). This was followed by reducing waste in production and packaging (30 percent) and promoting incentives and initiatives encouraging customers to be "greener" (21 percent). Least popular initiatives were reduction of greenhouse gas emissions from factories and plants (6 percent), and supporting legislation on environmental issues (7 percent).

While few are actively supporting legislation on environmental issues, sentiment toward governmental regulation of environmental responsibility is split among CFOs. Though nearly half (49 percent) believe regulation a bad response, more than one-third (37 percent) 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.