Despite the fact that more than 70 percent of chief financial officers (CFOs) at Deloitte's annual CFO Vision conference in November believe current government financial policy has either had no effect or negatively impacted their business, the tide is turning toward a more positive outlook.
Nearly 60 percent of the same group of CFOs expects the recent Congressional midterm elections to have a positive impact on their industry.
Senior finance executives, however, remain concerned about the impact of new regulation on business and are calling for long-term efforts to reduce the federal budget deficit. With a slow domestic economic recovery in the United States, CFOs are looking beyond traditional markets to uncover opportunities in higher-growth emerging markets.
"Sovereign debt and China's possible property bubble, as well the pending regulation, cost, and repercussions of health care and financial reforms are making today, as one pundit phrased it, 'unusually uncertain times,'" said Barry Salzberg, CEO at Deloitte LLP.
"However, Deloitte's own third-quarter CFO Signals survey reported that a majority of CFOs from large enterprises expect a prolonged U-shaped economic recovery, or even bathtub-shaped, wide-bottomed recovery rather than a doubled-dip recession, and we are seeing CFOs adjust their strategy with a focus on staying agile and capitalizing on growth opportunities in a slow growth economy," Salzberg said.
The annual Deloitte CFO Vision Conference gathered together CFOs last month from top global enterprises to discuss key domestic and foreign issues currently facing senior finance executives. The group shared candid insights around the impact of the Congressional midterm elections, regulatory, business and financial policy, hot growth areas for enterprises, and changing tax guidelines.
Midterm elections, financial regulation, tax policy
In the session, The Evolving Regulatory Environment, CFOs cited the impact of health care reform and financial regulatory reform as the most pressing regulatory issues. CFOs expressed concern or uncertainty about the impact of the Dodd-Frank Act. Forty-three percent of respondents are concerned about the additional cost burden of the landmark financial sector reform legislation, and 38 percent are unclear of its ultimate impact.
In regard to expectations from the recent midterm elections, the CFO Vision Poll found:
- In keeping with the optimistic outlook around the midterm elections, 49 percent believe that the new Congress will have a positive effect on the implementation of financial regulatory reform. Moreover, 20 percent expect a neutral or negative effect while 32 percent believe it is too early to tell.
- Nearly three-quarters (73 percent) believe the new Congress should act soon to establish a longer-term path to deficit reduction. Also, 15 percent believe Congress should act promptly to substantially reduce near-term deficits, and only 13 percent believe any action should be put on-hold until the economy is less fragile.
- The vast majority, 88 percent, believe the new Congress should address 75 percent or more of the deficit via spending cuts rather than through taxes.
"CFOs are confident that they can pull the levers within their own companies to do their jobs, but they are most worried about external issues involving economic recovery and regulations," said Sanford Cockrell III, national managing partner of Deloitte's U.S. CFO Program.
"The biggest risk they see is a prolonged, stagnant recovery," Cockrell said. "Industries are also concerned about too much government intervention. If the employment picture does not also improve and if general pessimism continues to rise, we would expect pessimism to start having a larger impact on companies' earnings and investment expectations."
Investing and operating in emerging markets
During the panel discussion titled, A CFO's View of Emerging Markets, CFOs were asked to share their plans around investing and operating in emerging markets. More than two-thirds of respondents already are investing, or operating in emerging markets; 70 percent of those companies are doing both.
Availability of cash was not a dominant challenge in emerging markets.Of those CFOs who already were investing, or operating in emerging markets, only 3 percent cited securing or raising capital their biggest challenge. Only 12 percent of the CFOs who were not yet investing in or operating in emerging markets claimed that securing or raising capital was their biggest hurdle.
"CFOs understand that the economic environment is not going to turn around overnight, and, therefore, many are aggressively looking for innovative ways to remain agile and grow outside of the traditional markets," said Cockrell. "Many are investing in and expanding to emerging markets, which overall have fared better during the downturn, as a way to produce growth while traditional markets remain slow."
The polling results were collected from more than 175 CFOs at Deloitte's CFO Vision 2010: Staying Agile conference, held November 11-12 in Washington, D.C.
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