Sarbanes-Oxley. 404. IFRS. AS5. Proxy compensation disclosure. PCAOB. You might not have liked your job much recently, but if there was one silver lining to the years of post-Enron reforms and regulatory pressure, it was the near-guarantee of employment for anyone with accounting or finance skills.
But is that one solace now also in jeopardy? Turmoil in overseas markets on Martin Luther King Day had the Fed on a hair trigger to drop rates 75 basis points almost as soon as U.S. markets reopened Tuesday. With a recession increasingly likely, CFOs will be looking for cost cuts — and possibly leading by example.
And, ironically, the same regulatory pendulum that caused finance folks so much professional grief could now affect their job security as it swings the other way. The SEC, the Treasury Secretary, and yes, even FASB itself, have been loudly promising to battle “complexity” in financial reporting. That was all well and good when there was plenty of work to go around. But will eliminating complexity eliminate finance jobs too?
In light of those concerns, CFO.com asked several experts to predict what they see as the potential impact of a recession on each finance function: tax, internal audit, treasurer, and controller, as well as the prospects for finance employees in general, and, yes, for the CFO.
Their predictions — which appear below — may come as a surprise to some. After all, finance employees can be forgiven for feeling fairly sanguine about their job security. Two years ago, half of CFOs were saying it was getting hard to find qualified finance staff, and were scouting and wooing soon-to-be accounting grads as if they were potential NBA stars.
By last fall, they were complaining bitterly that they couldn’t even retain inexperienced staff. And just last year, the PCAOB was so hard up for talent that it took out ads in The Wall Street Journal promising retired accountants they could work part-time for the regulator without cutting into their golf game.
But if that makes all finance jobs seem secure, consider this: Among companies benchmarked by The Hackett Group, the average cost of finance has risen 12 percent over the past three years, to 1.24 percent of revenue. With a recession looming and the initial pain of Sarbanes-Oxley largely over, CFOs will be under pressure to resume the steady downward trend that characterized pre-Enron finance costs.
“I think recession is going to drive a bright focus within the walls of the [finance] organization for opportunities” to reduce costs, says Bryan Hall, finance practice leader at Hackett. For him, that means “performing the non-core work in an appropriate low-cost location.” Hall sees shared-service organizations springing up in Poland, Prague, Budapest, and, of course, India. Charles Eldridge, a managing director at Korn/Ferry International, agrees, citing the same locations. “I see finance functions increasingly looking at ways to cut costs and that may mean going overseas,” he says.
While the trend is still small and hard to quantify, it appears that offshore locations are often captive, as opposed to outsourced, entities. Nonetheless, collectively they represent a skills creep that may give many American finance workers, well, the creeps.
Past surveys by CFO have shown outsourcing or offshoring of finance to be done by only a small minority of companies. But Hall predicts that the actual outsourced functions will expand beyond the traditional ones: accounts payable, travel-and-entertainment expense processing, and accounts receivable.
“Where we find opportunity is expanding that further into transactional accounting such as journal entries,” says Hall. “Some very aggressive organizations have moved planning and reporting into the shared-service organization.” Penske Truck Leasing Co. is an example of a company that was aggressive about sending accounting and finance operations overseas. As CFO Frank Cocuzza explained, Penske hired India-based Genpack to handle some 40 different finance processes for Penske, including collections, various accounting and financial-reporting activities, and even on-demand data analysis for business units.
Shared services, Hall predicts, “ultimately is going to cover a vast portion of the finance dollar sent. As we look at things that can be performed in low-cost locations, the great majority of finance is eligible.”
If death and taxes are certain, then a pulse would seem to guarantee work for a tax expert. After all, while a number of Republican presidential candidates are currently promising tax cuts, only one, Mike Huckabee, has a proposal (replacing income tax with a national sales tax) that might actually cut the tax code itself.
And most commentators agree — tax is one area of finance that may be recession-proof. “We see a lot of ramp-up on staffing in the tax department,” says Hall. “If there’s a 1 percent opportunity to reduce the effective tax rate, that will pay for a lot of tax attorneys.”
But if tax experts can count on work, it may be at several different companies. Hall says most corporate efforts to reduce tax rates are done on a project basis, typically lasting 18-24 months. For tax folks, that may mean a peripatetic future of moving from company to company. If that’s not your style, then you need to be ensconced deep inside the inner-circle of your chosen firm’s tax department. “The long-term staffing for a tax department is similar to treasury,” says Hall. “It’s a very lean organization when the company’s tax environment is stable.”
Korn/Ferry’s Eldridge agrees that “tax is hot” because companies see it as a function that can generate cash in a downturn. But he’s less convinced that the long-term model is project-based. He says he’s very recently seen efforts to have historically autonomous tax departments create strategic plans that mirror the company’s own business plans “That’s stepping tax up into a new category of being more strategic.” Either way, though, a career in tax seems to be a good bet.
A career in internal audit does, too. Internal audit departments should be stable in the face of an economic downturn — at least to the extent that companies appreciate the value they provide, according to David Richards, global president at the Institute of Internal Auditors.
Many internal auditors already try to prove their worth via the cost recovery they provide through their audits. “They routinely give back to the organization multiples of three, four, and five times the cost of operating the department,” Richards says. “Organizations are going to be looking at their large cost items, and internal auditing is not a major cost factor.”
Hackett’s Hall is even more bullish. “Because they can displace external audit costs, internal audit will be a very strong player for years to come,” says the consultant, who predicts it as a very stable job in the coming years.
At the same time, companies in the throes of bottom-line pressures and cost cutbacks aren’t likely to fill open positions in the near term, Richards adds. That could affect the internal audit department, he says. “The market has been very tight for internal auditors, so I’m sure there are plenty of job openings that are currently unfilled, and that is one of the first places organizations will look to from a staffing standpoint,” he says.
Indeed, Korn/Ferry’s Eldridge says that the “substantial hiring post-Sarbox” quieted down about this time last year. And while he sees a few companies beginning to hire for internal audit again after that lull, he suspects many may be looking at ways to consolidate internal audit with the risk management and compliance functions. “I don’t know that internal audit is recession-proof,” he says. “Companies have internal audit, risk, and compliance. This would be a way to streamline. There’s a good business reason, and now there may be a good economic reason.”
While there may be room for debate about whether internal audit is a consolidation target, there is general agreement that the controller’s office will be a focus of shrinkage. “Clearly the controller’s organization is at risk for cuts,” says Hall. The traditional controller, he says, splits his or her time between classic transactional accounting and a more strategic role. “As we go to globalization, we need to pull those roles apart,” he says. “If I’m controller of a business in Minneapolis and 100 percent of my accounting work is performed in Poland, then by definition I am an analyst,” he says. “This is a particularly dynamic space.”
Eldridge also sees the controller’s office as one of the most likely areas for cuts. After making substantial investments in that area to make business more efficient, the headhunter says, companies will be looking to continue the trend. “Once you’ve walked through the process to streamline, you can’t stop.” He sees the controller’s office as one of the most likely to send functions offshore. “From a headcount perspective, you might go up, but it will be 300 [employees] overseas as opposed to 100 here.”
The good news, says Eldridge, is if the definition of a controller left on this shore is an analyst, that’s a good job. “Companies need to pay attention to the financial planning and analysis function,” he says. “That’s a great spot for finance people, and a great spot to rotate in and out of in terms of developing more skills.” For finance folks whose experience is primarily in controller-type work, he says, FP&A represents an opportunity to develop a more attractive resume in case the worst does happen.
Already one of the leanest departments in corporate finance, it’s hard to believe that treasury could come in for cutbacks. Indeed, if a recession becomes a reality, much of the responsibility of dealing with it will fall on the shoulders of corporate treasurers. Sometimes dubbed “chief liquidity officers,” they’ll have to figure out what to do when the liquidity runs dry.
These are days when treasurers should be reading the tea leaves of their companies’ working capital, accounts receivable, accounts payable, and inventory days, says Jeffrey Wallace, managing partner of Greenwich Treasury Advisors. “You want to start seeing how accounts receivables days are trending,” Wallace says. “You must forecast cash flows better, so you have funds available to meet a slow down.”
Wallace recommends stress-testing cash flow figures and debt outstanding in the event of a drop in sales or delays in payments. Also, he says, keeping a close watch on covenant limits and communicating with banks and creditors is crucial. “You don’t want banks to think you’re not managing your business right,” he says.
That’s good advice for keeping the business running. To keep their own paychecks coming, the most important move for treasurers is to keep their CFOs informed. If recession pains are affecting the business, Wallace suggests, the treasurer should recommend delaying capital expenditures, delaying research and development, and suggesting that advertising be cut. As with controllers-turned-analysts, that sort of advice is likely to help a treasurer or treasury employee be viewed as a strategic partner at a time when very few employees are needed to run the business. “Treasury needs very talented people, but you can put a few of them in one location and essentially they can run a global operation,” notes Hackett’s Hall.
Of course, the potential losses of an economic downturn also come with opportunity. “The entire job is going to become very sexy again, and more stressful,” says Jeff Glenzer, managing director of product development at the Association for Financial Professionals. “In a recession, cash is suddenly a very attractive asset.”
And what about CFOs themselves? Eldridge says that it’s common for companies to change CFOs during changes in their business cycle — when they go public, for example. Thus, he says, job changes are also common when the larger business cycle turns. For example, a CFO of a smaller growth company may decide to leave if recession forces the company to adopt a defensive economic approach.
But ultimately, CFOs occupy such a volatile position that an economic recession may simply be a moot point. “If the plan is not being met, the CEO is not going to take himself out — the CFO will go first,” says Eldridge. And CFOs can’t really win: When CEOs do end up leaving, their successors tend to bring their own CFOs with them. The CFO slot, says Eldridge, “is just a battlezone. You’re going to score a touchdown or get sacked.”
That may sound grim, but Eldridge is bullish on finance positions in a recession. One might think, of course, that turnover would benefit an executive recruiter one way or the other. But that’s not so, says Eldridge. Five years ago, he says, financial services hiring “came to a screeching halt. We have not seen that in finance.”
He recommends that finance professionals continue to seek ways to balance their skill-set. “Don’t get pigeon-holed. You want to be the value-add person.” He says finance professionals can do that by working with senior management on special projects, volunteering for assignments overseas or within operating units and taking other steps that demonstrate that they are more than just a number-cruncher. “You don’t want to be easily disposable,” he says.
In the long run, says Eldridge, finance talent is like healthcare: everyone needs it. “I would have to lean towards finance perhaps being recession-proof,” he says. “But that doesn’t mean everybody stays in their job.”
This story contains additional reporting by Alan Rappeport, David McCann, and Marie Leone.