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From Bad to Worst

CFO optimism sinks to an all-time low as companies foresee a dismal year ahead.

For those seeking a glimmer of hope amid the current economic news, the latest CFO Magazine/Duke University Global Business Outlook Survey is not the place to look. With CFO optimism plummeting to its lowest level in the 12-year history of the survey, 81 percent of finance executives say they are less optimistic than they were last quarter. Most expect their economic misery to last for at least a year.

The survey, conducted at the end of November and into the first week of December, includes results from 1,275 senior finance executives in the United States, Europe, and Asia, and reflects the global scope of the recession. Nearly 60 percent of U.S. finance chiefs do not expect the domestic economy to begin to recover until the fourth quarter of 2009 or later, while 71 percent of their European counterparts say their own local economies will also remain stalled until at least the end of this year.

John Bax, finance chief at Sentient, a private-jet membership company based in Massachusetts, says his business declined significantly in 2008. “Some of the things that really drove the business — like IPO road shows or executives flying to visit companies they might acquire — those and related kinds of high-end travel are down,” he says. “We were already in a recession, and then in September and October people just froze.” The company has instituted its own hiring freeze, but has not made layoffs.

Help Not Wanted

Announcements of major layoffs were headline staples in November and December, and CFOs forecast more job losses throughout 2009. U.S. and European finance executives say they expect to lay off 5 percent of their employees on average. That’s a significant jump from last quarter, when U.S. CFOs anticipated cuts of less than 2 percent and Europeans were still forecasting hiring growth. U.S. companies will also reduce their outsourced workforces by 2 percent. Chinese CFOs will make smaller cuts, reporting that they expect to reduce head count by a percentage point over the next 12 months. Other Asian CFOs will also make small-scale layoffs.

As a result of the dramatically changed employment picture, finance chiefs are much less concerned about attracting and retaining qualified employees than they have been in the past. The war for talent was regularly rated as a top internal concern through most of 2007 and 2008. Now, CFOs’ top worry regarding their own companies is their ability, or lack thereof, to forecast results, followed closely by anxiety about maintaining employee morale and productivity in the face of the recession.

Finance chiefs also continue to worry about consumer demand — an issue that won’t be helped by the rash of mass layoffs — as well as the credit markets. Nearly 60 percent of finance executives say their firms have been affected by the increased cost or reduced availability of credit. Among firms rated B and lower that number soars to 79 percent.

About a third of CFOs say their companies have had difficulty establishing or renewing a bank line of credit. Shawn Carroll, finance chief at the Midwest staffing company Crown Services, worries that he will be among that number when the time comes to renew his line of credit next month. “I don’t believe we’re a risk, but my terms could change if the money is costing them more,” he says.

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