The board made decisions armed with a clear understanding of the consequences
for the company’s financial welfare. But, for now, that control over the outcome
appears to have vanished.
In our latest survey of the CFOs of major UK companies, we asked FDs to share
with us their single biggest concern for their business in 2009. The responses
fell overwhelmingly into two categories – 55% cited a shortage of credit or
liquidity, while 45% saw a weak economy as the biggest problem for their
The results clearly indicate that FDs think the biggest challenges they face
in 2009 are external (i.e. outside their control), lying in the financial and
economic environment, rather than within their business or sector.
FDs are contemplating the possibility of extreme outcomes. One told us it was
‘going to be like the 1920s/30s rather than the early 1990s’ while another
simply stated that survival was his chief concern. A third raised the lack of
visibility about when the up-tick starts as a major challenge. Despite the
uncertainty, it is clear they are not idling, letting these external factors
dictate outcomes. FDs are definitely using all of the ammunition available to
them to mitigate, as far as possible, the consequences of the dire financial and
Faced with a downturn and exceptional uncertainties, FDs have become
significantly more risk averse. Of those we surveyed, 98% believe this is a bad
time to be taking additional risk onto balance sheets – twice the level of a
year ago. Their overriding aim is to strengthen balance sheets. In doing so, FDs
are focussing on three priorities: maximising cash flow, bolstering investor
confidence and curbing costs. They are also seeking to take other mitigating
action – radical responses, which many would previously have been unwilling to
contemplate, underscoring the seriousness of the downturn. This year is set to
be full of debt reduction and dividend cuts – 56% of FDs plan to reduce debt
levels and 23% plan to cut dividends, compared with just 3% in March 2008.
Encouragingly, FDs are retaining some optimism and still see opportunities,
particularly to expand market share, buy assets at discounted values and to
effect the changes they have known are required but have not had the mandate to
press through when times have been good.
As I have noted before, this really is the time for the FD’s voice to be
heard in the boardroom.
Margaret Ewing is a partner and vice-chairman at
Deloitte and former CFO of BAA
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