Midterm Congressional Elections Improve Finance Chiefs' Business Outlook

Senior finance leaders remain concerned about the regulatory burden and the long-term impact of the high deficit, according to Deloitte CFO Vision Poll

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New York — December 1, 2010 — Despite the fact that more than 70 percent of chief financial officers surveyed at an annual CFO conference last month believe current government financial policy has either had no effect or negatively impacted their business, the tide appears to be turning toward a more positive outlook, with a majority (59 percent) of the same group of CFOs expecting the recent Congressional midterm elections to have a positive impact on their industry, according to consulting firm Deloitte.

However, the survey of senior finance executives at Deloitte's annual CFO Vision event revealed continued concerns about the impact of new regulation on business, with the CFOs calling for long-term efforts to reduce the Federal budget deficit. With a slow domestic economic recovery in the United States, CFOs also are looking beyond traditional markets to uncover opportunities in higher-growth emerging markets, Deloitte said.

"Sovereign debt and China's possible property bubble, as well the pending regulation, cost and repercussions of healthcare and financial reforms are making today, as one pundit phrased it, 'unusually uncertain times,'" said Barry Salzberg, CEO of Deloitte. "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."

The annual Deloitte CFO Vision Conference gathered together CFOs last month from top global enterprises to discuss key domestic and foreign issues facing senior finance executives today. 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.

The Midterm Elections, Financial Regulation and Tax Policy

In the session called "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, the financial reform bill signed into law in July. Almost half (43 percent) are concerned about the additional cost burden of the landmark financial sector reform legislation, and 38 percent are unclear of its ultimate impact.

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In regards 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 US CFO Program. "The biggest risk they see is a prolonged, stagnant recovery."

Industries are also concerned about too much government intervention, Cockrell added. "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 are already 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 were already 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.

Deloitte's CFO Program delivers perspectives and insights aimed at helping CFOs manage the complexities of their role, drive more value in their organization, and adapt to the changing strategic shifts in the market. More information about the program is available here.