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One finance chief's nightmare is another's opportunity.
Jason Karaian, CFO Europe Magazine
November 3, 2008
"How deep will the downturn be? Honestly, I don't know. If I did, I wouldn't be here."
Wrenching market movements have humbled a host of hedge fund managers, investment bankers and other assorted masters of the financial universe in recent weeks. For CFOs such as Claude Changarnier of Microsoft International, the watchword is caution. After admitting that he has no exclusive insight to the direction of the markets he oversees for the US-based software company, he says that, for now, like most of his peers, he wants to "stay on the safe side of things."
As in previous quarters, uncertain consumer demand remains the top concern among finance chiefs around the world, according to the new quarterly takeover survey of 1,300 senior finance executives by CFO Europe, Tilburg University and Duke University. (See "Top External Concerns" and "Top Internal Concerns" at the end of this article.) Though few claim to know the extent to which the turmoil in financial markets will filter through to overall economic growth, many CFOs are nevertheless paring back investment plans and have stopped recruiting. (See "Business Outlook Survey," October.)
As the darkening economic outlook dampens energy demand, CFOs in Europe and the US no longer rank the cost of fuel as their second-greatest concern, assigning it a third and fourth ranking, respectively. Around the world, however, the cost of non-fuel commodities and, unsurprisingly, the perilous state of the credit markets rose up the slate of worries.
It's at times like these that Jorge Consiglieri relishes his company's "negative beta." At Ritchie Brothers, a Canadian industrial-equipment auctioneer where he is European finance director, "we are having an extremely busy quarter," Consiglieri says. "People crave cash in their pockets, and we focus on turning equipment into liquidity."
Although he frets about buyers' purchasing power — the company specialises in unreserved auctions, where no minimum price is set — he's confident that any shortfall will be made up by the volume of stock put on the block. The company recently reported quarterly gross auction proceeds of more than $1 billion for the first time in its history. It also hiked its dividend by 13%.
Consiglieri worries, however, about attracting the best employees to support the company's growth. In this respect, he is similar to most other finance chiefs, who rank this issue as their top internal concern, as they have in many previous quarters. Two years ago, Consiglieri moved several of the company's service functions, including finance, from the Dutch industrial port city of Moerdijk, where the company operates a massive 21-hectare warehouse facility for auction purposes, to the well-connected, "very pleasant" centre of Breda. At the same time, he revamped pay and benefits packages to make the company "as competitive as any Big Four firm."
For Changarnier of Microsoft, "the coming period will be a great opportunity to attract good people." He reckons that the "turbulence" affecting the wider corporate world could throw a great deal of talent out into the job market, where more stable firms can snap them up.
In general, he considers Microsoft, with more than $20 billion in cash, well positioned to take advantage of weaker rivals. "As times get tougher, we may use some of our cash to gain market share," he says. After all, "people want to communicate, to be more productive, to use PCs and mobile phones," he says. "The demand will be there, despite a slowdown in the short term."
By way of example, he recalls that in the late 1990s, Microsoft had "big problems" in Russia. But instead of winding up its business there, as many other western companies did at the time, "we kept all of our people and maintained our presence," Changarnier says. "The people realised that we were there for the long term."
As a result, when conditions improved the company achieved a "huge return" as the size of its Russian subsidiary "has since multiplied by a factor of 40" the CFO beams. In today's uncertain times, it is a useful reminder of the value of perseverance.
Survey conducted September 5th and generated responses from 215 in Europe, 524 in the US, 212 in Asia (ex China) and 348 in China.