Regulation

The Top Corporate Finance Trends of 2013

To grow or not to grow? That is the question.
David KatzJanuary 22, 2013

What are the trends in 2013 that will define corporate finance?

Any decent editor must frequently try to answer questions like that—or at least carry around in his or her brain a constantly updating ranking of the topics readers most want to know about at any given moment. We make our decisions about what stories to assign and give the most prominence to in that context.

But spelling them out in black and white for an entire year is another matter. Although we editors have metrics about what most attracts our audiences and keeps them engaged kicking around in our heads, instincts must play a decisive role in deciding what’s most important to you, dear reader. And instincts can be a faulty means of forecasting.

Indeed — pace Alvin Toffler — futurism has always been an inexact science. With such caveats in mind, I offer you the following six trends I and the CFO online/mobile edit team currently believe will be top of mind for finance chiefs in the currently unfolding year. Are we right? Please comment in the space below or e-mail me at [email protected].

1. The pressure on CFOs to unlock corporate cash hordes will grow. With the fall of Lehman Brothers set to reach its fifth anniversary this fall, worries about liquidity are now same-old, same-old. Consumer spending is starting to rise, and shareholders will begin demanding greater return on their equity via corporate growth. In essence, that means they will press companies to put their capital into areas that can sustain a greater return on their shares, such as investments in plant and equipment, research and development, and hiring (see trend number 2 below).

Yet post-financial-crisis caution continues to affect CFO attitudes toward growth, and early indications are that companies are continuing to squirrel away liquid cash. If that attitude persists through 2013, we’ll see companies continue to try to satisfy shareholders in the most cash-cautious ways: by boosting dividends and buying back their own shares. And don’t expect much in the way of spending on corporate acquisitions, at least through the end of this quarter. After that, the amount of M&A activity depends on the performance of the U.S. economy.

Meanwhile, companies won’t be happy if all that liquid cash continues to gather dust. Treasurers will be reaching for yield, and some have even begun putting money in high-yield bonds in search of returns. It’s risky, but the Fed’s low-interest-rate policy (and the lack of M&A investments) is prodding them to go after junk.

2. To hire or not to hire will be the question. In the wake of the financial crisis, companies have become cracker-jack at doing more with less via automation, consolidation, and simple efficiency. Profits have been up largely on the strength of cost reduction. But the technique of boosting net income by cutting expenses and keeping payrolls at a minimum may well run its course this year. If companies want to grow, they may finally have to start hiring talented help.

3. Like it or not, financial reporting will continue to globalize. After years of hype concerning the coming convergence of U.S. generally accepted accounting principles and international financial reporting standards, the Securities and Exchange Commission has made it clear that the convergence agenda is on a slow boat rather than a fast track.

But regulators find it tough to keep abreast of the markets they tend to regulate — and those markets are relentlessly globalizing. Both corporations and the users of financial statements will, paradoxically, need simpler ways of communicating the result of increasingly complex relationships.

In that light, the movement toward a single, global set of accounting standards may be inexorable. The movement should gain momentum this year if the long-anticipated convergence of two key proposals — on revenue recognition and lease accounting — is finalized as expected in the first half of the year.

4. Tight credit at banks will trigger increased use of alternative sources of funding. With regulations like Basel II hamstringing bank lending, private-capital providers and alternative sources of lending — crowdfunding, especially — will be supplying scads of credit to small and midsize companies. Large companies can issue bonds, so credit will be no problem for them — unless the bond markets reverse direction. In that case, crowdfunding may also come into play among higher-end corporate capital seekers.

5. Big Data will smarten up. With the price of predictive analytics and Big Data tools falling, the finance folks at SMBs seem likely to pull open their firms’ purse strings. But expect a more rational approach to technology spending among CFOs. That strategy will be to take less note of what marketers have to say and compare more closely the cost of Big Data projects in terms of staffing and resources to the money such projects can bring in. The questions, as always, boil down to how much to spend and what to spend it on to get the best bang for the buck.

6. Obamacare will come to ground. We’re still a year away from the Big Bang in health benefits, when employers will face a flurry of possible changes in their benefits plans. On January 1, 2014, for instance, state and federally run health-insurance exchanges will open their doors, enabling many smaller companies to drop health benefits and give employees a stipend to spend via the exchanges. In most cases, though, a penalty of $2,000 per employee per year for not offering “minimal essential” health coverage will be assessed to employers with more than 50 full-time employees.

This year could be a curse or blessing. If finance chiefs continue to act like ostriches about the Affordable Care Act and wait until next year to decide what to do, they will risk having events make the decisions for them. Here’s a healthier approach: use the year to understand the law and the costs and benefits of complying with it.

Better yet, take the time to understand how your entire benefits plan fits in with your overall strategy, approach to employee relations, and risk appetite. Come to think of it, that’s a good way for CFOs to come to terms with any of the trends that may come their way in 2013.