Risk Management

CFOs: No Risk of Crisis Looming

Finance executives cite Sarbox as one of the major catastrophes they've weathered, says one survey.
Stephen TaubDecember 19, 2006

Many chief financial officers and managing directors at multinational companies don’t think their companies will experience a major crisis for the next three years. That a good thing. Because many more within that same group don’t believe their companies are prepared to handle a catastrophe.

Indeed, a survey of 104 CFOs and managing directors by PricewaterhouseCoopers found that nearly half of U.S.-based multinationals actually have been struck by a major high-level crisis over the past three years. (Such a crisis is defined by the survey as a significant event with catastrophic impact to one or more of their major business units or enterprise processes.) Only half as many, however, expect a crisis three years out, according to the survey.

Whether a calamity hits, or not, a large majority (71 percent) of respondents claim that the crisis had only a limited impact on their company’s bottom-line profitability. Only 20 percent report a moderate impact, and 6 percent cite a major effect. And 71 percent were pleased with their company’s resilience and performance in dealing with the crisis, including 26 percent describing the response as “outstanding” and 45 percent as “good/gets high marks.”

What were the biggest sources of high-level crises over the past three years? Natural disasters (flooding, hurricane, etc.) were clearly number one, cited by 53 percent of survey participants. Others named a complete shutdown of a major business unit (31 percent); major SEC/Sarbanes-Oxley problems (20 percent), and management upheaval/major changes (20 percent).

Looking ahead, only 27 percent of surveyed executives said that they expect at least one major crisis to affect their company’s major business units or processes within the next three years. A much larger group (39 percent) doesn’t expect a catastrophic problem at all, and 31 percent are uncertain.

How prepared do the CFOs polled think their companies are for a major upheaval? Not much, apparently. According to the survey, two-thirds (66 percent) said they are at least moderately concerned about their company’s preparedness for a major crisis, exactly double the amount who are not. Among those who have already experienced a high-level crisis, 73 percent are at least moderately concerned and only 28 percent are not. “It appears that crisis preparedness is a topic most executives would prefer not to discuss,” said Miles Everson, partner, PricewaterhouseCoopers’ Advisory practice, in a press release. “There’s almost a sense of denial that a crisis might occur.”

The survey also found that when comparing those who have experienced a high-level crisis over the past three years and those who have not, there is a considerable gap between the perceptions of preparedness in five important areas: financial management (19 points lower than those without recent experience); accounting and reporting (15 points lower); human resources (12 points lower); investor and public relations (10 points lower); and facilities management (9 points lower). On the other hand, relatively few believe their company is well prepared in R&D (only 21 percent); marketing and sales (32 percent); brand management (35 percent); and logistics/ distribution (37 percent).