CFOs worried about second wave of coronavirus
CFOs are concerned about a new wave of COVID-19 infections leading to a further economic downturn, according to a survey Monday from Big Four firm PricewaterhouseCoopers, as their companies also confront issues related to racial inequality amid the Black Lives Matter protests.
PwC’s sixth COVID-19 CFO Pulse Survey found the biggest concern for finance leaders is a second wave of coronavirus infections (59 percent), followed closely behind by the impact of a global economic downturn (54 percent). In response, CFOs are shifting their focus to how they can create sustainable business models so they can better adapt to the new realities of working and doing business at an unpredictable time.
The majority of the 330 U.S. CFOs and finance leaders polled last week by PwC expect COVID-19 to decrease their revenue or profits (78 percent), but their outlook has improved, with 13 percent of CFOs anticipating a revenue decrease of 25 percent or greater, down seven percentage points from the previous survey. Now that they have a slightly more optimistic view, 11 percent of the survey respondents see a potential to increase revenue.
“Companies are heavily focused on revenue,” said Tim Ryan, PwC US chair and senior partner, during a conference call with reporters Monday. “They’re focused on how do you stabilize revenue and how do you grow revenue in a different environment. They’re trying to study buying habits and how they’ve changed with consumers and other businesses, and in many cases fighting for a bigger piece of a smaller pie. There’s a significant amount of time being spent in the C suite around how you project revenues and get your share of revenues going forward.”
At only 10 percent for CFOs in all industries, or slightly more at 14 percent for CFOs in consumer industries, issues related to racial inequality and social injustice ranked far lower on the list of concerns among the CFOs polled compared to the top two concerns about a second wave of coronavirus infections or the economic downturn. But Ryan has been hearing far more concern about racial issues from CEOs and other business leaders he meets with, apart from the survey respondents.
“In terms of the topics we’re hearing from the business community, without a doubt over the last couple of weeks, the topic of equality, racism and the George Floyd killing has topped the list,” he said. “There’s a dialogue we’re having with a number of CEOs on a regular basis ranging from not only condemning what’s happened, but also also what actions companies are taking both inside their four walls and outside their four walls. That certainly has been a topic of much discussion over the last couple of weeks.”
Ryan talked about those concerns during a webcast last week with the Ohio Society of CPAs where he referred to a group of over 900 CEOs he has organized called CEO Action for Diversity & Inclusion that hopes to encourage more racial equality in businesses (see story).
“Without a doubt, virtually every CEO we’re talking to is looking at how they get even better within their own organizations as well as what they can do when appropriate outside their organizations,” said Ryan. “Unequivocally in our dialogue over the last couple of weeks, this seems to be a top C suite agenda item. There are two aspects: continuous improvement inside the workplace, but also a question of what role does the company play outside of the workplace to get at some of the configurations around policymaking and the like.”
Waiting for 'business as usual'
The survey findings for CFOs also suggest finance leaders now have a better sense of the broad-ranging impact of COVID-19 on their business. The expected time needed to return to “business as usual” has improved and started to even out after a series of lengthening over prior surveys conducted, with 95 percent of respondents estimating they would do so in less than 12 months.
As a sign of improved confidence about rebounding quickly, 67 percent of the respondents think they can return to business as usual in less than six months. But as they plan strategies to recoup the revenue they lost this year, returning to business as usual will still look different than expected. Overall, CFOs report high confidence in their companies' ability to return to the workplace, but finding new revenue opportunities is more of a challenge.
Specifically, the ability for businesses to return to pre-COVID revenue levels depends on how businesses can adapt and be agile in this new environment. While 63 percent of respondents expect that changes in product and service offerings will be most important to rebuilding or enhancing their revenue streams, other revenue growth opportunities include changes to pricing strategies (41 percent), distribution channels (36 percent), talent (34 percent), customer segments (34 percent), deals (31 percent), new markets (26 percent) and the supply chain (25 percent).
“As companies feel more confident in the safety of their employees, they’re really hyperfocused on rebuilding their revenues as a way to emerge stronger from the crisis,” said Amity Millhiser, PwC US vice chair and chief clients officer.
In terms of financial actions, 79 percent of the CFOs surveyed are considering implementing cost containment, while 36 percent of respondents are considering adjusting their companies’ guidance as a result of COVID-19, down 8 percentage points from the previous survey. A little over half (52 percent) of the respondents are considering deferring or canceling planned investments as a result of COVID-19, down 6 percentage points from the prior survey in early May.
Remote work-from-home arrangements seem to be gaining wider acceptance. While 26 percent of the CFOs polled say in the next month they expect a productivity loss due to lack of remote work capabilities, that’s down 8 percentage points from the last survey a month ago (see story). Nearly three-quarters (73 percent) believe the current work flexibility with hours and location will make the company better in the long run, up 5 percentage points from the survey last month. In addition, 72 percent say the current situation has resulted in better resiliency and agility, which will make the company better in the long run. Over half (56 percent) think the technology investment from the current situation will make the company better in the long run, up 7 percentage points from the previous survey, while 53 percent say the current situation has resulted in new ways to serve customers, up 9 percentage points, which will make the company better in the long run.
“Over the last 12 weeks, the U.S. workforce has demonstrated a significant amount of resilience,” said Bhushan Sethi, global people and organization co-leader at PwC. “Only 26 percent of the CFOs are now concerned with productivity loss. That’s down from a high of 63 percent in early March. The workers have been resilient. Businesses have operated, the financial markets have continued, supply chains have all functioned, and businesses have not only managed to navigate a health care and economic [crisis], but increasingly a societal crisis. A lot of organizations have been very transparent, as a result of two weeks ago, around the focus on racial justice, demonstrating continued resilience in the wake of a significant number of changes.”
However, many of the CFOs polled are planning cutbacks in staffing to deal with the economic downturn, with 20 percent saying in the next month they expect insufficient staffing to accomplish critical work, up 3 percentage points from early May. In addition, 30 percent of the CFOs surveyed say in the next month they expect a change in staffing due to low or slow demand (with temporary furloughs), down 6 percentage points from the last survey, Nearly one-fourth (24 percent) say in the next month they expect separation of staff (or layoffs), down 7 percentage points.
In terms of returning to the workplace, 80 percent of the CFOs polled indicated they are very confident they can meet customers’ safety expectations, up 6 percentage points from the prior survey. Nearly three-quarters (73 percent) said they are very confident they can provide clear response and shut-down protocols if COVID-19 cases in their area rose significantly or if there was a second wave of infections. Meanwhile 71 percent are very confident they can provide a safe working environment, up 7 percentage points from last month’s survey.