Soldiers of misfortune: FDs ready to take on recession

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Last summer we ran our first litmus test of finance directors' feelings about the credit crunch, where the UK economy was headed and what it meant for them. At that time, FDs told us they were readying themselves for a prolonged downturn, planning to reduce headcount and scale back discretionary spends such as investment in IT systems or travel and entertainment budgets.

Well over half told us the credit crunch hadn’t forced any changes to existing strategies and plans and about the same number thought the crunch was an opportunity to actively seek discounted acquisition targets in 2009 ­ though many thought financing and financing terms could end up being prohibitive given that credit markets were drying up fast.

None of us could have anticipated just how dry the credit river was about to run. In the 20 weeks that followed the survey, we witnessed one worst-case scenario after another, from the Lehmans collapse, the total seizure of credit markets on both sides of the Atlantic ­ over here, leading to Chancellor Alistair Darling's £50bn bank bailout, an emergency VAT cut and a mass march of high street brands into administration, led by pick 'n' mix icon, Woolworths. All of this strangled the last vestiges of hope that we weren't heading for recession. For good measure, we closed 2008 with the bailout of Detroit's auto industry at great cost to the US taxpayer and, here, opened 2009 with the final death throes of banking titan RBS as an independent entity.

Here we go again
Last month, to see if sentiment had followed the economy south, we put many of the same questions we asked last summer to our readers, adding a few new nuggets (and changing the term 'credit crunch' ­ now hideously kitsch in our opinion ­ to 'recession'). What we found was one of the only groups in the corporate world not reporting wide-scale and devastating change to their jobs, situations and outlook. FDs remain surprisingly upbeat about their chances of survival, about riding out what most think is going be a deep recession and a vast financial regime change, about their financing, the skills of their finance teams and, crucially, their own abilities.

Of our 155-strong FD cross-section, half tell us they are confident in their own skills to face the challenges ahead and a further 43% say they are ‘very confident'. Forty-four percent have high confidence in the skillset of their finance function to help survive recession ­ almost holding steady at just 3% lower than six months ago ­ while those ticking the top ‘very confident' box for that question rose a few percentage points to 39%.

We asked FDs the areas of their business in which it was most likely they would make cuts, choosing their most important area, then a second and third. Surprisingly, only 33% said staffing was their first port of call this year ­ and even more surprising was the fact that this represents just a 6% rise on last year's figures for that option. Those hoping to uphold the status quo dropped away sharply in the period between the two polls, with just 9% of respondents saying they plan to make no cuts at all, compared with 30% last year.

Systems investments, M&A activity and travel and entertainment are a shade more popular as first choices this year, the latter being the most poplar option in the ‘second choice' list and first in the ‘third choice' list.

As the economy contracts sharply, so too are the bonuses board level executives enjoyed throughout the credit boom; this ranked higher as a first choice, with 7% putting this first in a list of cuts this year, compared with 3% in 2007 who chose board-level bonuses as first in line for the chop. Despite heightened awareness of the growing financial and regulatory burden on pension schemes, cutting contributions figured last in FDs’ minds, showing no real change on 2008's figures.

The critical question of funding was illuminating. When we asked if FDs had been forced to refinance their business this year, 13% said yes compared with 9% in 2008, making reassuring reading. Of those who say they had to refinance since last summer, 44% found a new finance provider altogether, making it the top response. We didn't offer this as an option last year.