“Heard in the Suite”—Emerging Trends: Companies Reviewing Severance Plans As More Layoffs Look Likely

According to recent benchmarking conducted by the Benefits Roundtable, more than half of organizations surveyed (51%) are planning layoffs that they have not yet announced, while 13% have already announced layoffs, and another quarter remain undecided. All told, 60% of organizations are currently reviewing their severance plans to prepare for imminent layoffs. Companies are also being smart about their approach to workforce reductions: 73% of companies are paying involuntary severance instead of offering voluntary packages, suggesting an effort to weed out low performers rather than offer buyouts.

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Expected Cost of New Capital Rising

Corporate Executive Board, 17 November 2008

The Weighted Average Cost of Capital (WACC) has risen for the typical company to between 9% and 12%. This important metric indicates the minimum return that a company must earn on its existing assets to satisfy its creditors, bond holders, and other providers of capital. An increase in WACC reflects that a higher bar is being set for lending.

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Sun Microsystems May Cut 6,000 Jobs

Australian IT, 18 November 2008

Sun's servers supported thousands of companies who were looking to build a web presence during the Internet boom, but sales collapsed with the burst of the tech bubble. Now the company's efforts to win back market share (by offering low-cost servers in addition to high-end machines) have been undermined by the collapse of one of its largest customer groups—the financial services industry—which had been cutting back on technology spending since earlier this year.

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Our view: Companies must be more vigilant about the effects that a collapse in one industry could have on their suppliers’ ability to meet their needs, and there is no perfectly reliable way to assess the health of critical suppliers. The Procurement Strategy Council recommends quick checks that can be easily deployed to gauge supplier health. These include: tracking payment consistency (asking even sub-tier suppliers to report on critical suppliers), using ratings agencies, and listening to what supplier sales people are saying about targets and bonuses.

Economic Uncertainty Causing Workers to Stay Put

Wall Street Journal, 13 November 2008

While layoff worries abound, employees are resisting the temptation to leave their current company for new opportunities, according to an Accenture survey of middle managers. Forty-six percent think switching employers in the current environment is “risky.” Search firms are finding it harder to lure prospective candidates, according to the Journal.

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Our view: There is a “last in, first out” fear causing employees to cling to the security of their current organization—they don't want to be the first to be cut from their new job if the firm founders. According to a recent survey conducted by the Corporate Leadership Council, only 12% of employees are actively looking for a job with another organization. At the same time, engagement has fallen 45% to its lowest point since it started collecting data (2004). With employee engagement at historic lows, companies should look to improve commitment and temper employee expectations that they will be rewarded just for sticking with the company.

Japan's Recession Looks to Be Less Severe Than U.S. and E.U. Stalls

New York Times, 16 November 2008

Japan’s GDP shrank at an annual rate of 0.4% from July–September after a 3.7% decline in the previous quarter as Americans cut back on consumer spending, hurting Japanese export growth. Economists are forecasting that the worst is yet to come and anticipate a weak year-end retail sales season will damage Japan’s exports further. Japan’s economy, however, is only expected to shrink by 0.1% next year, while the U.S. will experience a 0.9% decline and the EU a 0.5% decline.

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Ford Off-Loads More Than Half Its Holdings in Mazda

Bloomberg, 18 November 2008

“When the airplane is too heavy and you're losing power, you have to throw out what you can,” said one investment analyst when asked about Ford raising $540 million through the sale of almost two-thirds of its 33% stake in Mazda Motor Corp. As has been much publicized, Ford, General Motors, and Chrysler have strong concerns about running out of cash in the coming months and have applied to the U.S. government for $25 billion in emergency loans. All three have been unable to raise money through the bond markets this year. Ford's last issue was for $5.3 billion on 16 May 2008 and cost the firm “47 times the interest it paid on a comparable sale a year earlier,” says the piece.

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Daily Capital Markets Review: Stocks Extending a Two-Week Drop

This summary includes news items regarding global liquidity, the TED spread, commercial paper and T-bill rates, currencies and commodities, and corporate debt spreads and new issuances. If you would like to receive the Review after markets close (instead of the next morning), please click here.

Listen to our podcast for an overview of what we’re hearing from senior executives in our network on managing effectively through the downturn, upcoming changes to U.S. state tax (and what it means for business), and some thoughts on the impact of the U.S. election on business. And, of course, listen for a summary of changes in last week's capital markets.

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