Flexibility Is Key in a Prolonged Downturn

Corporate Executive Board, 5 November 2008

Macroeconomic reports coupled with recent manufacturing news of the drop in new orders received by U.S. factories for the second straight month do little to alleviate anxieties. We appear to be on the verge of recession unless, of course, we have been in a recession for more than a year, which will be revealed when Commerce publishes its annual revision for the first two quarters of the year. Rather than retrenching and waiting for this to pass procurement organizations, in particular, should try to be more flexible to maintain business continuity through the downturn, no matter how long it is expected to last.

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Anatomy of a Crisis—Regional Briefings

Corporate Executive Board, November 2008

This document provides an overview of key events, government responses, and market indicators relating to the financial crisis in Europe, Asia Pacific and Latin America.

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Finance Chiefs: Get Rid of Fair Value?

Financial Week, 4 November 2008

A recent survey suggested that nearly a majority of CFOs would support the suspension of mark-to-market accounting by regulators.

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Our view: The SEC recently held a meeting that was generally supportive of fair value, and both the IASB and the FASB have issued guidance clarifying the use of fair value in inactive markets—while still expecting it to be used. It is unlikely that fair value will be suspended in the near future.

“Heard in the Suite”—Executives Are Not Repricing Stock Options to Motivate Management

This feature highlights member quotes that represent emerging trends, challenges to conventional wisdom, or underreported news.

Though executives are conscious that many of their business managers have been working tirelessly for several years with little payout, a recent survey confirmed that most companies (93% of responding CFOs) are not considering repricing their stock options. Many cited challenges of repricing stock options, including shareholder acceptance, board resistance, negative signal to investors, and pricing difficulty. One CFO at a materials and construction company elaborated, “We would not reprice options under any circumstances: bad optics, bad signals, moving target, changing the rules after the fact, offensive to shareholders, etc. We would consider adapting current year equity grants to align management—by giving more options at current (lower) strike price or using of alternate vehicles with different risk characteristics, like performance shares or deferred (restricted) stock. We would be uncomfortable with misaligned incentives for senior management and line management.”

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In further news from our member network, please click here for results of a snap poll of members asking "For the top competitors in your sector, will Q4 revenues decrease?"

United States Weighs Increasing Stake in Financial Companies

Reuters, 4 November 2008

The U.S. Treasury is considering expanding its stake in financial companies after what it sees as early successes from the financing of the nine biggest banks in early October. According to the Wall Street Journal, potential recipients of a broader investment program include bond insurers and specialty finance firms such as GE Capital and CIT Group Inc. Some banks see an opportunity to show their strength by passing up government funds, even while other industries are clamoring for an expansion of the program that would include insurance companies, transit agencies, and even automakers.

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Our view: Treasury officials have said they don’t want to discourage participation in the rescue program by imposing too many conditions beyond the current restrictions on dividends and severance pay. However, the winds appear to be changing with Congress, indicating that it will not tolerate companies using the money to pay bonuses, and more requirements are likely to follow.

Latin America's Strongest Economies Feeling Effects of the Crisis

Forbes, 4 November 2008

Brazil in particular, and Latin America more broadly, have claimed isolation from the financial crisis—that time seems to be ending. Major capital projects aimed at updating the country’s infrastructure have been put on hold and the banking system, while in relatively good shape, is likely to under go significant change through consolidation.

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MasterCard Earnings Increase – Sign of Recovery Or Just the Calm Before the Storm?

Economic Times, 4 November 2008

This week, the credit card network MasterCard posted better-than-expected earnings; mainly on the strength of international revenue, which grew at double-digit rates (against only 4.7% for core U.S. businesses). However, as consumer confidence has declined at the fastest rate in 28 years. This type of credit-based spending may be a memory, at least for the United States.

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Daily Capital Markets Review: Despite Manufacturing Reports, Markets Quiet on Eve of Election

Corporate Executive Board, 4 November 2008

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.

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