Posts Tagged ‘Cash reserves’

Faced With Fiscal Cliff, Financial Sector Directors Increased Cash Reserves

January 10th, 2013 | By

Companies kicked into gear at the end of 2012, acting to forestall the brunt of the potential fiscal cliff. More than 80 CEOs joined the Fix the Debt coalition. Others chose to accelerate dividend payouts in anticipation of a potential increase in dividend-tax rates from 15 percent to 40 percent. In the financial sector, directors reported their companies were most likely to increase cash reserves, according to results from the Q4 NACD Board Confidence Index (BCI), conducted in early December. Across all sectors, directors responded that their companies were reassessing corporate strategy to prepare for the coming year.

Uncertainty trumped optimism in the fourth quarter of 2012. And not without reason—a close presidential election coupled with the looming fiscal cliff and Congress’ inability to develop a solution left the nation waiting until the last minute. Conducted in the first weeks of December, NACD’s Q4 BCI score dropped nearly three points from 54.5 to 51.8. A score above 50 represents optimism regarding the current state of the economy. Scores near 50 mark uncertainty.

Attitude Shift in Future Outlook 

The 51.8 score represents the second-lowest registered by the BCI—the lowest was 47.5 in Q3 2011. In its two-and-a-half-year history, scores have fluctuated between uncertainty and moderate optimism. These composite scores are generally the result of boardroom pessimism in the short-term state of the economy buoyed by an optimistic long-term view of economic progress—both progress made to date and to come.

In Q4, however, the outlook shifted to optimism in the boardroom’s retrospective view—current economic conditions versus those three months and one year ago—lifting pessimism in both the short- and long-term future states of the economy. Looking ahead to the state of the economy in three months, boardroom confidence dropped eight points—15 percent—to a gloomy 44, the lowest score to date.

Peer indices provided mixed sentiments in the fourth quarter. The Conference Board’s quarterly CEO Confidence Index posted a recovery of 4 points, moving from 42 in Q3 to 46 in Q4. However, a score of 46 still places the index in negative territory. Consumer indices moved in the opposite direction. The Conference Board’s Consumer Confidence Index dropped 6.4 points in December to 65.1. A similar measure, the University of Michigan’s Consumer Sentiment Index fell nearly 10 points in December, from 82.7 to 72.9.

Obama Urges Businesses to “Get in the Game”

February 24th, 2011 | By

President Obama recently implored American business leaders to “get in the game” by spending trillions of dollars in corporate cash reserves on investments that would spur the economy. But he may have been preaching to the proverbial choir.

After years of stockpiling cash in the wake of the 2008 financial collapse, American businesses appear poised to do just what the President requested: invest and create jobs. Consider the latest NACD Board Confidence Index (BCI), in which a majority of directors forecast that their companies will expand their current workforce in 2011. This is a significant development in what has been, in many key respects, a lethargic economic recovery.

Even after the economy began emerging from the depths of the recession in 2009, American corporate leaders remained fearful of another downturn, prompting companies to safeguard their cash reserves, now estimated to be about $2 trillion. That, of course, has contributed to a mixed economic picture today: many companies, while profitable, are unwilling to make the kind of large-scale investments that would put millions of unemployed Americans back on the payroll.

But as the NACD BCI for Q4 2010 suggests, the widespread fear of a double-digit recession appears to be over, with many corporate directors saying that they see the prospect of continued economic growth over the next year.

Now is the time for directors to begin looking at what best practices their companies should be putting in place to help position them for growth in the year ahead—whether those policies focus on compensation, ethics, accountability or competence.