Finance chiefs, bankers and deal advisers say they are turning more optimistic about the economic outlook as Covid-19 vaccines are rolled out across the country. Still, issues such as the pace of the economic recovery, returning to the office and how to operate in this environment remain top of mind for many executives.
At the same time, finance leaders are preparing their businesses for key regulatory changes such as the phaseout of the London interbank offered rate or potential new disclosure requirements as a new U.S. administration takes over later this month.
Chief financial officers, policy makers and other executives discussed some of these topics during The Wall Street Journal’s CFO Network Summit on Wednesday. Here are highlights from the meeting, which was held virtually.
CFOs Eager to Return to the Office
Many CFOs have spent the past year working remotely. They have closed their companies’ books, created forecasts and even negotiated mergers and acquisitions from their homes, often with little or no disruption.
Now, some are becoming eager to return to the office. Kathleen Oberg, finance chief at Marriott International Inc., said the hotel chain’s finance team has transitioned smoothly to working remotely. But, it has been difficult to have in-depth conversations about certain topics, for example, around processes or strategy planning, Ms. Oberg said. “Large remote meetings, frankly, they just do not work as well,” she said.
Marriott rolled out a new payroll and human resources system in December, Ms. Oberg said. It took longer to complete the process remotely than it would have taken with employees working in the office, Ms. Oberg said.
Waste Management Inc., a Houston-based garbage-collection company, expects that remote work will remain a part of workweek once the pandemic is over, said CFO Devina Rankin. But meetings that require brainstorming or collaboration will likely be done in person, Ms. Rankin said. “It’s not about whether it can be done remotely, but whether it should be done remotely,” she said.
Finance chiefs also have fined-tuned their forecasting. Waste Management, for instance, relied primarily on macroeconomic indicators such as gross domestic product before the pandemic. In recent months, the company has begun using additional data sets that incorporated local economic conditions and sector-by-sector performance indicators, Ms. Rankin said. Marriott’s finance team, meanwhile, has improved its cash forecasts and provides more detailed insights as the virus continues to weigh on the demand for travel, Ms. Oberg said.
M&A Experts Urge CFOs to Focus on Long-Term Value
Corporate deal-making picked up in the second half of 2020 after a slump in the spring. The increased activity could continue in the year ahead as stock valuations remain high and confidence among senior executives continues to improve, mergers and acquisitions executives said.
“We’re relatively optimistic about this year,” said Steven Baronoff, chairman of global mergers and acquisitions at Bank of America Corp. Asked to provide advice to CFOs, Mr. Baronoff urged them to focus on deals that make sense over the long term, rather than those that provide a short-term boost to earnings. “Shareholders … more than ever before are looking for that,” he said.
One factor that could influence M&A in 2021 is the coming change in administration, with President-elect Joe Biden set to be sworn into office on Jan. 20. As president, Mr. Biden will have the authority to appoint heads of agencies that review deals or enforce antitrust laws.
Companies should be prepared to show how potential deals could affect local communities, said Faiza Saeed, presiding partner at law firm Cravath, Swaine & Moore LLP. “It’s going to be important to be able tell a story that it’s good for the community in which you operate, and good for job creation,” Ms. Saeed said.
Activist investors, which mostly remained on the sidelines during the pandemic, could become a bigger factor in deal-making again. Joele Frank, founder of the financial communications firm that bears her name, said she has seen an uptick in the number of companies assessing how they would defend their strategies in the face of criticism from an activist investor.
U.S. Standard-Setter Tracks Libor Transition
The Financial Accounting Standards Board is closely monitoring potential delays in companies’ efforts to move away from Libor, the interest-rate benchmark underpinning trillions of dollars worth of financial instruments, Chairman Richard Jones said at the summit.
Banks face a Dec. 31, 2021, deadline to replace Libor with alternative rates for new contracts after a yearslong transition effort. The FASB, which sets accounting standards for companies and nonprofits in the U.S., issued two rules in the past year to help companies with the transition, for example, by enabling them to more quickly modify existing financial contracts as well as debt and lease agreements that reference Libor.
The FASB would consider extending the period of relief it recently provided if it found that many companies were delayed in their transition, Mr. Jones said. “We’re really focused on the accounting effects,” he said.
Debate Over ESG Disclosures Continues
Companies are keeping an eye on whether the Securities and Exchange Commission will require them to disclose more data on environmental, social and governance issues under the new administration.
It is unclear at this point what these ESG-disclosure requirements could look like. SEC Commissioner Hester Peirce said there should be specific disclosure requirements for certain industries, rather than blanket regulations that apply to companies across all sectors. “Let’s stop talking in generalities,” Ms. Peirce said.
International standard-setters and accounting firms in recent months have worked on a global framework on how companies disclose ESG information to investors. The Big Four—Deloitte, Ernst & Young, KPMG and PricewaterhouseCoopers—in September backed a framework launched by the World Economic Forum to standardize ESG disclosures. Also that month, the International Financial Reporting Standards Foundation, which oversees international accounting rule makers, proposed a new board to oversee sustainability reporting.
Ms. Peirce expressed concerns about the prospect of a global, or even a U.S. only, disclosure framework. “I worry … that some of our international counterparts are trying to use disclosure as a way to drive … capital allocation,” she said, adding it wouldn’t be necessary for the U.S. to create a stand-alone disclosure framework for ESG.
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