Financial Decision-Making in the Downturn: CFOs Took More Time Under Pressure, but Focused on the Short Term

AMSTERDAM, February 10 - CFOs of major companies took their time to come to well-balanced
decisions. They were under pressure at the time: major decisions often
related to the very existence of their companies, and potential mistakes
could have a knock-on effect. The most important decisions focused mainly on
the short term.

These are the results of a new survey into corporate decision-making,
conducted by the Intelligence Unit of The Economist magazine, commissioned by
ING Commercial Banking.

A total of 327 CFOs and treasurers of European companies were polled to
study the type of decisions confronting financial decision-makers during the
economic downturn, and how they were handled.

Because of the high stakes involved, CFOs took more time to decide than
in more prosperous economic times. Intense discussion and an openness to
contrary views characterised the debate, and, due to the increased sense of
urgency, extreme measures were readily considered.

Short-term solutions at the expense of the long term

Most decisions taken during the downturn, focused on the short term. The
most important revolved around cost-cutting measures, such as postponing
investments.

"A lot of companies took measures to free up money during this period,"
says Annerie Vreugdenhil, Head of Corporate Clients at ING Commercial
Banking. "For instance, we took over the debtor financing for a number of
companies. This freed up liquidity, which prevented them from coming too
close to their banking covenants. There were also instances where we improved
international cash management, in order to free up cash."

A large majority of respondents said that this dominance of short-term
thinking was not positive for longer term planning. However, a minority of
those polled claim they did take strategic decisions with a longer term view.
Investments in financial planning software and the transformation of business
units were mentioned as examples of this.

"When the capital markets opened up again after a slow period, some
companies seized the opportunity to place shares or bonds for long term
financing. It was also a good opportunity for them to diversify their
financing," observes Vreugdenhil.

Planning instruments

CFOs indicated that tools for financial planning were more effective
during the downturn and that investments in this type of software were often
successful. Advanced planning methods can help managers anticipate trends
earlier, and thus take action more effectively. The most useful tools were
scenario planning, financial planning and vulnerability analyses.

Experience played a role in the decision-making process. A majority of
those polled who had encountered a previous recession, said this experience
helped them, particularly psychologically, making them more self-confident.
Of those polled, 42% had no experience of previous recessions.

Better decisions

The benefit of experience is demonstrated by the fact that half the
respondents indicated that decisions would have turned out better had they
been taken sooner. However, many managers said that they based their
decisions on the best information available at the time and that taking
action sooner would not have been possible.

Many interviewees said that the decision-making process could be improved
with the aid of better data and planning methods. This would create an even
deeper understanding of a company's financial situation. Besides this,
improved internal communications and collaboration was seen as helping better
decision making.

"It's a good thing that CFOs and treasurers are not inclined to take
hasty decisions under pressure," says Annerie Vreugdenhil. "But because it is
difficult to look ahead in uncertain times, there is the risk that necessary
changes may be made too late. The longer you wait, the bigger the chance that
you will be forced to take far-reaching measures. That's why it is essential
to have good financial information systems in place, so that you know where
you stand. We have seen this with clients we have been in close touch with,
over measures that offer solutions for the short term, but also support the
long term strategy. In these instances, the financial position of a company
was analysed so thoroughly that they got a clear picture of where their most
important opportunities and risks were. As becomes clear in the course of the
research, they were open to different views. Clients usually recognised
themselves in the analysis and indicated that this gave them extra insights
that allowed them to take effective measures."

Important lessons and conclusions

The Economist Intelligence Unit concludes that CFOs and treasurers need
to remain focused on the long term in difficult times. It also highlights the
importance of strong personal ties within the management team, and of
collaboration to tackle problems jointly. The importance of investments in
forecasting systems and financial planning software is also identified as a
vital source of insight and guidance for critical decisions. In addition, the
researchers point out that it is essential to focus on the process of
decision-making, as opposed to only considering the outcome. The benefit of
hindsight will always focus on the outcome, but rarely pays enough attention
to the importance of the correct process. For more information, see
www.ingcommercialbanking.com.

For more information, please contact: Robert Gunther, T +31-20-5651148, M +31-06-50257879, robert.gunther at mail.ing.nl