Wednesday, February 10, 2010

Corporate America Is More Pessimistic Than You Know

from Deal Journal - by Michael Corkery
Looking for an explanation for the deep freeze in merger & acquisition activity and the jittery stock market? Just ask the boards overseeing U.S. companies.
A whopping 66% of 1,200 corporate board members surveyed recently said U.S. companies wouldn’t return to “business as usual” until at least 2013, and will operate till then in an environment of sluggish sales and growth. Roughly 45% said the economy would n’t return to pre-crisis levels in terms of investment, employment and productivity before 2013, according to the survey, conducted by KPMG LLP, while 22% said it would come beyond 2014.
“Not withstanding what economists are saying about the recovery, we are hearing from board members that they just don’t see it,’’ says Mary Pat McCarthy, a KPMG vice chairwoman who oversaw the survey of directors at publicly traded companies of varying sizes across the U.S.
McCarthy spoke to Deal Journal this morning from Miami where KPMG is hosting a conference of primarily audit committee members of corporate boards. “We are hearing a steady drumbeat down here that a recovery is a way’s off,” she said.
Another concern among board members: That the cost cutting and layoffs that have helped boost corporate profits is going to hurt the companies in the long term. The survey found that 67% of the respondents said were most concerned that cost cutting would drain the company’s employee talent.
Other concerns: 36% said they worried that the cost cutting would weaken internal controls, 25% said it could raise the risk of fraud and 22% said they thought the integrity of financial reporting could suffer in the hands of leaner staffs.
Bankers, perpetual optimists by nature, have been saying recently that companies seem willing to contemplate deals and they expect M&A to bounce back this year. In light of the bleak portrait containted in the KPMG survey, the question is, just who are these bankers talking to?