Front of Mind CFO Concerns for 2021
(07 January 2021 – United States) Economic recovery, corporate taxes and mergers and acquisitions are expected to be top of mind for finance chiefs in 2021.
Executives will be monitoring the economic recovery, especially hard-hit areas such as retail. Chief financial officers (CFOs) last year raised billions of dollars to stabilise finances, cut costs and pivot to respond to the COVID-19 pandemic and the ensuing economic downturn.
As senior decision makers look ahead, vaccines against the coronavirus are expected to boost growth in H2 2021, as US citizens return to offices, shopping centres and gyms.
10 things that are front of mind for US CFOs in 2021:
1. Economic Recovery
Finance chiefs expect their companies’ revenue to rise by an average of 6.9 percent in 2021, up from a 0.3 percent increase forecast for 2020, according to a recent survey by Duke University’s Fuqua School of Business and the Federal Reserve Banks of Richmond and Atlanta. Executives will be monitoring potential setbacks to the economic recovery, especially in industries hit hard by the pandemic, such as travel, hospitality and bricks-and-mortar retail.
2. Corporate Tax
President-elect Joe Biden has proposed raising the corporate-tax rate to 28 percent, up from the current 21 percent, alongside other measures. The new administration can shape tax policy even without a majority in Congress, for example by providing additional guidance on existing rules through the Treasury Department, said Greg Engel, vice chair for tax at professional services firm KPMG LLP. CFOs also will keep track of potential changes around taxation of global companies, as suggested by the Organization for Economic Cooperation and Development. Those plans could pick up pace in 2021.
Finance executives are preparing for potential regulatory changes, including in areas such as accounting and audit.
Executives will be on the lookout for potential changes to the U.S.’s trade policies in relation to China, the European Union (EU) and other countries whose goods currently incur tariffs. Companies also will be dissecting the details of the new trade agreement between the Britain and the EU, which was agreed in late December after years of Brexit negotiations.
5. Cash and Capital Expenditures
Finance chiefs ramped up their companies’ liquidity in the early months of the coronavirus pandemic. Executives could reallocate some of these funds amid low interest rates, use them to pay for mergers and acquisitions, reduce debt or boost their pension plans. CFOs also are reviewing their spending plans for capital expenditures, especially in industries that have benefited from changing consumer tastes in recent months.
6. Mergers and Acquisitions, Listings
Private businesses may take advantage of high stock valuations to plan an initial public offering (IPO_, a direct listing or a transaction with a special-purpose acquisition vehicle.
“Companies with cash reserves are expected to scour the market for potential targets” said Lincoln International CEO Robert Brown.
7. Remote Work
A high number of US employees are expected to work from home for a part of 2021 as the pandemic drags on, and seek flexible work options in the future.
8. Dividends and Share Buybacks
Many companies paused paying dividends or buying back shares at the onset of the pandemic. While some companies resumed those payments and programs in H2 2020, others have continued to hold back. In 2021, CFOs will be weighing dividend payments and share-repurchase programs against other uses of corporate cash.
9. ESG Disclosures
Finance chiefs likely will face more questions from shareholders about their businesses’ performance in terms of environmental, social and governance issues, as investors pay more attention to these topics. Companies also could be required to disclose more information on carbon emissions, diversity and other social and sustainability metrics under the incoming Biden administration.
10. Libor Transition
Global regulators decided to phase out the London interbank offered rate, the interest-rate benchmark underpinning trillions of dollars worth of financial instruments—after concluding it was prone to manipulation. U.S. banks and companies face a Dec. 31, 2021, deadline to replace Libor with alternative rates for new contracts, followed by another deadline in June 2023 for existing or so-called legacy contracts.