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CFOs Manage in Tough Times
5:25 PM MDT | June 18, 2009 | By PECK HWEE SIM
The mood was subdued at Chemical Week’s CFO conference, which took place Tuesday in New York. The economic and demand outlook were cautious, dulled by concerns of housing and auto markets that have yet to show any signs of recovery. The financial crisis has also taken a toll on consumer confidence, which will have the long-term impact of permanent belt-tightening among consumers and hurting demand growth. Demand seems to have bottomed in early 2009, but recovery may be slow for the chemical industry, according to several CFOs that were at the conference. CFOs say are still focused on cost-cutting efforts, managing cash flow, keeping inventories lean, renegotiating terms of debt.
But as keynote speaker William Hernandez, CFO of PPG Industries pointed out, recessions come but they also go. The key to managing in tough times is to 1. prepare for the downturn during good times 2. manage through the entire cycle; embed cost controls in the company culture 3. maximize cash on-hand when trouble strikes 4. Maintain focus and increase dialogue with customers, suppliers, employees, investors and rating agencies. As Gregory Thompson, CFO of the cash-strapped Georgia Gulf says, “You cannot over-communicate [in this environment]. Let the banks know what’s going on; over-communicate to different parties.”
These are unprecedented tough times, the first to filter all the way from retail to chemicals. “The bottom line is, the past nine months have not been fun,” says Paul Huck, CFO of Air Products and Chemicals, and also the winner of Chemical Week’s 2009 SFO of the Year award. “But as the number two or number three official in your company, this is not the time to feel bad.”
Huck, an ex-officer in the U.S. Navy cited an example of what was frequently said to the officers during the Vietnam War, “Your job is not to tell them they will get killed; they already know that. Your job is to tell them how not to get killed.” In the same vein, the role of a CFO during this critical time is to “tell your people, and your investors, how we will make things better… to define that future and take control.”
Conventional wisdom also sometimes needs to be disregarded, Huck adds. When he joined Air Products in 1979, the consensus was that “manufacturing in the U.S. was finished and we couldn't compete globally.” Inflation and interest rates approached 20% early in his career, and the talk was of the ascent of Japan and their takeover of the American and global economies. “The U.S. was able to innovate and maintain leadership position,” Huck says. “And the reason why [leadership was maintained] is that the U.S. did not accept common wisdom. I have great faith that America will again figure out these challenges. The U.S. has a great ability to adapt and change.”