Finance

CFOs: distrust of public hinders economic growth

June 12, 2014

The persistent distrust of the public in corporate managers and political leaders affects the investment climate. Possible sanctions for Russia may also further affect the economy, according to financial directors in Europe. This is evident from the most recent CFO Survey Europe as conducted by TIAS School for Business and Society and Duke University.

Public distrust undermines optimism on the part of financial directors

Almost 70 percent of the European CFOs claims that the business climate is being negatively influenced by public distrust. Almost 60 percent of the directors in the USA have negative opinions. No less than 71 percent and 79 percent of the financial managers in Asia and Latin America respectively are of the opinion that public distrust has consequences for the economy. The gloomy public opinion therefore appears to have somewhat of an effect on the optimism among the financial directors. Despite the fact that more than half of the European administrators is still more optimistic about the economy, this percent was still well over 60 percent in the last quarter of this year.

One third of the European CFOs fears deflation in the Euro zone. Two-thirds are even of the opinion that the deflation will continue for more than two years. The public distrust that appears to exist can therefore further advance deflation if it is to lead to an even smaller demand.

“The distrust stunts the chance of the economy being able to flourish. It not only possibly affects the consumer demand, but companies now need to also shift part of their attention and must put a lot of time, money and energy into measures that can counteract public opinion. Costly time and energy that would otherwise be deployed for the core activities of the company”, says Kees Koedijk, dean of TIAS and Finance professor.

Administrators are therefore busy trying to prevent the public distrust from having repercussions on their own company. For example, more than 55 percent of the European financial directors claim to have put more emphasis on increasing the transparency of the operational management and the reporting in recent months, while another fifty percent has accentuated the procedures and policy in the sphere of governance.

And so it appears that companies are mainly attempting to (re)gain the trust of the public on their own. A mere one-third is of the opinion that it is a matter for the government to introduce new policy and regulations that will make things change for the better and restore the confidence of the public.

Sanctions for Russia may possibly be counterproductive

The financial directors are more than opposed to sanctions for Russia imposed by Europe and the USA; more than 80 percent of the European CFOs is of the opinion that measures of this kind will have negative consequences. Although the American colleagues are less convinced of this, more than half do fear that sanctions will have annoying consequences. And so it is not surprising that around 20 percent of the European companies and 30 percent of the American companies are considering discontinuing the activities in Russia.

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Quarterly Report Q2 2014, CFO Survey (2014)

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