During the low point of the recession, in late 2008 and early 2009, “people looked at their investment statements and panicked,” says Stephen Russell, CEO of Indianapolis-based Celadon Group Inc. (CGI), one of North America’s largest truckload carriers, with fiscal year 2009 revenues of $490 million. “They saw their money disappearing.”
But today is different. Investment capital has grown more accessible of late. Compared with last year, CEOs are three times as likely to report having an easier time attracting investors and twice as likely to say that it’s easier to keep them.
“It feels like a better atmosphere in which to be talking to shareholders,” explains Ralph Scozzafava, CEO of Furniture Brands International. “They’re looking ahead to better days, so the conversations are more about growth.”
Gil Goodrich, CEO of Goodrich Petroleum, concurs. “Investors look at the energy business not from the perspective of whether there will be demand for our product — because there always is — but rather the price at which we can sell it,” he says. “I think 2011 is going to be a good year for our business.”
Still, William McNabb, chairman and CEO of The Vanguard Group, believes that the government needs to do more to encourage longer-term investing to get companies to concentrate on strategies that will benefit all stakeholders and society at large. “The simplest tool for encouraging long-term behavior is tax policy,” he says. McNabb argues that the current one-year definition of “long term” is inadequate. “If you really want to incent longer-term behavior, you might have a graduated capital gains tax where if somebody held a security for more than five years, you have a very low capital gains rate; if it is between one and five, intermediate; and less than one year, the tax is high.”
McNabb offers three somewhat related lessons to be learned from the recent recession. First, shareholders are looking for CEOs to be very clear about company strategy. Second, shareholders are more focused on a CEO’s track record of execution. Third, governance issues, especially those related to transparency, are more important than ever. The results of the survey back him up: More CEOs (67 percent) report that insufficient transparency about risk taking is one of the top three governance concerns of shareholders. The other most popular concerns are insufficient board oversight (65 percent), executive compensation (55 percent) and insufficiently qualified board members (44 percent). Geographically, concern about executive compensation is more likely to come from U.S. CEOs, while insufficiently qualified board members is a hotter topic in Europe.
When it comes to attracting talent, most chief executives (67 percent) report that tough economic times have made that task easier. “We’re definitely seeing an increase in the number and quality of résumés we’re getting,” Goodrich says. The CEO quickly adds that he’s filling vacated posts as they become open, but he’s not hiring for new positions.
Goodrich says that prior to the financial meltdown that began in the fall of 2008, his company’s shareholders tended to focus on top-line revenue growth. Today he feels that their concerns are more likely to revolve around liquidity and balance-sheet strength. “No one really knows what’s going to happen 12 to 18 months out,” the CEO says. “So shareholders want to know you have a strong balance sheet and the ability to finance and execute your corporate strategy.”
With unemployment stuck near 10 percent and consumer confidence low, CEOs are having more trouble on the customer front. Nearly a third of U.S. chiefs say that acquiring new customers has grown more difficult over the past three years, versus 44 percent of CEOs in Europe and 15 percent of those in Asia and elsewhere. “The products we sell are discretionary, big-ticket items,” says Scozzafava, whose company sells high-end furniture brands including Thomasville, Drexel Heritage and Broyhill. “Whether the economy is good or bad, people still have to eat and brush their teeth. Living room or dining room furniture purchases can be postponed.”
