Latest findings from PwC’s Pulse Survey
More CFOs (28%) expect their companies to increase revenue over the next 12 months, continuing an upward trend we’ve tracked since June. The positive outlook is a testament to the bold actions many have taken in a bid to return to growth. In particular, CFOs are looking to rebuild revenue through a renewed customer focus, including strategic investments to innovate products and services to meet forever-changed customer expectations and behaviors. For many businesses, this represents an expansion from the more inward — and necessary — priorities of employee safety, productivity and well-being that dominated in the early days of the pandemic. And they are looking for quick returns. In our September 2020 Pulse survey, 76% of CFOs said they expected changes to product/services to yield revenue growth within six months.
At the same time, CFOs are keeping a close eye on business risks that could emerge as a result of the imminent presidential election. They see changes to the US corporate tax code (37% under a Trump administration; 65% under a Biden one) and the federal COVID-19 response (41% under Trump; 39% under Biden) as the top areas of potential policy risk. And they worry about the impact of one on the other: 73% of CFOs (and 76% executives overall) agree that business tax rates will rise to pay for COVID 19 relief, regardless of which party controls Congress, up from 70% who said the same in early September.
Like their peers, CFOs are evaluating the impact of the election on US-China business relations; 31% say a second Trump administration will introduce new risks in managing relations with China compared to only 16% who hold that view under Biden. But operations and risk leaders are more likely to anticipate drawing down engagement with China than CFOs, if Trump is reelected. On average, 42% of business leaders will decrease trade and investment in China under Trump compared to 30% of CFOs. It’s possible that CFOs, in pursuit of growth, are watching China’s rebounding economy with interest even as they weigh the risk of intensifying trade tensions under Trump.
While CFOs — and all executives — are gauging how each candidate’s specific policies might affect their businesses, they should also consider how feasible these changes will be to implement. For example, if Biden wins and the Republicans retain control of the Senate, the resulting divided government would nearly eliminate the prospect for new tax increases. At the same time, CFOs should not lose sight of other potential risk areas, such as sustainability and energy transformation or US foreign policy, when modeling potential business outcomes.
More than 170 finance leaders from Fortune 1000 and private companies, along with other C-suite executives, weighed in on policy-related issues in our latest PwC US Pulse Survey, fielded September 30, 2020 to October 6, 2020. Find these insights in our Road to Election 2020 report. In the survey, CFOs also shared their perspectives on other top-of-mind issues, including prospects for growth, digital transformation priorities, tax-related issues and where they’re investing to improve stakeholder transparency.
Digital investments are central to revenue strategies designed to meet customer expectations that have fundamentally changed as a result of COVID-19. CFOs affirmed what they’ve told us since the spring: Investing in transformation is a priority, regardless of what happens in Washington, D.C. So, where are they placing their bets? Data analytics is the top priority, with 42% of CFOs expecting it to fuel revenue growth. Automation (41%), cloud (35%), customer experience (34%), and product and service transformation (34%) round out their top five. What does that mean for better serving customers? AI-based engines that integrate customer insights into dynamic pricing. Agile product development approaches that spur rapid innovation and new services. Digital marketing and customer service approaches for virtual engagement.
While top-line growth is driving digital investments, business-wide efforts to leverage data analytics and automation technologies can also bring efficiency gains and new insights to bolster operations. And investments in cloud can mean both — providing access to new capabilities and sources of data without up-front investments or risk. Collectively, these can help CFOs modernize the finance function and do more with less, such as by automating the time-consuming process of data collection and preparation, or tapping into better close management, forecasting and reporting capabilities via the cloud.
CFOs are also considering deals, another avenue to digital capabilities. Sixty-five percent of CFOs agree they would pursue an acquisition under a Trump administration, while 58% would do so under a Biden administration.
With their futures tied so heavily to tech, it’s no surprise that CFOs are keeping an eye on potential regulation that could disrupt new revenue streams, such as those that cover data privacy, antitrust and social media content moderation. Under a Biden administration, 26% cite technology and data regulations as a potential risk; under a Trump administration, 19% of CFOs see it as a potential risk. (Note: We surveyed business leaders before a House Antitrust Subcommittee report laid out Democrats' vision of an updated antitrust policy for large technology companies.)
Never has it been truer for CFOs that cash is king. An acute focus on liquidity is, in part, what enables companies to pursue customer-centered revenue strategies and invest in critical digital investments. It’s also why finance leaders look to tax to play a key role in cash strategies. Thirty-nine percent of CFOs rank generating cash savings as the number one way that the tax function drives value for the company. Tax can deliver on that expectation by minimizing taxable income, obtaining available refunds and working with the finance function to align financing options to achieve liquidity.
There are other tax matters that should be on the agenda of the CFO and other C-suite leaders. Chief among them is the growing pressure for global tax transparency and focus on companies paying their “fair share” of taxes. While this affects tax activities, such as planning, compliance and dispute resolution, it also could pose a reputational risk. As companies disclose more tax information, they are subject to greater scrutiny for which business leaders must be prepared. This includes more coordination between different areas of the business and a deeper understanding of the business’s tax affairs. Twenty-six percent of CFOs in our survey indicated that they are investing in efforts to improve transparency in tax reporting. (See figure below.) The fallout from a tax-related reputational issue can be severe, including hampering a company’s ability to raise capital — further affecting liquidity.
Transparency of tax data is just one area where business leaders are facing increased expectations. Investors, employees, customers and regulators are also looking for more (and more comprehensive) information about how companies operate and whether they are meeting the needs of all stakeholders. It’s a trend that business leaders say they are embracing: In a recent PwC survey, 68% of US executives (including CFOs) said their company is committed to creating an economy that serves all constituents. And 60% strongly agree their company is transparent around decision making.
But there’s plenty of room for improvement. And where to focus limited resources? In PwC’s current Pulse survey, CFOs say that financial reporting (61%) and overall data quality (47%) are top priorities. In financial reporting, actions companies are taking to improve transparency include disclosing more than the minimum and providing proper oversight and controls over other company information to improve reliability. Another important way is ensuring you pay attention to your company’s XBRL efforts, which can create a ripple effect if there are errors — which have been on the rise — in how your financial reporting data is tagged for use by regulators, analysts, credit risk agencies and investors.
Environmental, social and governance (ESG) reporting, which has growing interest from both investors and the SEC, rounded out the top three at 40%. Diversity and inclusion reporting (39%), a newer area (PwC recently issued its inaugural report), and tax reporting (26%) also are seeing investment. CFOs have an important role to play here, given their view across the business and the finance function’s experience in preparing, delivering and auditing high-quality and timely reporting.
Business leaders must anticipate policy and regulatory shifts and understand the potential impact on their businesses regardless of who wins the presidency in November. Listen in to our recorded October 14 webcast for the results of the next PwC Pulse survey.
To view data and insights from previous PwC Pulse Surveys, please see below.