CFOs' Top Risk Management Concerns

Regulatory compliance and economic uncertainty are top-of-mind, but few CFOs are concerned anymore about their ability to secure credit.

To understand finance professionals' feelings about financial risk management, as well as their thoughts on the economy overall, TD Bank polled CFOs, controllers, treasurers, and directors of finance from across the United States. Respondents come from both midmarket companies, defined by TD Bank as being under $250 million in annual revenue, and "corporates," defined as organizations with revenues above $250 million.

The survey revealed that these executives' confidence in the U.S. economy is increasing—and their confidence in their own organization is growing even faster. The largest proportion (41 percent) said they are more confident about the U.S. economic outlook over the next 12 months than they were over the previous 12 months. Thirty-one percent said they're less confident today, and 29 percent said their confidence level hasn't changed in the past year.

Although they've gained important insights into their financial risks, most companies' willingness to take on financial risks hasn't changed much in the past year. When asked how they would rate their organization's current financial risk appetite compared with a year earlier, the majority (56 percent) said it hasn't changed. Nearly a quarter (24 percent) are somewhat more willing to take financial risks this year than they were last year, and 3 percent are much more willing to take risks. However, 10 percent are somewhat less willing—and another 7 percent much less willing—to take financial risks today.

Respondents made clear the reasons why they're reluctant to take on new risks: They feel a good deal of uncertainty in the external environment, both in terms of regulations that may be coming in the future and in terms of the economy and their competitiveness in their marketplace (see Figure 2, below). "In 2008 and 2009, the big concern among CFOs was their ability to secure credit," Graziano says. "This year, that concern is near the bottom of the list. Instead, CFOs today are thinking about things like understanding financial risk, regulatory risk, and cash positions."

Perhaps because external uncertainties are their number-one concern, more than half of the surveyed finance executives said that their ability to forecast future financial risk is an ongoing challenge. Many also struggle to control their current financial risks, in large part because they feel they don't have the right data to manage those risks.

Corporate policies are creating some challenges, as well. Twenty percent of respondents said they're operating without a clear financial risk management strategy. And similar proportions of CFOs grapple with their company's conservative risk appetite (16 percent) as with their organization's aggressive risk appetite (12 percent).

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