Bringing clarity and focus to 2020
Bringing clarity and focus to 2020

Bringing clarity and focus to 2020

At KPMG’s GFRVC, attendees learned about cutting through distractions, roadblocks and focusing on what’s important to them and their organizations.

Disruptive technology, geopolitical upheaval, a contentious election cycle, an increasingly demanding regulatory environment, unanticipated economic and market shifts, cyber security threats, blockchain and cyber currencies, unexpected business competition;

In the face of these complex and constantly evolving issues, how do you bring the big picture into focus? How do you identify which business trends are passing fads and which are going to have the potential to be game changers?

Staying abreast of all of these disparate developments and determining how they may impact your company and industry are challenging. Doing so in the midst of a deal cycle can be almost impossible. That is unless you find a way to ignore the mere distractions and concentrate only on the most critical issues, putting the less pressing ones on the back burner.

KPMG’s 11th Annual Global Financial Reporting and Valuation Conference (GFRVC) held in Miami shone a spotlight on how companies can bring clarity to all of these confusing – and often conflicting –events, and then develop and implement the right business strategies that address only the most significant ones. In attendance were 175 finance, accounting, and tax professionals from more than 125 companies across numerous industries, as well as 80 KPMG partners, for two days of learning, dialogue and networking. Demonstrating the value of this conference, more than 50 percent of the participants were existing or prospective clients who have attended in prior years.

2019 and the recession that wasn’t

The keynote address was delivered by Marci Rossell, former CNBC chief economist and former corporate and investment spokesperson for Oppenheimer Funds. She began by stating that 2019 will be remembered as “the year of the recession that wasn’t.”

Rossell then lead the audience on a fascinating journey into why there’s been no recession, and why it’s unlikely to occur in the foreseeable future. She noted that recessions are caused by large, unexpected events that are “inherently unpredictable,” and traced the origins of the last several recessions – during the 1970s, 1981, early 1990s, early 2000s, and 2008. Rossell concluded that these were all sparked by incidents (e.g., OPEC oil policies, the Iraq War, the dot com bubble, the real estate bubble) that were both massive and seemingly blindsided everyone.

While we’ve experienced several events over the past few years that potentially could have led to a recession, none of them were enough to tip us over the edge:

The trade wars: According to Rossell, the trade wars ignited in 2018, spurred by the imposition of tariffs by the United States. She stated that what started out as a tariff on two goods – imported washing machines and imported solar panels – expanded exponentially, dragging in Canada, Europe, China and other American trading partners.

While these trade wars are expected to continue at least through the presidential elections next year, Rossell said they shouldn’t cause a full blown recession. If they were going to, they would have already done so.

Slowing global economy: Rossell contended that slowed growth, which has led to recession fears, is primarily attributable to the slowdown or decline in population growth (and therefore, labor supply) in most industrialized countries. So growth will tend to be in the one or two percent range. Countries whose economies have grown in the four to seven percent range (e.g., China, India) have largely done so because their populations have been growing; that’s not the case with the U.S., Japan, and most European countries.

Shift in U.S monetary policy: In 2018, the Federal Reserve attempted to normalize the monetary policy put in place in the wake of the 2008 financial crisis. According to Rossell, this disrupted U.S. and global economies, sparking fear of a recession. The Fed‘s interest rate increase from near zero to approximately two percent resulted in worldwide capital suddenly flowing back into the U.S. This threw worldwide markets in turmoil, which in turn, effected U.S. trade.

The Fed pulled back and once again cut interest rates in 2019, somewhat calming fears of a recession.

Near-term uncertainty: Typically, businesses are more uncertain about what’s going to happen five or 10 years down the road than they are about tomorrow. But Rossell observed that it’s just the opposite in today’s business environment; there’s more uncertainty and fear about the near-term. The nature of the potential threats – cyber attacks, BREXIT, trade wars, unrest in the Middle East – may keep people fearful of a recession, but has not led to one.

What’s lies ahead?

When you look out at the next decade to assess where the economy is headed and what you should be doing, Rossell advised that you keep three points in mind:

  • True recessions are triggered by large, unexpected events, which are inherently unpredictable. So be very skeptical about recession forecasts, and examine the motives behind those making them.
  • Technical recessions, when growth falls below zero for two consecutive quarters, are likely to occur with more frequency going forward. But they should not be confused with true recessions. Technical recessions are more likely to occur because of the low labor force growth environment.
  • Monetary policy has become more uncertain. It’s more difficult to calibrate the impact of monetary policy in the current environment. Even some old rules of economic theory can’t be counted on. For example, an inverted yield curve, which used to be a reliable predictor of a recession, is no longer a sure thing because of changing underlying conditions.

Focus in other key business challenges

The GFRVC also took a hard look at a number of critical business topics impacting financial professionals. These deep-dive sessions uncovered interesting, sometimes surprising, and always useful information.

The panelists drew roadmaps to help organizations bring these disparate topics into focus and offered practical, actionable strategies that attendees can apply in their own organizations.

Here are some highlights:

  • The number and scope of M&A transactions have been dramatically affected by geo-political disputes, global trade concerns, domestic political upheaval, and tariffs, taxes and other trade regulations. The panelists offered several approaches that organizations can take to generate a competitive advantage and increase the likelihood of M&A success.
  • An organization should be leveraging technology, including intelligent automation (IA) and data science (e.g., data and analytics, or D&A) in its M&A valuation decisions. Otherwise it won’t be competing on a level playing field. In this session, the panelists discussed how companies are using D&A and other innovative technology in M&A deals (and in making business decisions generally).
  • Cyber security is no longer just an IT issue, it’s an organizational imperative. A cyber breach can expose a company to financial, reputational, compliance and regulatory risk. Panelists suggested several proactive approaches organizations can take to shore up their operational risk management framework and prevent – or at least mitigate – the impact of cybercrime.
  • M&A transactions have implications that go far beyond operations, productivity and the bottom line. They also effect people – current employees, those acquired in the deal, and future employees companies need to hire. This session offered guidance on rethinking workforce strategy in terms of training/retraining personnel, integrating different company cultures, hiring workers with different skill sets, revamping compensation structures, and so on.
  • The role of an organization’s Chief Accounting Officer (CAO) has changed. In this fast-paced, constantly evolving business environment, it’s no longer enough for CAOs to be numbers crunchers that primarily focus on compliance issues. They need to be partnering with the business on strategic objectives such as cost improvement, productivity enhancement, revenue optimization, and much more.

The conference also featured several breakout sessions covering a variety of critical business topics, including:

  • Using technology to improve real estate investment decision-making
  • Getting ready for the LIBOR phase out
  • Simultaneously executing long-and short-term deal strategies
  • Benefiting from D&A in valuation, forecasting, and benchmarking analyses
  • Utilizing cryptocurrencies (e.g., Bitcoin) and cutting edge technology (e.g., blockchain) in transactions
  • Reviewing fair value measurement trends (e.g., goodwill impairment, new leasing accounting standard)

Plan for next year’s conference: If you would like to know more about the GFRVC, please contact your KPMG adviser.