Companies that hoard cash in the face of global uncertainty risk missing key opportunities, leaving their businesses in worse shape, Deloitte Touche Tohmatsu Ltd.’s top executive says.
“Sometimes the best franchises are made in the off-season,” Barry Salzberg, the accounting and consulting giant’s New York-based global chief executive, said in an interview.
“A difficult economy presents opportunity for growth, for acquisitions, particularly for cash-rich companies, that can really make a difference in their competitive positioning. … Those are the conversations we are having with clients.”
Companies are less worried about economic fundamentals than they are about the major uncertainties in the world, including the future of the euro zone and the looming U.S. fiscal cliff, said Mr. Salzberg, who is in Vancouver this week for a meeting of Deloitte’s Canadian partners and a global board meeting.
“While we’re dealing with a difficult economic environment broadly, when you talk to business leaders, the word ‘uncertainty’ is almost the first word that comes out of their mouths,” he said.
Bank of Canada Governor Mark Carney chastised Canadian business leaders last month for sitting on piles of “dead money,” doing the economy no good. If companies can’t think of what to do with that cash, they should “give it back to shareholders and they’ll figure out what to do with it,” he said.
The comments touched off a flurry of denials from Canadian business leaders, along with duelling reports on the extent of cash hoarding in Canada.
A recent Canadian Labour Congress study said corporations are sitting on more than $500-billion in cash, mirroring a trend in the United States.
Mr. Salzberg said it’s always a balancing act for executives between protecting the financial health of their companies and the risk of new ventures. He acknowledged that companies often need to conserve cash and strengthen their balance sheets, but not at the expense of missed opportunities.
“It’s a balance. You have to meet payroll, invest in your people, meet ongoing obligations,” he said. “But if all you do is focus on the uncertainty and fail to engage in long-term thinking, you’ll miss an opportunity. It’s risky to ignore that.”
During the 2008 recession, for example, Deloitte bought rival BearingPoint out of bankruptcy and built a new global training centre, the 712,000-square-foot Deloitte University in Westlake, Tex.
Mr. Salzberg pointed out that executives need to be constantly thinking about issues such as globalization and technological change, which are likely to disrupt their businesses over the longer haul.
“Companies need to be thinking about these trends now,” he said. Nor should companies neglect their impact on society, or what Mr. Salzberg calls “global citizenship.”
“Every company has a role to play in building a better society,” he said.