Interview with Eric R. Eaton
Interviewer: Andrew Zezas, SIOR
Following is the transcript of a CFO Studio interview between Andrew Zezas, CEO of New Jersey based Real Estate Strategies Corporation and global finance & operations executive, Eric R. Eaton.
Visit www.CFOstudio.com to read about this interview and to watch the entire video interview.
The Risk of Everyone Waiting for Everyone Else!
Zezas: Hi, this is Andrew Zezas, your host at CFO Studio. I’m joined today by Eric Eaton. Mr. Eaton is a global finance executive and he’s here today to talk to us about a pretty interesting topic. Eric, it’s nice to have you here on CFO Studio.
Eaton: Andy, thank you very much for having me on.
Zezas: Our topic today is the Risk of Everyone Waiting for Everyone Else! What the heck does that mean?
Eaton: Well, Andy, what you find in today’s climate, especially with the economy in recovery, there is a tendency for many businesses to wait and see what everybody else is going to do before they commit to action. This has a lot of risk with it, but it also has a lot of opportunity. And, I believe what businesses need to do is, on the one hand, businesses are cautious about their steps in participating in the recovery, but they need to be careful not to play into what is generally referred to as the self- fulfilling prophecy. That being, as you’re cautious and concerned about not so good things happening, you can actually go on a course of action that will promote that outcome and you want to guard against that.
Zezas: So, the most important thing I just heard was that there’s opportunity, and that there’s a way to seize opportunity. I suspect that you’re going to tell us a little bit about that as we go through our questions.
Eaton: Absolutely, within the environment today there is a significant amount of opportunity just waiting to be seized.
Zezas: Excellent! Let’s talk about opportunity and let’s talk about challenges. We’ve come through this or we’re coming through this rather funky economy. What opportunities and challenges occurred that maybe were not on everyone’s radar?
Eaton: Well, one of the consequences of the economic downturn that businesses really began to focus on, they took an introspective look at their strategies, their business models, and their cost structures. And, those tended to be, out of need, very intensely reviewed. Companies took the appropriate adjustments and that’s why many were able to survive, that particular episode, within their lifestyle. Now, as we move out of the downturn and into the recovery mode, they need to continue to maintain those steps that they did during the downturn, but now they need to focus on the ability to invest, expand their businesses, and grow their businesses in new products and in market expansion.
Zezas: Okay. So, in that vein given what’s going on, what concerns you most: consumer spending, national debt, or other global economic issues?
Eaton: I would have to say that within the context of the three, all of the above, but not necessarily in that order. With those elements, and with many others, you find that these are all interconnected in terms of not only the U.S. economy, but the global economy as a whole. And, these are all indicative of the fact that- given that everyone is waiting for everyone else to make a move, there is a significant lack of confidence within the marketplace. Where you tend to have that lack of confidence, it impacts. Consumer spending rates, it also impacts the level of investment. All of the above will then tend to impact not only on the US recovery, but it could have an impact on the global recovery for which we’re all interdependent on.
Zezas: We’re all interdependent, aren’t we. So, while companies are being cautious, while everyone is waiting for everyone else, I understand that global balance sheets are not so bad and that there’s an awful lot of cash sitting in corporate coffers. How did this come about?
Eaton: Well, as I understand it, there are some conservative estimates that there is at least two trillion presently parked on corporate balance sheets.
Zezas: Say again, how much?
Eaton: Two trillion, not two billion, two trillion presently parked on balance sheets.
Zezas: Two trillion!
Eaton: Two trillion. I would even take that a step further that you would also include funds available through various private equity and venture capital firms if you include those. That number is probably substantially higher.
Zezas: Wow! So, where did all this cash come from?
Eaton: Well, businesses did a very good job during the recovery, as I said before, in terms of making very intensive and introspective reviews in terms of their strategies and their cost structures. They have learned how to do quite a bit more with less, so they have elicited substantial productivity gains as we’ve gone through the recovery so far. Productivity gains, in this nature, they are there and they will become lasting, but businesses will find that as part of their overall success, productivity gains will begin to flatten out. And, their opportunities for growth and to move forward in the future will be based on the ability to generate revenues. This revenue generation will not necessarily come from pricing. I would actually say that it probably won’t come from pricing opportunities, but it would come from a business’ ability to introduce new products or expand their business in the their marketplace.
Zezas: Or maybe acquire new customers.
Eaton: Or acquire additional customers.
Zezas: We’ve been told that the productivity gains are coming from increases in employee productivity and are probably not sustainable in the long term. Employees are getting burned out at some point. Those productivity gains will have to be replaced by other means of revenue growth and I think you clarified that. So, given all this, is business improving? Are there marked sectors, marked indicators where we can actually say that things are getting better?
Eaton: Absolutely. What you find in this particular recovery is that there are improvements in the recovery. You do see the job picture improving, albeit it tends to be somewhat choppy from time to time, but there is improvements in the job picture, in corporate performance, in terms of profitability and liquidity. But, again as I said before, we want to guard against the tendency to wait for everyone else to move forward in the recovery. And, businesses want to be a little more proactive. This is a great time to seize upon opportunities for new investments. You have a great opportunity to redeploy assets and resources that have been displaced given the downturn and get them back in place, because there is a lot of value in that. With these investments, not only do you get a chance to redeploy or utilize resources that are present in the marketplace, but it also moves us forward to creation of new jobs and new employment.
Zezas: I understand that completely. Then, tell us if you will, and we’re about out of time, I think we have time for one more question, what should a great CFO be doing to lead his or her company through these choppy waters toward being able to benefit by what’s in front of us in terms of the economic recovery.
Eaton: Well, interesting that you used the adjective “choppy”. It has been choppy to a great extent. If you have ever gone fishing, you usually catch your best fish in the choppiest water, and that’s the circumstance of taking advantage of opportunities that are in front of you. For most CFOs, that will involve partnering with the rest of the members of their management team to make sure that they’re moving forward, execute on the business of strategy, and to take advantage of the investment opportunities that exist in this marketplace or in this environment.
Zezas: Eric, we’ve got a lot more to talk about. I hope we see more of you on CFO Studio. I want to thank you for sharing your ideas and insight with us today.
Eaton: Absolutely. Andy, thanks very much for the opportunity to be with you today.
Zezas: This is Andrew Zezas with Eric Eaton, saying thank you for watching CFO Studio. We’ll see you again.
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