Now that the super committee has failed in its attempts to arrive at a more sensible solution to cutting more than $1.2 trillion from the federal deficit, boardrooms around the country must turn their attention to planning for 2013 when massive cuts to domestic and entitlement programs as well as defence spending kick in. The expected cuts may force many companies to make significant adjustments in order to survive.
While it’s easy to see how companies that are directly involved in the defence industry might take a hit, all boards must prepare to operate under much different market conditions at the very least. Estimates suggest that in 2013 government education, agriculture and environmental programs could each be cut by 8 per cent, while the Pentagon’s budget could be slashed by 10 per cent. Corporations that rely on government programs in these areas could be in for a major loss of revenue. There needs to be a clear plan to replace revenue that potentially could be lost. Remember, these cuts are designed to take place over a 10-year period beginning in 2013, so it is hard to conceive of a company thriving in an area that will be experiencing cuts over a decade. Alternatives must be put in place.
Also, companies will need to consider the health of key suppliers as things change in 2013. Those with suppliers that rely on revenue from some of these areas may have to find ways of replacing them without increasing costs or lowering quality.
Boards must further consider how these kinds of cuts will affect their consumer base. Will they add to the massive unemployment problems we’ve had over the last three years, curtailing consumer spending in the process? If your customers take a hit, sales are likely to take a hit as well. If cuts to agriculture programs lead to higher food prices, that might affect consumers’ ability to make purchases in other areas, such as leisure time activities or big ticket items. Will there be a cascading effect across industries that might affect your company’s bottom line?
Corporate secretaries need to begin preparing their boards for such eventualities, because major spending cuts are on the way. Higher corporate taxes could be part of the equation as well. In short, if your company hasn’t begun considering how it will adapt to the changing fiscal realities of 2013 yet, now is the time to begin.
[Article by Matthew Scott, Corporate Secretary]
NOW WATCH: Briefing videos
Business Insider Emails & Alerts
Site highlights each day to your inbox.