Tech Companies' Top 20 Concerns

For the last couple of years, BDO Seidman has gone through the 10-K filings of the hundred largest (based on revenues) publicly-held U.S. high tech firms and compiled the most-commonly cited risk factors. Although many of the factors will be obvious, and clearly of interest beyond the sector, what is interesting is looking how the list from this year compares to that of last year and how the concerns of companies are changing.

The data comes from the risk analysis section of 10-K filings from the previous year. So, the 2009 list is based on 2008 fiscal year 10-Ks, while the 2008 list comes from FY 2007 information, with the percentages representing the number of companies mentioning the specific issues. Here are the data from 2009:

And here are the 2008 data:

The top five or six items were more or less the same in 2007 and 2008, except that in the latter year, concern about regulations, including tax, seemed to take a tumble. However, with banks going under and public rage-fueled Congressional scrutiny into how companies could have missed such risks, Sarbanes-Oxley compliance worries increased, with over 60 percent of companies mentioning it last year, versus 45 percent in 2007.

Similarly, if you look at groupings of concerns — 6 through 10, 11 through 15, and 16 through 20 — although there is shifting of relative order, much of the general thrust remained the same.

Interestingly, there was a big drop — from 71 percent to 51 percent — in the perception of risk in pricing, margin, and cost cutting. Perhaps that’s a natural reaction to the current economy, with a greater number of managers grateful to have any profit at all, let alone obtaining a maximum amount.

Also, there were three factors — natural disasters, war, conflicts and terrorist attacks; disruption of distribution of products/services; and inability to maintain operational infrastructure and systems — which didn’t make the list in 2007, but were in the top 20 in 2008. The first two of those factors were of concern to at least half of the companies, so there clearly is a perception of increased danger in maintaining normal global operations. Frankly, part of this seems to be conflation. Accounting and internal controls/Sarbanes-Oxley compliance were separate factors in 2007, but a single one in 2008. Another item that fell off the 2008 list was failure to properly execute corporate growth strategy, but clearly that has generally given way among businesses to “failure to keep from being swept off the economic matt.”

Another interesting point: inability to acquire capital or financing was a concern of 66 percent of companies in 2007, but only of 42 percent in 2008, when you might have expected the outlook to be worse. That might go with issues of growth, and companies being too busy retrenching. Similarly, concerns with financial risks of customers seem to have disappeared, but when many of them might be reducing their spending or even going out of business, perhaps making any sales, even if you have to close your eyes to problems, seems like a more important goal.