Publicity over huge losses by the likes of Procter & Gamble Co. has not dissuaded corporations from using derivatives, although the appeal of plain-vanilla instruments has increased, according to an survey by the Economist Intelligence Unit.
The recently released survey suggested that many companies, especially multinational corporations, continue to increase their use of the sometimes volatile securities, whose values are tied to interest rates, currencies, or other benchmarks.
More than half of the 100 financial executives polled thought derivatives were an essential tool for their companies.
Only a little more than one in four responding companies said they use derivatives occasionally or not at all. "We don't believe in gambling," said one executive in this group.
The group that avoided derivatives generally consisted of smaller companies, said the report's author, Bill Millar.
"The more international the business is, the more vital derivatives are," said Mr. Millar, editor of the finance division of the Intelligence Unit, the publication's research arm.
Among companies that continue to use derivatives, there has been an increased interest in overseeing their use. "In light of the recent publicity on derivatives losses, 58% of respondents said they have either conducted an internal audit of derivatives practices and procedures or engaged an outside firm to do so," said the report.
Of the companies that have completed their audits, nearly 61% received a clean bill of health. About 18% reported that certain derivatives practices are being upgraded or have been curtailed.
Only 32% said they are confident with their current practices.
"Companies overwhelmingly prefer plain-vanilla products," said Mr. Millar. "The simpler the better. If they can't understand what they've purchased, they don't want to buy it."
Executives from Chrysler, Gillette, AT&T, SmithKline Beecham, Ciba- Geigy, and a host of others participated in the survey, which was co- sponsored by Bankers Trust and Coopers & Lybrand.