Business confidence: boom or bust?
If you've been reading any sort of business news recently, you're likely confused. No one seems quite sure what to make of the economy right now. It's a bit like what we constantly hear about the residential real estate market – house prices seem to be rising and falling in the same location at the same time.
Recently, the Financial Times reported renewed activity in mergers and acquisitions, and flotation plans, which indicated a return of economic recovery and optimism. At the time, the FTSE 100 index climbed almost 24% since reaching a low-point in mid-March 2003. And recruiting is supposedly on the rise in London's City firms.
Around the world, the prognosis is positive. too. Asian markets seem to be experiencing a bull run. And German business confidence grew during July. In fact, according to the FT, "rising stock prices, the slightly weaker euro and progress in the reform debate contributed to the new-found [German] optimism."
But in the same breath, stories are being reported about business confidence being at an all time low. Unemployment in the US has hit a 20-year high – the highest since February 1983. Admittedly there are fewer layoffs than might be expected, but hiring isn't picking up. The largest group of economic forecasters in the US believe that economic growth will remain sluggish. And according to the World Economic Forum, of all the businesses who had put investment plans on hold since the Iraq war, 75% still had not started reinvestment as of June 2003. Moreover, 30% of world business leaders are pessimistic about the future. So how does this reconcile with the supposed bull economy?
While there is no pat answer, you can always take a long-term outlook and say that things are making progress and the economy is picking up steam, albeit at a slower pace than you might want.
And, if you're a US family business owner, you can ignore all these reports because family business growth is outpacing the economy According to a recent study, family business revenue is up more than 50% since 1997 – even in the face of this stumbling economy. Well done.
Whether it's the on-going effects of Enron, etc or just 'that time of year', there seems to be a lot of
regulatory action going on around the world.
In late June, the US Securities and Exchange Commission (SEC) approved listing standards
recommended by the NYSE and Nasdaq. The effect of the new standards is that companies listed on these exchanges will have to submit stock-based pay plans, including stock-option plans, to shareholders for a vote. This is a victory for shareholder rights activists and those who want to restrict the stock-options of corporate executives. Prior to this ruling, many executives could receive millions of dollars in pay through stock-option plans without shareholder approval. However, there are loopholes, including signing bonuses, that will exempt some plans from shareholder votes.
The EC has also taken recent action to enhance the EU's protection against Enron-like scandals. In May it proposed measures to harmonise and improve the quality of statutory audits throughout the EU. Dedicated to regulating its own businesses rather than registering EU audit firms with the US's Public Company Accounting Oversight Board, through the new proposals the EC aims to ensure that investors and other interested parties can rely fully on the accuracy of audited accounts and prevent conflicts of interest for auditors. The proposal will provide a comprehensive set of EU rules on how audits should be conducted and the infrastructure needed to safeguard audit quality.
In early July, after the EC released its "Entrepreneurship in Europe" Green Paper, the Association of Chartered Certified Accountants (ACCA) recommended against the EU taking a 'one size fits all' approach to entrepreneurship.The Head of the ACCA's Small Business Unit said, "The EC should not develop a single 'model', as every business faces different markets, uses different skill sets and employs very different organisational structures. Instead, the EU should identify and share knowledge of best practice." Also, the ACCA recommended that the EC actively encourage changes in tax laws to provide incentives for owners to re-invest in their businesses and support sustainable growth. In particular, the ACCA felt that addressing the capital gains tax imposed on most EU states should be an EC priority, as the tax continues to hinder exit strategies of family firms. Of course, this is an often-discussed subject in family business circles, but it can't hurt to make the argument again. Maybe someone will finally take action.