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Corporate Governance and Financial Health

16414033-abstract-word-cloud-for-corporate-governance-with-related-tags-and-termsThree years ago I did some work for an independent credit rating agency utilizing a quantitative methodology to determine financial health of corporations.  Dr. Patrick Caragata founder of the firm conducted a study of 200 TSX listed firms with high CGI ratings (Governance Metrics International).   Dr. Caragata was seeking to determine the correlation of Corporate Governance (CG) and financial health.  His findings revealed that “CG ratings failed to indicate when a company was in poor health 75% of the time.  In fact, they wrongly identified 32% of weak companies as being highly rated on GMI.”

Dr. Caragata also extended his model to use financial health score as an early warning signal for a listed company’s share price.  KMV, established ratings agencies, Altman’s Z Score were also determined as lagging predictors of share price.  Dr. Caragata’s research on bond pricing and CDS where better predictors of financial health momentum and ultimate predictors of share price but still failed to correlate financial health score as an early warning signal for share prices.  The problem that the model continually encountered was that valuation always exhibited a bias towards share price (market momentum)  not financial health score.  The determination of a “fair value” based on historical spreads of financial health score and share price was overly and overtly price sensitive. Perhaps a signal of an inefficient market?  This was particularly true for bubble stock anomalies and commodity sensitive equities.

Purveyors of Business Process Management (BPM) suggest that listed practitioner’s of BPM trade at a 15% premium to non-practitioners.  I wonder if its marketing boast.  Though BPM is not CG;  it does speak to having CG excellence in the corporate DNA.   A cultural commitment   to sound practices create valuation premiums and sustainable business models.  That’s the message well managed companies consistently deliver as a central theme of their value proposition.  Integrating sound practices and CG excellence into the corporate culture does create valuation premiums because it suggests an intentionality of business process deeply wedded to the enterprise mission.

I believe the radical reconfiguration of Wall Street offers a telling example of incongruity of good CG practitioners and financial health.  It was always a self evident truth that Wall Street firms that folded or transformed into commercial banks were probably some of the best rated CG enterprises.  CG excellence can do nothing to save an enterprise with a structurally flawed business model.  Though CG excellence does presuppose a board of directors in tune with the vicissitudes of the market; who would have thought that we would be looking at the extinction of the global investment banking business?  Merrill Lynch, Morgan Stanley, Lehman Brothers, Bear Stearns and the mighty Goldman Sachs were walking dinosaurs with flawed unsustainable business models?  All either folded, were acquired or became FDIC insured commercial banks.  I still can’t believe it but it’s true.  The world is being turned upside down.

Sum2 is a firm believer in coupling quantitative and qualitative risk measures to maintain operational excellence to build a healthy sustainable enterprise.  Effective CG alone cannot assure financial health.  It  must be a critical pillar of the governance, risk and compliance (GRC) triad.

When we speak about the principles of good governance, how about the original dissertation on the ideal of governance excellence.  Seemingly an insistence on an honest evaluation of reality to determine what is good is all it takes.  Its really that simple.

Visit the blog Risk Rap and the Allegory of the Cave post on FAS 157:

Sum2 welcomes the opportunity to speak with partners who share our passion for GRC excellence.

originally published 6/12/13

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June 12, 2013 Posted by | Bear Stearns, business continuity, credit crisis, Credit Redi, culture, FASB, operations, risk management, sound practices, sustainability | , , , , , , , , , , , , , , , , , | Leave a comment

Prognostications and Expostulations for 2010

We’re going out on a limb with this one or given thats its winter we’ll say we’re walking on thin ice.   We’ll gaze into the crystal ball and pontificate on eleven  subject areas for 2010.  With some we hope we will be wrong.  With some we hope we will be right.

1.  Stock Market:  Buoyed by well managed earnings by the large multinational companies in the DOW, principally as a result of cost reduction initiatives and exposure to global markets the Index will finish up 6% and close at 11, 011 on the last trading day of 2010.   Given an inflation rate of 4% investors will realize a 2% gain on equity investments in DOW constituents.  S&P 500 and NASDAQ will be flat gaining 2% for the year.

2.  Iraq War:  The war in Iraq will continue to wind down.  America will scale down its military presence in the country.  Troop levels in the country will approximate 85,000 by the close of 2010.  Though direct American military involvement in conflicts will decline,  Iraq will experience civil unrest as Kurd nationalists, Shiite and Sunni Muslims seek to protect their political and economic interests.

3.  Afghanistan War:  The escalation of America’s military presence in Afghanistan will move the theater of war further into Pakistan.  The Taliban will be satisfied to harass US forces by engaging in a guerrilla war.   Taliban and Al-Qaeda supporters will use the opportunity to increase the level of urban terrorist attacks in the large cities of Pakistan.  Al-Qaeda confederates will seek to reestablish base of support in Somalia, Yemen and ties will begin to emerge in Latin American narco-terror states.

4. Iran: The political situation in Iran will continue to deteriorate.  This is a positive development for regional stability because it will force the ruling regime to cede its nuclear program development initiatives.  Iran will not be able to capitalize on the US draw down in Iraq.  It will become increasingly isolated as Hezbollah and Hamas pursue actions that are less confrontational to Israel in Palestine and Lebanon.   The ruling Caliphate position will weaken due to internal political dissent and external economic pressures.

5.  China:  It will be a year of ultra-nationalism in China.  Its stimulus program that is targeted to internal development will sustain a GDP growth rate of 8%.  China will use this opportunity to strengthen the ideological support of its citizens to fall in line with the national development initiative.  Globally China will continue to expand its interests in Africa and will cull deeper relationships with its Pacific Rim club member Latin America.  China will continue to use US preoccupation with its wars in Afghanistan, Iraq and skirmishes in Yemen and Somalia as an opportunity to expand its global presence with a message of peace and cooperation.

5.  US Mid Term Elections:  Republicans will gain a number of seats in Congress.  The continued soft economic conditions, state and local government fiscal crisis, war weariness and cut back in services and rising expenses will make this a bad year for incumbents and the party in power, namely the democrats.  Sarah Palin will play a large role in supporting anti-government candidates drooling over the prospect of  winning a seat in government.

6.  Recession:  Though the recession may be officially over, high unemployment, home foreclosures and spiking interest rates will hamper a robust recovery.  The end of large government stimulus programs  and the continued decrease in real estate values also present strong headwinds to recovery.  We predict a GDP growth rate of 2% for the US economy.  Outsourcing will abate and a move to reintroduce SME manufacturing  will commence.

7.  Technology:  The new green technology will focus on the development of nuclear power plants.  The clash of the titan’s between Google’s Droid and Apple’s I Phone will dominate tech news during the year.  Lesser skirmishes  between Smart Phones makers or the war of the clones will continue to explode altering the home PC market and continue to change the market paradigm for old line firms like DELL, Microsoft and HP.   SaaS or cloud computing will gain on the back of lean business process initiatives and smart phone application development and processing infrastructure will encourage cottage industries fueling the cloud and making for some new millionaires.  The tension between the creators of content and search and delivery will begin to tilt back toward the content providers.  Litigation involving social networking sites will be filed to create safeguards against  its use  as a tool to control and manipulate behaviors thus threatening civil liberties and privacy rights.

8.  Culture:  The Googlization of civilization will allow individuals to embrace paternal corporatism as a pillar to add efficiency and order to their lives.  Multiculturalism will continue to grow in the US.  However a growing political backlash against it will become more of a prominent theme as Teabaggers agitate for a return to the true values of America.  Electronic arts will make major leaps and bounds as commodification continues to be a driving force in the world of art.  Printed words like books and newspapers will continue to dramatically decline.  Writing, drawing and playing musical instruments skills will  ebb as people prefer to develop digital skill sets.  Texting and Tweeting make for poor practice for extended compositions.

9.  Latin America:  Instability will grow in Latin America as narcodollars continue to undermine political stability in Columbia, Venezuela, Mexico and Panama.   The US will increasingly become involved in the conflicts between petro and narcodollars.  Mexico’s stability will be increasingly undermined by the power and corruptible influence of the drug trade.  China’s influence on the continent will grow.

10. European Union:  The EU will continue to manage itself for stability.  It will yearn to return to its aristocratic roots and will become increasingly conservative.  It will continue to have a complex relationship with the expanding Muslim community.  A call to deeper nationalism will arise out of a growing influence of Islam and the inefficiencies of EC bureaucrats in Belgium.  The EU will continue its union of expediency to counterbalance their distrust of Russia and their distaste for America.

11.  Environmental Justice:  Though awareness continues to grow concerning the need to mount and implement large scale solutions to halt the problem of global climate change;  the political will and resources required to drastically alter the planets current trajectory in growth of carbon emissions from the burning of fossil fuels remains unaltered.  Social responsible enterprises, small businesses and individuals continue to make a difference.  Eco friendly small businesses, urban farming, capital formation initiatives around renewable  energy  businesses are hopeful signs of a market response to the pressing problem.  China is investing heavily in becoming a market leader out of business savvy and environmental necessity.  Until the great powers of the world can come to some  collective agreement on how to limit , cap or trade carbon credits we’ll have to be content to separate the trash and recycle, reuse and reduce.

You Tube Music Video: Donald Byrd, Stepping Into Tomorrow

Risk: unfulfilled predictions will make me look bad

January 5, 2010 Posted by | commerce, environment, manufacturing, sustainability | , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , , | 3 Comments

Sum2 Announces Business Alliance with CreditAides

sum2 risk managementSum2, LLC is pleased to announce that they will begin to offer the corporate rating products of CreditAides. CreditAides is an independent corporate rating and research firm that provides financial health assessment reports and credit risk analysis ratings on companies using the Z-Score methodology. The CreditAides reporting system is a predictive tool that helps managers gain insights into the financial health of a company.  The insights help managers identify a company’s ability to remain competitive and financially sound while measuring the impact of business initiatives to achieve profitability and growth.

James McCallum, the President of Sum2 stated, “The CreditAides quantitative assessment tool is a wonderful compliment to the qualitative risk assessment applications offered in the Profit|Optimizer.  Now our clients have a recognized standard to measure the financial impact and returns on capital allocation decisions they implemented as a result of a Profit|Optimizer review.  The challenging business cycle requires that managers allocate capital to a few select initiatives.  It is critical that managers fund initiatives that mitigate the greatest risk and provide the potential of optimal returns.  The combination of CreditAides reports with the Profit|Optimizer will provide our clients with the ability to discern the optimal initiatives to fund and measure the effectiveness of their capital allocation decisions.”

The Profit|Optimizer guides business managers through an thorough enterprise risk assessment.   Uncovering the risks and opportunities associated with products and markets, business functions,  numerous macro risks and critical success factors are key components of  effective enterprise risk management (ERM).  ERM requires the assessment and aggregation of hundreds of risk factors.  The Profit|Optimizer helps managers identify the key initiatives that will  help to maintain profitability and sustainable growth.  The use of CreditAides provides an important measurement tool to affirm and validate that managers have made correct bets on capital allocation decisions.

Z-Score Financial Analysis Tool

The Z-Score formula for predicting bankruptcy was developed by Edward I. Altman a Professor of Finance at New York University.  The Z-Score is used to assess the financial health of companies and the probability of  bankruptcy.   The Z-score uses multiple corporate income and balance sheet values to score  the financial health of a company. The use of  Z-scores is a strategic tool managers use to measure and validate the effectiveness of their business strategy.

Risk Assessment and Opportunity Discovery

The recession has created macroeconomic conditions that are causing widespread business failures.  Small and mid-size business enterprises (SME) require effective risk management tools to effectively manage business threats to survive extreme business downturns.  Assessing, measuring, aggregating, prioritizing, pricing and initiating actions are the tactical means risk managers use to support the business objectives of the enterprise.  Sound risk management practices are central to a healthy corporate governance culture and are central to maintaining profitability and long term sustainable growth for the business enterprise.

The Profit|Optimizer

Profit|Optimizer helps managers assess risk factors and uncover opportunities that are always present in the business environment. The product is based on Basel II working group recommendations that outline optimal risk profiles of SMEs.  The Profit|Optimizer incorporates four focus areas.

1.) product and market dynamics (products, clients, competition, supply chain, market segments)

2.) business functions (management, sales and marketing, operations, facilities, IT, HR, accounting)

3.) critical success factors (generic and specific)

4.) macro risk factors (macroeconomic, STEEPLE, SWOT, segment benchmarks, business plan optimization)

SME’s lack of agility and reluctance to change has made it difficult for these businesses to survive severe market conditions. There are tremendous market forces at work in the current business environment that are creating dangers and opportunities for SMEs if they can effectively assess and adapt.  Business managers must be astute and exacting how they allocate the precious capital resources required to achieve business objectives.  The Profit|Optimizer helps managers make better capital allocation decisions.  CreditAides provides fiscal metrics to validate or adjust business strategy and initiatives.   Sum2’s risk assessment products coupled with the measurement tools provided by CreditAides creates a leading edge solution for SME risk management.  The ease of use and superior value proposition  of the combined solution is unsurpassed in the market.

About CreditAides

CreditAides (www.creditaides.com) online business analysis and credit assessment portal provides business managers with important insights into the financial health of their company. Automated financial analysis improves efficiency of the business enterprise.  CreditAides reports are used to assess the financial health of clients, supply chain and used to demonstrate financial health and credit worthiness to credit and equity providers.

True underlying financial health of companies has never been harder to identify and never been of greater importance. Across both equity and credit markets, understanding relative financial strengths of companies is paramount for effective business decisions.  Good decisions cannot be made without good quality information generated by incisive tools.

About Sum2, LLC

Sum2 (www.sum2.com) was founded in 2002 to promote the commercial application of corporate sound practices. Sum2 manufactures, aggregates, packages and distributes innovative sound practice digital content products to select channels and market segments. Sum2’s sound practice products address risk management, corporate governance, shareholder communications and regulatory compliance. Sum2’s objective is to assist businesses and industries to implement sound practices to create value for company stakeholders and demonstrate corporate governance excellence to assure profitability and long term sustainable growth.

You Tube Video: Ella Fitzgerald, A-Tisket A-Tasket

Risk: bankruptcy, default, market, credit

November 5, 2009 Posted by | banking, Basel II, business, credit, CreditAides, recession, risk management, SME, sound practices, Sum2, sustainability | , , , , , , , , , , , , , , , , , | Leave a comment

A Growing Contagion: One in Seven Companies Are a Credit Risk

contagion1-450The H1N1 Swine flu threat may be the big topic on CNN but a growing contagion of financial distress is widely infecting small and mid-sized enterprises (SME) with potentially fatal consequences.

CFO magazine reports that 14% of companies are struggling to pay their bills or are at risk for bankruptcy. These findings are the result of a study CFO conducted on 1500 Midcap companies. The 2009 Credit Risk Benchmarking Report indicated that 550 companies of the 1500 made the credit watch list and over 200 of the names were in or are entering a distressed financial condition.

The report measures each company on three factors: cash as a percent of revenue, days payable outstanding (DPO), and DPO relative to the DPO of that company’s industry. The last of these measures is intended to expose which companies are under performing regardless of the economic condition of their industry as a whole. A company scoring low in all three areas is rated a potential credit risk.

The strain of a two-year recession and limited credit access is taking its toll on small and mid-sized businesses. This development is not surprising. The recession has hurt sales growth across all market segments. Banks, still reeling from the credit crisis are still concerned about troubled assets on their balance sheets. Bankers can’t afford more write downs on non-performing loans. Banks remain highly risk adverse to credit default exposures and have drastically reduced credit risk to SMEs by shutting down new lending activity.

Reduced revenue, protracted softness in the business cycle and closed credit channels are creating perfect storm conditions for SME’s. Bank’s reluctance to lend and the high cost of capital from other alternative credit channels coupled with weak cash flows from declining sales are creating liquidity problems for many SMEs. As a defensive maneuver, SMEs are extending payment cycles to vendors to preserve cash. This same cash management practice is also being employed by their clients resulting in an agonizing daisy chain of liquidity pain. SME’s that have concentrated exposures to large accounts are at the mercy of the financial soundness of few or in some instances  a single source of revenue.

The growing contagion of financial distress is also a major threat to supply chains. Buyers might prize their ability to drive hard bargains with their suppliers but the concessions won may be the straw that breaks the camels back driving a supplier into insolvency.

It is critical that managers understand all risks associated with clients and suppliers. It is critical that managers assess risks associated with client relationships and key suppliers. In this market, enhanced due diligence is clearly called for. The financial soundness of suppliers and clients must be determined and scored so as to minimize default exposures to your business.

CreditAides is a company that delivers  SaaS based financial health assessments on SMEs.  CreditAides reports that their clients are becoming more vigilant and thorough  in their due diligence of customers and suppliers.  They have noted a particular emphasis on the growing practice of reviewing the financial health of suppliers.  Supply chain risk is a heightened risk factor for SME’s due to their over dependence on single source.  Conducting a financial health assessment on key suppliers and other enhanced due diligence practices mitigates a risk factor that could have potentially devastating consequences.  SME manager’s need to button down their due diligence practices  to prevent the sickness from infecting their business.

CreditAides SaaS can be accessed here: www.CreditAides.com

You Tube Music Video: Bing Crosby and Rosemary Clooney,  Button Up Your Over Coat

Risk: contagion, credit risk, counter-party, supply chain, client, recession, banking

October 9, 2009 Posted by | banking, business, commerce, credit, credit crisis, economics, recession, risk management, SME, supply chain, sustainability | , , , , , , , , , , , , , , , , , , , , , , | 4 Comments

Mom and Pop Go Chapter 11

american-gothic-large4The Wall Street Journal ran an interesting article about the devastating effect the recession is having on family owned businesses.  The SBA estimates  90% of U.S. businesses are family-owned.  During 2008 about 4.3 million businesses with 19 or fewer employees closed according to the Bureau of Labor Statistics. If 90% of those firms were family controlled businesses more then 3.8 million families have lost their livelihoods and most likely have also lost a considerable amount of personal wealth.  This drastic dissipation of  wealth and family control of assets  is yet another blow to the middle class.  Its impact of entrepreneurial activity and capital formation initiatives may create additional headwinds for the economy seeking to overcome the deep recession.

John Ward a professor at Northwestern University observed “that the economic downturn is really just the latest setback for family-run businesses. In the 1970s and ’80s, exorbitant income taxes and estate taxes forced many to close.  Before that, the anti-establishment movement during and after the Vietnam War made many children reluctant to take over the family business.”

Beth Wood, a family business market development specialist  at MassMutual observes that family businesses are “often steeped in tradition and not as flexible to change, tend not to have formal plans in place to respond to crisis.  They’ve seen reductions in top line revenue that they just can’t react fast enough to. Problems securing credit in this recession have also prevented some family businesses from getting the funding they need.”

Ms. Wood makes an interesting observation about the importance of business agility.  The need to assess the rapidly changing market dynamics is a critical exercise that SMEs must undertake.  Business as usual will not get it done.  SMEs  must begin to transform itself to better align its business model to rapidly changing markets.  Conducting a thorough risk assessment and opportunity discovery exercise is critical  to creating a sustainable business enterprise.  Sum2’s Profit|Optimizer is a critical tool that helps SME managers assess risks, spot opportunities and initiate actions to achieve business growth and profitability.

Family owned enterprises must overcome the gravity of generational business cultures that inhibit and resist change.  SMEs will survive and thrive if they can identify emerging opportunities the current business cycle is creating.  SME’s will survive and thrive if they have the will, resourcefulness and a supportive culture to change.  These are the qualities required for long term sustainability and growth.  Business as usual is giving way to a “New Normal,” where adaptability to structural market changes are keys to asset preservation and wealth creation.

You Tube Video: Willie Nelson, On the Road Again

Risk: family trusts, asset preservation, small business, bankruptcy

October 6, 2009 Posted by | bankruptsy, business, credit, economics, product, risk management, SME, Sum2, sustainability | , , , , , , , , , , , , , , , , , , , , , , , | 4 Comments

Nike Resigns US Chamber of Commerce Board Seat

climate change wcNike has resigned from the board of the U.S. Chamber of Commerce for its opposition to the cap-and-trade bill now being considered by the Senate.   Nike moves comes on the heals of Exelon announcement to quit the Chamber altogether over its concern that the nations largest business lobby body was hindering legislative action to deal with the pressing problems of climate change.

As the December Copenhagen Summit on climate change nears pressure is growing on the United States to pass the cap-and-trade bill stalled in the senate. Companies with a strong commitment to corporate social responsibility agenda are becoming more vocal in support of legislative and corporate initiatives that address climate change.

Nike’s high profile action places associations and business advocacy groups on notice that it expects such groups to seek ways they can make positive contibutions to addressing pressing issue of climate change.

Nike insists that it expects the representative bodies of businesses to have a little less conversation and demands much more action to address the pressing  problem.

You Tube Video: Elvis Presley, Little Less Conversation

Risk: climate change, legislative, corporate responsibility

October 4, 2009 Posted by | associations, environment, legislative, reputational risk, sustainability | , , , , , , , , , , | Leave a comment

ADP Reports 250,000 More Jobs Lost in September

job-loss-absoluteADP has released its National Employment Report for September   Nonfarm private employment decreased 254,000 during  the month on a seasonally adjusted basis.   The ADP report indicates that job loss continues to decelerate.  Though slowing, the unemployment rate continues to creep higher.  The impact of the loss of  a quarter of a million jobs is an indication that economic recovery remains sluggish and the US has a long way to go before the benefits of wide spread sustainable growth are realized.

The evaporation of jobs will continue to hinder a broad recovery in the housing market.  Yesterday I heard a speaker claim that approximately 25% of homes in Florida are in foreclosure or are behind in their mortgage payments.  It is an incredible statistic that speaks volumes about the acute systemic problems of the service based, boom/bust Florida economy.

Highlights of the ADP  report include:

Employment from July to August was revised from a decline of 298,000 to a decline of 277,000

September’s employment decline was the smallest since July of 2008

Employment losses have diminished significantly over the last two quarters

Nonfarm private employment in the service-providing sector fell by 103,000

Employment in the goods-producing sector declined 151,000

Employment in the manufacturing sector dropped 74,000

Employment with large businesses with 500 or more workers declined  by 61,000

Employment with medium-size businesses with between 50 and 499 workers declined 93,000

Employment among small-size businesses with fewer than 50 workers, declined 100,000

Employment losses among small-size businesses have diminished in each of the last six months

Construction employment dropped 73,000. This was its thirty-second consecutive monthly decline, and brings the total decline in construction jobs since the peak in January 2007 to 1,632,000.

Employment in the financial services sector dropped 19,000, the twenty-second consecutive monthly decline.

Sum2 advocates the establishment of an SME Bank adoption of The Hamilton Plan to address the recession.

For information on the construction and use of the ADP Report, please visit the methodology section of the ADP National Employment Report website.

You Tube Video: The Silhouettes, Get A Job

Risk: unemployment, recession, recovery, political

September 30, 2009 Posted by | banking, commerce, economics, Hamilton Plan, manufacturing, recession, SME, Sum2, sustainability, unemployment | , , , , , , , , | Leave a comment

Day of Atonement: Al-Chet for Risk Managers

YomKippurTNToday is Yom Kippur.  It is the Day of Atonement.  The Jewish faith marks this day each year as a day to reflect on our sins and shortcomings we have committed during the past year.  It is a day of personal assessment.  Calling all to examine how we have failed to live a life in conformance to our highest aspirations and ideals.  It is customary to recite an Al-Chet confession prayer.  The Al-Chet is a confession of a persons past year sinful behavior. It is hoped that this admission of sin leads to  reconciliation with the aggrieved and an awareness that helps to establish a pattern of improved behavior in the future.

It is good that we commemorate such a day and use it to a constructive purpose.  After all, how many among us are without sin?  How many of us have achieved a level of perfection that obviates the need to reflect on how we can improve and make amends to those we may have hurt?   To be sure, even the best among us have fallen short of the glory of God.  A Higher Power surely keeps mere mortals rightsized and humble when our egos and perception of ourselves grows too large and burdensome.  The need to keep a strong self will from running riot is critical.  It is particularly dangerous when a person or corporation is unaware and ambivalent to the collateral damage its actions  spawn through the naked pursuit of self interest and ambition. In a sense, God is the ultimate celestial Chief Risk Officer that keeps wanton will in check.

The Day of Atonement is an important day because it is a day of transformation.  It calls for self examination and transformation.  Once we have learned the nature and extent of how our actions and inaction have negatively impacted ourselves and others,  we are called to make amends to set things right.  It is a day that requires considered action to improve ourselves so we can become a positive force for change in the world.

Considering the year that just transpired in the financial services industry, I wonder what an Al-Chet confession for risk managers would include.   We need a strong dose of atonement so we don’t repeat the egregious mistakes we committed last year.

An Al-Chet for Risk Managers:

I was not strong enough to stand up to my boss

I put selfish gain ahead of ethical considerations

I falsified or hid data to conceal results

I failed to be objective

My risk model was too subjective

I ignored warning signs

I was in over my head

I did not understand all the risk factors

I failed to get an outside opinion

I was beholden to monetary gain

I was victim to group think

I placed institutional interest ahead of ethical considerations

I  failed to admit I was wrong

I was not honest with regulators

I was not honest with shareholders

I looked the other way

I failed to act

I conveniently overlooked infractions / irregularities

I made exemptions

I did not understand the depth of the problem

I know there are many more.

Please help me to uncover, understand, make right and overcome.

Shalom

You Tube Music Video:  Aretha Franklin,  I Say a Little Prayer

Risk: compliance, reputation, catastrophic risk, moral hazards

September 28, 2009 Posted by | banking, corruption, credit crisis, regulatory, reputation, reputational risk, risk management, sustainability | , , , , , , , , , , , , , , , , , , | 6 Comments

G-20 Mulls Sustainable Recovery

800px-G20_2008_summit_participants.svgLast year when the G-20 convened in November it was billed as the Bretton Woods II.  The global economy was in the throes of a banking crisis that rivaled the Great Depression of the 1930’s.  Central bankers and political leaders were struggling to formulate the right mix of policies to strike the proper balance of interventionist programs needed to arrest the accelerating economic decline brought on by the frozen credit markets.  Most believe it worked.

Today in Pittsburgh, conferees  will begin to assess weather the accommodative monetary policies, massive capital infusion programs and historic low interest rates can continue to stabilize the global banking system and bear fruit of real economic growth.   Though economic growth appears to have emerged in the US and the EU, there is  a concern that recovery has become too dependent on the massive government stimulus programs.  The development of a stimulus exit strategy will certainly be on the G-20 agenda.  How to sustain economic recovery without the massive government spending programs is the primary challenge that G-20 leaders need to address.

Global trade agreements and a consistent tax policy across G-20 domiciles will also be areas of focus for conferees.  Regulatory tax arbitrage is an issue that G-20 countries are keen to address.  The days of utilizing domiciles with favorable tax laws to protect assets and revenue derived from a domicile with a less accommodating tax structure is an area that all tax hungry G-20 countries want resolved.  Recognizing taxable revenue streams and repatriating capital gains taxes are particularly pressing concerns considering the massive budget deficits many countries are confronted with.

Global trade issues and the East/West balance of trade continues as concern for conference participants.  The fall of the dollar and China’s growing reticence to continue their purchase of US government debt is an interesting backdrop to the brewing trade spat over US tariffs imposed on the importation of tires manufactured in China.  China has retaliated with an examination of US trade practices and American’s need to keep their fingers crossed that China continues to regularly appear at the government bond auctions with its sizable check book.

You tube Music Video: Edvard Grieg, Anitra’s Dance

Risk: trade, recession, political, economic

September 24, 2009 Posted by | banking, economics, government, recession, regulatory, sustainability, Treasury, Uncategorized, US dollar | , , , , , , , , , , , , , , , | 1 Comment

Drivers Wanted!

fuel efficientThe cash for clunkers rebate program is a great success.  The first $2. billion allotted to the program was spent within two weeks.  The recently approved additional allocation of $1 billon for the program will no doubt be taken advantage of by consumers.   American’s are always keen to do a deal and can’t wait to drive away in a brand new ride unwritten in part by our most favorite relative, Uncle Sam.

The government’s goals of the cash for clunkers program are being achieved.  The program  will have a positive environmental impact as more fuel efficient vehicles replace the old gas guzzling clunkers.  The program has also allowed car manufacturers to liquidate 2009 inventories that were piled high due to tepid demand borne from the recession and credit crisis.  The program may also help cure consumers recession psychology and their new found aversion to purchasing new stuff.

It is hoped that this boost to car manufacturers may kick start the economy.  Ford Motor Company’s  recent positive earnings announcement and GMs and Chrysler’s arrest of declining quarterly sales are one of the “green shoots” of recovery pointed to by politicians and economists.  However a huge question remains concerning how to incubate long term sustainable drivers that will end the recession?  The $600 tax rebate checks sent out by Paulson last year provided a temporary boost to the economy.  Its effects did little more then forestalling the more deleterious effects of the growing recession.  See The Charge of the Light Brigade.  Hopefully cash for clunkers will help to kick start some recovery momentum to an economy aching for relief from systemic malaise.

The US economy has grown overly dependent on a few industry sectors that include services, real estate, banking and construction.  The SME service sectors have been devastated by the contraction of credit, unemployment and the curtailment of consumer demand brought on by the recession.  During the good times, these sectors were driving economic growth and expansion.  Unfortunately these sectors remain conspicuously absent as leading drivers in the new emerging  economy.

Macroeconomic factors unpinning recovery continue to be negative for these sectors.  Hi tech and manufacturing seen as critical to a lasting recovery have also been a bit lethargic.   These industries are capital intensive and with the capital markets still seeking a firm recovery footing these sectors will remain weak.   Health care and pharmaceuticals are key sectors in the US economy, but political uncertainty around reforming industry practices and much needed restructuring hampers the sectors ability to assume a leading position in recovery scenarios.

Last year Sum2 published The Hamilton Plan, a Ten Point Program to incubate small midsized enterprise (SME) manufacturers.  At its core, the plan seeks to encourage capital formation initiatives from public and private sources.  Manufacturing is key to any sustainable economic recovery.  Our ability and desire to link manufacturing to the entrepreneurial capabilities and business skills of SME’s to address targeted needs could well be the drivers that finally steer us out of the recession.

Risk: recession, SME, manufacturing

August 10, 2009 Posted by | commerce, credit crisis, economics, Hamilton Plan, manufacturing, private equity, psychology, recession, SME, sustainability, Uncategorized | , , , , , , , , , , , , , , | Leave a comment