Seven out of ten of Ireland’s directors believe increasing regulation is the only way to improve corporate governance standards.

The report also found that 3 in 5 admit they need further training for their role as directors and that 45pc of directors do not have independent non-executive directors on their company boards.

SMEs are less likely to have independent non-executive directors in place, with less than 2 in 5 (38pc) having appointed NeDs to their board. Plcs have the highest number of non-executive directors in place, with over two-thirds (67pc) of directors in Plcs saying that their company has non-executive directors in place.

Non-executive directors feature highly in the financial services sector, with two-thirds (66pc) of directors in the industry claiming that their company has NeDs on its board.

When given a choice between ‘comply or explain’ (UK Corporate Governance Code model) or enforced regulation, two-thirds (66pc) of directors cited a preference for enforced regulation.

Under the UK Corporate Governance Code it is also recommended that the roles of the chief executive and the chairman should be kept separate, and interestingly, 9 in 10 (91pc) of those directors surveyed agree with this approach. In addition, 6 in 10 (62pc) agree that the chief executive of an organisation should never become its chairman.

While complying with civil law is one thing, criminal law is quite another.

Managers and business owners could face jail terms – yes jail terms – if they fail to observe  compliance obligations under the Criminal Justice (Money Laundering and Terrorist Financing) Act 2010, according to the head of William Fry’s Competition and Regulation Department, John Handoll.

“We will begin to see the active enforcement of this Act in the coming months,” he said.

The obligations are imposed on a wide variety of bodies – including, banks, financial institutions, lawyers, accounts, auditors, tax advisers, trust or company service providers, property service providers, casinos, gambling clubs and dealers in goods involving cash transactions in excess of E15,000.

All of these bodies are designated under the Act because of the risk that they are used by criminals for money laundering or terrorist financing.

“Individual bodies and professional and industry bodies have all been working hard to get their systems into line with the tougher requirements, including ‘customer due diligence’ obligations to identify customers, understanding the purpose of business relationships and monitoring dealings on a continuous basis. Suspicions of money laundering or terrorist financing must be reported to An Garda Siochana and the Revenue Commissioners,” he said.

“The penalties for non-compliance are extremely severe, with the possibility of unlimited fines and a 5-year prison sentence for designated persons, employees and other representatives of the business. The same penalties apply to directors, managers and others who connive in non-compliance, or are wilfully neglectful. Suspects may also be arrested without a warrant and directors are liable to be disqualified if convicted. Full and timely compliance is vital for companies.”

So when it comes to increased regulation, be careful what you wish for.

Roger Brownlie for Vistage

But just hours after Minister for Enterprise, Trade and Innovation, Batt O’Keeffe announced the Government was working on a loan guarantee scheme, one of the key players in the ongoing dispute over the availability of credit to SMEs said he does not favour a loan guarantee scheme.

The Irish Independent reported that John Trethowan, who heads up the Credit Review Office, said he was “sceptical” about how effective a loan guarantee scheme would be and warned it was being portrayed as a cure for all small firms’ problems when this was not the case.

Business lobby groups welcomed such a scheme but Mr Trethowan said: “If a loan guarantee scheme came in tomorrow, then each application for the guarantee would have to be processed on an individual basis and so would effectively replicate what the banks are already doing.

“An application for the guarantee would go through or fail based on the viability of every business. If a business is not viable, then the guarantee is not going to save them, if the business is viable then the guarantee should not be required,” he added.

The Small Firms Association welcomed the plans for the guarantee and urged it be implemented “sooner rather than later”. SFA chairman, Dr Aidan Boyle said: “Unless the lending risk to the banks is reduced by the introduction of a loan guarantee scheme, many small businesses will not survive. We, small business, are the life blood of this country and it is time this was recognised.”

And a new report from the Certified Public Accountants supported a loan guarantee scheme for small business and calls for broadening of the remit of the State enterprise support agencies.

Sadly, while a loan guarantee scheme would certainly broaden options for SMEs to obtain credit, Mr Trethowan’s comments dampen any hope that the criteria for obtaining a loan guarantee would be any different than the banks’.

Roger Brownlie for Vistage

Three out of four Dublin County Enterprise Boards have run out of funds to support new start-ups, according to Mr Bruton.

“The future of the economy depends on people having the ingenuity and the courage to set up a new business. The banks won’t touch them and now we see the Government abandoning them also. This makes a nonsense of the Government’s claim that enterprise and jobs are at the heart of their strategy and policy,” Mr Bruton said.

“Existing small businesses can expand, innovate and provide much needed jobs across the country. However, instead of supporting new businesses the Government has cut capital funding available to the County Enterprise Boards by over E7 million this year alone.”

Mr Bruton makes a reasonable point when he says the government strategy of sustaining past failed loans should not take priority over providing future credit.

“For the past twelve months we’ve seen good businesses going to the wall for the want of credit, while a failed banking strategy placed the nursing along of failed loans of the past as a greater priority than providing credit to business that can create a sustainable future.”

But the problem is not just in the capital – it is a national issue.

According to the  Indo’s cub business reporter Peter Flanagan (a past student of mine I might add!), CEBs have reduced their staff by almost 15pc and around one-fifth of them will be without a chief executive by the end of the year, their organisation’s head has predicted.

County Enterprise Board Network chairman Michael Tunney said CEBs could create more than 3,500 jobs a year if they were resourced properly.

“At a time when businesses are in most need of support, 70 grants that were approved in the first half of this year had to be deferred due to a lack of budget.

“As well as creating jobs we can help to sustain a further 100,000 in existing businesses but only if we can get the necessary resources,” he added.

Perhaps inevitably, The Local Government Efficiency Review Group said in a report published July 23, the State could save about €500m by a number of measures, including the merger of some boards with county councils.

Now where for startups and SMEs?

Roger Brownlie, for Vistage

Quoted companies already use IFRS, but so called “Non public Interest” or unquoted companies will have to adapt IFRS for SME in 2012/2013.

Reported profits will be different under the new rules, for some businesses it will be higher and some lower; it depends on what business the company is undertaking, explained Aidan Clifford, ACCA’s (Association of Chartered Certified Accountants) Advisory Services manager.

For example, a company with a lot of intellectual property will have a different affect on their profits to a property owning company. Assets and liabilities will be measured differently and some new assets and liabilities will appear on an IFRS for SME balance sheet that were not there under UK rules. For example, property may be re-valued to market value under UK rules but must stay at cost under IFRS for SME; some financial instruments such as derivatives were “off balance sheet” under UK rules but will be included at fair value under IFRS for SME. The former example will tend to show lower building valuations and lower depreciation and higher profits under IFRS for SME and the latter example will accelerate profits in the short term and reduce long term profits under IFRS for SME.

A newly published guide (The new Irish GAAP – how would the numbers look? – A report on whether the IFRSfor SMEs will affect the reported profits of Irish companies), produced by ACCA identifies the major accounting and tax differences and the opportunities the change will bring.

“It is important for companies to identify where the change might be an issue for their business at the earliest opportunity. Performance related pay and bank loan covenants being breached could be an issue simply because of the different way of measuring profits and assets and liabilities. ACCA’s publication identifies the accounting and taxation implications of the change and whether profits would be higher or lower under IFRS for SME for different types of businesses,” said Mr Clifford.

Other useful guides to IFRS include:

http://ireland.accaglobal.com/pubs/ireland/members/tech_info/accounting/tech_afb_nig.pdf

http://www.accountancyireland.ie/Archive/2008/December-2008/IFRS-for-Private-Entities-A-Practical-Guide/

http://www.cpaireland.ie/UserFiles/File/Flyer%204%202.pdf

http://www.cpaireland.ie/UserFiles/File/Sep%20Articles/Acc%20Plus%20Aut09_Fiona%20Hackett.pdf

Roger Brownlie, for Vistage

RTE business editor David Murphy says the fact AIB is “calling for it, shows things would be very difficult if the bank guarantee was not there”.

As long as AIB, and other banks in the scheme, are protected under the bank guarantee they are able to borrow money at a decent rate on the wholesale market – and keep lending to customers.

In an RTE interview Friday 7, July, Anglo’s chief exec Mike Aynsley joined in and said the bank guarantee will have to be extended because the financial system has not yet stabilised.

But their public pleas for an extension to the guarantee are too close for comfort with our own requests (and often denials) for more time and credit.

One wonders, based on AIB’s latest and awful results, how viable it and other banks, including Anglo, would be without this comfort blanket guarantee.

With sad irony, in an Irish Independent article by Emmet Oliver defending its lending practices, chief exec Colm Doherty is quoted as saying that certain SMEs were not going to make it through the recession and “there will be companies not viable into the future.”

These would be the firms AIB will not lend to…

However, AIB denies accusations of ‘credit rationing’. In an interview Mr Doherty gave to RTE Morning Ireland, despite what SMEs are saying, AIB claims it is still lending to the sector, quoting numerous figures which RTE’s David Murphy describes as “massaging the figures” on loan approvals.

But in Eoin Burke-Kennedy’s report in the Irish Times he writes that firms are finding it easier to borrow money – according to figures from the Central Bank which show new lending to businesses exceeded loan repayments in May and June for the first time in 10 months.

This follows on from the Credit Review Office’s first report mid-July that found no evidence that AIB and Bank of Ireland are constraining the supply of credit to the SME market.

Minister for Finance, credit reviewer, John Trethowan said there was no evidence the two main banks were engaging in lending policies which inhibited the supply of credit to viable businesses.

However, Irish Times reporter Suzanne Lynch wrote: “His report raised concerns about some practices in the banks, including a lack of experience among some front line bank staff in dealing with SMEs as well as anecdotal reports of banks requesting that borrowers hold the amount of money requested for overdraft facilities on deposit with the bank”.

But the number of cases going to the CRO was lower than expected, with just 12 firms going through the formal process at this stage. For credit reviewer John Trethowan, this may suggest that lending problems were fewer than some figures would suggest.

He told the Sunday Business Post’s Samantha McCaughren: “You hear numbers being bandied around about credit refusals,” said Trethowan, ‘‘and this makes me wonder why we’re not getting more applications.”

However, he pointed out that the office dealt only with AIB and Bank of Ireland and with loans which have been turned down since April. That may have slowed down case review requests.

Whether or not the bank guarantee scheme is extended is not down to the Irish government but to the EC. And according to Niamh Hennessy of the Irish Examiner, there is enough precedent to believe the scheme will be extended.

The commission has already approved the extension of an aid scheme for Austrian credit institutions and a Latvian bank guarantee scheme to the end of the year. It has also extended bank support schemes in Sweden and Germany and a recap scheme in Hungary, she wrote.

Credit rating agency Fitch warns Irish banks that it will be challenging but manageable for them to get credit when the guarantee expires. Fitch expects the EC to allow the guarantee to be extended.

While propping up dysfunctional (or in Colm Doherty’s parlance – “not viable into the future”) banks is bad news for public finances, for the private sector we must hope the scheme is extended, for without it there will be little credit available for SMEs.

This is a subject we will no doubt return to.

What are your experiences of obtaining credit?

Roger Brownlie, for Vistage

Last year, the consultancy Amarach Research produced a report entitled: ‘The Debt of the Nation : How we Fell in and out of Love with Debt.”

This study estimated that in Ireland, the ratio of household debt to disposable income had risen from just 48% in 1995 to 176% last year, making us one of the indebted countries in the world, even when public debt is excluded from the equation.

Since the downturn, the number of insolvencies has soared, along with the number of ‘problem’ debts across the banking system. More than 1,400 companies were declared insolvent in 2009 alone, almost five hundred of these being construction firms.

The scale of the crisis is made clear in an in depth report from the Law Reform Commission which proposes a widespread series of reforms in the area of personal debt management and debt enforcement.

The key conclusion is that Irish personal insolvency law is in need of comprehensive reform. The current 1988 Bankruptcy Act is viewed as ineffective, with extraordinarily low numbers of bankruptcies in Ireland compared to other countries, with the result that many are left in effective commercial limbo.

Earlier this year, the Minister for Justice, Dermot Ahern, requested the Commission to come up with practical proposals aimed at addressing what is an urgent situation.

Last Autumn, the Commission produced a consultation paper on debt management.

A key conclusion in the consultation paper was that “Irish personal insolvency law is in need of comprehensive reform and that the Bankruptcy Act 1988 is inappropriate to meet the needs of modern social and economic conditions in a credit society.”"

Patricia Rickard Clarke is the only Full time Commissioner at the Law Reform Commission and has been in this position since 2002. The LRC is chaired by another woman, the former Supreme Court justice and Senator, Catherine McGuinness.

Ms Rickard Clarke is an expert in commercial law, serving for many years as a partner in the Dublin law firm, McCann Fitzgerald, where her husband, David Clarke, remains a senior partner.    

An an Interview with Vistage Ireland, Patricia provides an update on some of the work she has carried out at the Commission and highlights some of the key issues identified in the Interim Report on debt management and enforcement.

“As Commissioner, my focus is on the civil law side. We have achieved quite a bit in terms of the implementation of legislation.”

She identifies the following areas where reforms to the law have been proposed, or are in train:

- Land law.

- trust legislation

- Alternative dispute resolution

- Operation of the courts.

- Mental capacity.

- Regulation of charities

- Regulation of multi unit (duplex/apartment) developments.

Land law:

“The 2009 Act has repealed around one hundred and fifty pre -1922 pieces of legislation as well as some legislation passed after Independence. We did away with feudal tenure and abolished perpetuity periods.” There are now just two forms of ownership, leasehold and freehold – there are no more ‘lives in being.’

As a result of the reforms, those involved in property transactions should come up against fewer problems concerning the title to the land, or other property.

This should simplify the position of trustees who now have ‘absolute power to deal in land.’

Capacity:    

“Mental capacity is a huge priority of mine. The legislation was archaic, with its references to ‘lunatics’ and ‘people of unsound mind.’ Ireland was out of step with other jurisdictions with regard to guarantees of the right of privacy, autonomy, dignity.

In assessing capacity, it was a case of the old ‘all or nothing ‘ model. 

In dealing with people suffering from dementia, for example, the modern approach is different. One assesses people with respect to the (particular) decision they have to make.”

The status quo could no longer be maintained faced with sanctions from the European Court of Human Rights.

The Law Reform Commission proposed the establishment of an independent Guardianship Board, consisting of a three person panel, to assess capacity. The Department of Justice instead opted for a court to be known as a Court of Care & Protection, along English lines.

Charities:

Reforms to the law on the supervision of charities were originally proposed, back in 1976, by the then Attorney General, Declan Costello. Little if anything was done to put those proposals into practice. As a result, the less scrupulous have enjoyed a field day, while the vast majority of charities which are genuine have had no way of distinguishing themselves properly from the small number of rogues.

Last year, legislation was brought in to establish a charities regulator.

“Only small parts of the legislation are in force. There is a hold up due to financial issues around the setting up of the regulator..”

“Charities have been used for money laundering….. there is need for a proper structure.”

Courts Act:

“This is a large piece of work. It involves the total consolidation of all the Courts Acts. We have published a consultation paper and are working on a final report.”

We are repealing 160 to 170 pieces of legislation, making the language more comprehensible to the ordinary citizen. The process of making application to the Court .. we are going to simplify all of that. It is about access to justice – the language is very archaic.”

“We held a number of seminars and the issue of jury membership kept coming up. We have just published a consultation paper in which we talk about the need for a greater spread of people, with fewer exemptions from jury service. Lawyers are automatically exempted from service. Should they be? ”

Access to Justice:

 Since 2006, the Commission has been working on an index to the statutes and it has also been involved in a restatement of legislation since 2007.

Whenever a piece of legislation is amended, the main Act will be automatically altered to reflect this. Under the system as it stands, it is frequently necessary to consult several pieces of statute, – Acts, amending regulations or statutory instruments – in order to determine the true state of the law.

The Commission has already completed a restatement of the Central Bank Acts, the Freedom of Information Act, & the Ethics in Public Office Act.

These restatements have yet to be formally certified.

“We would be behind other jurisdictions when it comes to restatements. Canada and Australia, for example, would be streets ahead of us…We see all of this as a precursor to e-legislation.”

Unfortunately, this very necessary and time consuming process could be halted in its tracks as a result of the public service recruitment embargo.

“We had fifteen researchers in place up until last year. The number has fallen to eight. This will affect our output.”

 Debt management:

The Government has requested the Law Reform Commission to come up with practical proposals aimed at addressing what the Justice Minister, Dermot Ahern, recognises to be a growing problem across society.

The Commission has prepared a consultation paper, which it has followed up with an Interim Report. Both documents are entitled: “Personal Debt Management and Debt Enforcement.”

It is being pressed to come up with practical suggestions to assist in tackling the crisis, in the short term.

A working group has been established drawn from among the following bodies:

the Court Service, the Departments of Finance & Justice, the financial Regulator, the Irish Banking Federation and the Money Advice Bureaux.

Reliance has also been placed on reports prepared by FLAC.

In parallel, a separate Mortgage Arrears & Personal Debt Review Group has been established under the leading insolvency expert, and current Enterprise Ireland Chairman, Hugh Cooney.

Its members include Matthew Elderfield, the Financial Regulator, Pat Farrell, CEO of the Irish Banking Federation and Paul Joyce of FLAC, the Free Legal Aid Advice Centres.

Patricia Rickard Clarke is a also member of this group which has been mandated to present recommendations, on a rolling basis, to the Minister for Finance.

In preparing the Interim Report on debt management, the Law Reform Commission examined the EU recommendations in the area. There, key goals were identified including: responsible borrowing and lending, arrears management & debt counselling, an overhaul of personal insolvency law and a move to more ‘holistic’ court procedures.

Says Patricia:

“We felt that there were gaps in the present structure. Ireland has no (national) database for credit reporting. The Irish Credit Bureau is a private company – the information is volunteered. Not all financial institutions are members of this body.”

While there is the matter of data protection to be considered, financial institutions need to be able to gain reliable information on those approaching them for a loan.

Another key gap is in the regulation of money advisors and debt collectors. 

The Law Reform Commission plans to address the whole issue of debt collection in its final report on the issue of debt management.

Key findings to date :

Says Patricia Rickard Clarke: “In our consultation paper, we concluded that we have to have a non judicial debt settlement system. We are very court intensive.” As a result, the courts receive a huge number of applications for the recovery of debts. In many cases, judgements are handed down in the absence of the debtors in question.

“We felt that it is not good for the judicial system to have judges making futile orders.”

As things stand, judges are being tied up in time wasting procedures at great cost to the taxpayer.

“Our bankruptcy legislation is based on 19th Century thinking (on punishment) . If you owe debts, each creditor can take you to court.”

“There needs to be a proper efficient system.”

Change is already in the air. As a result of a ruling last year in the High Court by Judge Laffoy, the numbers being committed to prison for non payment of debts has fallen from 4,600 in 2008 to just over 2,760, last year, this at a time of financial meltdown.

The Commission has called for the putting in place of a Pre Action Protocol in consumer debt claims. This would tackle the general problem of lack of engagement of debtors.

A recent study by FLAC revealed that none of 38 debtors surveyed attended a consumer debt claim brought against them. Only two out of fourteen attended a debt and imprisonment hearing.

Many debtors cannot afford legal representation.

It is proposed that debt advisors (from MABS, for example) be permitted to represent debtors ar hearings.

The Commission wants the introduction of a parallel non judicial debt settlement system.

Patricia also believes that some form of debt forgiveness system is required, involving an accommodation with the agreement of a majority of creditors. In her view, there has to be a system  allowing for the discharge of debts, bringing Ireland into line with other countries.

Such a system would benefit business people and others, many of whom have fallen into debt often through no fault of their own.

The view is that such a reform would facilitate entrepreneurship and economic growth, as entrepreneurs on their second undertaking would be more effective than on their first, having learned some key lessons from their first failure.

Written by Kyran Fitzgerald

In this highly interactive workshop tailored specifically to meet the needs of Vistage participants, Gary makes his case for the abolishment of conventional methods of performance evaluation and teaches participants how to replace them with a more effective and efficient system that he
calls “Catalytic Coaching”.

The workshop will give participants a complete overview of an employee development system designed to accomplish five key business objectives:
• Change behaviour
• Motivate employees to work harder
• Reduce turnover
• Develop people for assuming greater responsibility
• Minimise legal exposure

Participants are given instruction on how to use the system to deal with common but challenging special cases like: The Problem Performer (a poor performer with good attitude); The Liability (a
poor performer with poor attitude); The Climber (a good performer with high potential); The Unreliable (a good performer but radical nonconformist). The workshop includes an exercise in which participants complete a coaching worksheet in preparation for a session with at least one real direct report.
Gary Markle is an Atlanta-based management consultant with more than 20 years of experience in the field of human resources, he has helped companies, both large and small, tackle an extensive range of people-related challenges. Gary’s consulting firm, Energage, provides a variety of products and services related to the design and implementation of performance management systems. Gary and his associates conduct “Benchmarking Workshops” and “Coaching Clinics”. They perform individual and team-based interventions and enjoy the role of being the “coach’s coach”. Energage also helps firm’s client companies range in size from two to 50’000 employees. Before starting his consulting practice, Gary served as Vice President of Human Resources for a global chemical company. Other work experience includes a variety of HR positions with three internationally prominent companies, including two that were in the
Fortune 100.

Watch what Gary has to say

To register for this event click here

The crisis has unfolded in distinct phases.

The first consisted of German Government foot dragging over the go ahead for a €45bn rescue package that helped to spark panic in the bond markets, with resulting contagion effects for Portugal, Spain, and to a degree, Ireland.

It is fortunate that the National Treasury Management Agency has prefunded much of this year’s financial requirement, but the impact of the crisis on confidence, and on the cost of funds to the Irish banking sector, and by extension on borrowers, is real.

The cost of the bailout swelled as the Germans prevaricated during the run in to key elections in North Rhine Westphalia, all to no avail as a heavy defeat resulted in the loss of the Coalition Government’s majority in the Germany Upper House of Parliament.

This is expected to restrict the ability of the governing Christian Democrat/ Free Democrat coalition to implement measures opposed by the Left bloc. 

The defeat is also a further signal of the growing impatience on the part of the German public with the escalation in the cost of financing rescues in weaker economies across the Eurozone.

However, events elsewhere took on a momentum of their own, culminating in final agreement on the €750bn IMF/ EU rescue package.

As the access to the bond markets was being shot down for the weaker Euro States loosely referred to as the PIGs ( or PIIGS depending on one’s point of view ), for the first time, questioning of the very future of the Euro moved into the mainstream media and on to the front pages.

We were being asked to stare into the abyss. The view was not inspiring.

On the eve of the bailout, it was hard to see how the ECB, the IMF and the Euro zone member state Governments could quench the flames that were blowing out of control.

As I write, it is exactly one week on from conclusion of the bailout. 

We can now begin to assess the short term reaction.

A short lived rally in stock markets and rebound in the value of the Euro, one that has petered out quietly as real concerns remain.  

Where the markets are now

However, stability for now has returned to the sovereign debt / bond markets, with the cost of Irish ten year money back close to the 4.5% mark where it stood prior to the recent crisis.

So what are the concerns now?

It is clear that this rescue package does not come without strings attached.

The prospect of much stronger EU budgetary surveillance is now very real.  Indeed, it sparked an outbreak of acrimony on the home front when Fine Gael entered the debate by suggesting that Ireland’s low corporate tax rate could once again be under threat.

The Government retorted that such remarks were irresponsible, constituting a threat to foreign direct investment (as uncertainty over future tax rates could deter those considering long term investments here).

For now, a financial restructuring, or controlled default on its loans appears less likely in the case of Greece, reducing fears of ‘contagion’, which would have a major impact on the borrowing costs borne by heavily indebted peripheral Eurozone countries such as Ireland, Portugal, Spain and perhaps, Italy.

But such concerns remain below the surface. Let no one be under any illusion about this.

During 2008, we witnessed an international financial/banking crisis which spread to the wider economy, in turn, sparking the sovereign debt crisis that has become evident in much of the Eurozone in 2010.

Any Greek default, or debt restructuring, could create a new round of banking loan defaults, with French and German banks being particularly exposed, but with Irish banks, too, on the hazard.

Interdependence in the Eurozone

Those in countries like Germany, or Holland tempted to pull the plug on the ‘greedy Pigs’ would be well advised to note the points made in a recent article in the Economist magazine (dated May 1st 2010.)

The briefing on the Euro zone crisis highlights the exposure of banks to countries such as Greece and Portugal.

According to the Economist, around €213bn of Greek bonds is held abroad while foreign banks’ lending to Greece’s government, banks and private sector amounted to €164bn.

A Greek default could cost Euro zone banks in excess of €50bn yet Euro zone countries would still have to prop up the Greek economy.

Foreign banks’ holdings of Portuguese assets, at almost €200bn, are even greater.

French banks’ exposure to both countries amounts to €85bn, that of the German, almost €65bn.

If there were a meltdown in the markets and it to Spain – Spanish banks have an exposure of €60bn to neighbouring Portugal alone, and if Spain were to falter…?

And this is before we start considering an impact on the already shaky economies of Eastern Europe (Latvia’s economy shrank 18% last year.)

German and Austrian banks and wider economies have heavy exposures to Eastern Europe.  

All of this may explain why French President Sarkozy reportedly blew a gasket with Chancellor Merkel and why the US President, Barak Obama was so busy working the phones to Europe.   And also why the package finally agreed is €750 billion, a huge bulwark against a meltdown.

Ireland – Indicators of Recovery

The Athens eruption comes just as the mood music on the Irish economy has begun to change for the better. The latest figures out of Dublin port are encouraging. They point to growth in exports, validating those who argue that the economy here has been regaining much of its lost competitiveness.

Ireland is benefiting from the weakening in the euro, the great silver lining in the cloud.

The figures from the port – which accounts for one half of total Irish trade – point to an increase in exports of almost 15% in the first three months of 2010, admittedly when compared to exceptionally poor figures for January-March 2009.

This data is tangible evidence that Ireland’s open economy is benefiting from the international recovery, particularly that in the US, the largest recipient of Irish exports.

Exports rose 23% in March on March 2009, with imports also up 7.3% suggesting  that some recovery in consumer confidence is kicking in. This should assist the flow of VAT receipts into State coffers, in particular.

Export figures should be treated with some caution, as monthly figures often show lumpiness.

However, the latest data from the Small Firms Association point to a big drop in levels of pessimism among small firms. If exports will lead the economic recovery, then SMEs will account for a large part of any recovery in employment levels.

Another important straw in the wind is the uptick in hiring by multinationals.  The Sunday Times reports that Apple has hired five hundred contract staff in Cork.

Economists have begun to revise upwards their projections for activity in 2010.

Rossa White of Davys is now predicting growth of one per cent in each of the next quarter and Bank of Ireland also believes that the recession has ended. White’s recent predictions have been close to the mark. Exports of services are about to overhaul manufacturing exports helping to raise hopes that investments in the new economy are beginning to pay a dividend.

We will soon discover whether the European Central Bank has ditched its counter inflation strategy in favour of a sustained policy of quantitative easing and an acceptance of depreciation in the value of the currency as the price to be paid to avoid a downward deflationary spiral.

Spain has announced plans to cut public sector salaries by five per cent as part of the quid pro quo for the €750bn package. Against such a background, the need for an accommodative monetary policy appears pretty obvious.

A big question is whether the ECB, which is bankrolling our economy, will continue to view thing this way….

We can only wait and see.

Written by Kyran Fitzgerald

Crunching Hard and Deep
The accountancy group Mazars, has carried out a series of studies on credit availability.
The latest review, published in mid April, indicates that while we have entered a period of stabilisation, the crisis remains very real.
According to a statement issued by Ian Talbot, CEO of Chambers Ireland:
“We note with concern that 35% of all loans granted to SMEs are now behind on payment. This figure is likely to act as deadweight on future loan applications and approvals, particularly when demand for credit picks up as the cycle improves. This underscores the need for additional measures to support viable firms accessing credit. Specifically, the Government must respond now to help the upswing via an Irish equivalent of the UK’s Enterprise Funds Guarantee Scheme.”
The small business lobby group, ISME, has expressed greater scepticism about the figures supplied by Mazars than the other business lobby groups.
ISME argues that Mazar’s figures underestimate the levels of informal rejection of loan applications.
The organisation’s chief executive, Mark Fielding, is also pressing for the establishment of a State backed guarantee scheme, though he is not optimistic that one will be put in place, in the short term.

Credit Review Office
“We are in the credit clearing committee working with the new Credit Review Office Head, John Trethowan.  We are doing a lot of work with the Departments of Finance & Enterprise.. there is a major battle with Finance which views the proposal as yet another guarantee for the banks..”
Fielding believes that putting a guarantee in place for SME lending would have the effect of “pushing borderline loan application cases across the winning line..”
ISME is a thirty two county organisation.  It has members who are benefiting from the UK’s State guarantee scheme.  Indeed, many firms in the Republic are as a result operating at a disadvantage when compared with rival firms across the Border.

Trethowan’s new credit review scheme is getting up and running. Trethowan can offer recommendations, but he cannot force the banks to lend.

Concern is also being expressed that the Government may interfere to direct funds towards identified growth sectors. This has drawn criticism in media circles, with fears of a credit bubble in favoured sectors while many worthwhile, but less fashionable businesses lose out.

Not just cash – Bankers need to learn again how to lend…
ISME has also been doing a lot of work with the banks on trying to put together lending arrangements.  Mark Fielding says “We are doing a lot of work with the top guys, but we are also finding that guys in the branches and even the regional offices do not have the expertise when it comes to lending to business. One of the difficulties is that the older bankers, who understood balance sheets, have left the banks on early retirement.”
Many younger lenders, reliant on ever rising property values, never developed the necessary lending skills. A process of educating staff in such skills is underway, but it will not achieve results in the short term.
“There has been a massive collapse in standards.”
 

New Initiatives…
Certainly, efforts are being made to address the needs of start ups. Bank of Ireland recently launched a €26M Seed and Early Stage Equity Fund while AIB has launched a €79m seed fund .
According to Niall Olden of BoI :
“We are backing companies that are primarily intellectual property driven. These are, to a large extent, independent of the Irish economy.. they are not sensitive to currency fluctuations.”
Sean Murphy of Chambers Ireland believes that the Business Expansion Scheme should be broadened in scope: he argues that what firms need is an expansion in their equity base side by side with any expansion in credit.
He points out that last year, just six hundred firms participated in the BES . He does not see why this could not be broadened out to six thousand.
The downturn has greatly complicated the process of raising funds under the BES, as many of the army of investors find themselves either under financial strain, and/ or increasingly risk averse.

Government intervention, either directly through aid and loan guarantees, or indirectly through the use of fiscal incentives (assuming EU approval) would surely pay for itself, given the proven role of SMEs as a generator of self 

balance sheets, have left the banks on early retirement.”
Many younger lenders, reliant on ever rising property values, never developed the necessary lending skills. A process of educating staff in such skills is underway, but it will not achieve results in the short term.
“There has been a massive collapse in standards.”

New Initiatives…
Certainly, efforts are being made to address the needs of start ups. Bank of Ireland recently launched a €26M Seed and Early Stage Equity Fund while AIB has launched a €79m seed fund .
According to Niall Olden of BoI :
“We are backing companies that are primarily intellectual property driven. These are, to a large extent, independent of the Irish economy.. they are not sensitive to currency fluctuations.”
Sean Murphy of Chambers Ireland believes that the Business Expansion Scheme should be broadened in scope: he argues that what firms need is an expansion in their equity base side by side with any expansion in credit.
He points out that last year, just six hundred firms participated in the BES . He does not see why this could not be broadened out to six thousand.
The downturn has greatly complicated the process of raising funds under the BES, as many of the army of investors find themselves either under financial strain, and/ or increasingly risk averse.

Government intervention, either directly through aid and loan guarantees, or indirectly through the use of fiscal incentives (assuming EU approval) would surely pay for itself, given the proven role of SMEs as a generator of self sustaining employment in the economy..    

Written by Kyran Fitzgerald 

However, especially in difficult times, they can find their discomfort with finance and what their accountants are presenting to them a source of worry rather than information to act on.  Jo   provides a crystal clear and no-nonsense guide to banish that discomfort and to enable participants ask the questions that get the revealing answers…..  

 Kyran Fitzgerald interviews Jo Haigh

A bestselling author of business books, Ambassador for a middle sized North of England Town (Huddersfield), part time academic, partner in a leading corporate advice firm, MGR, and non executive director to five companies, Jo Haigh has amassed an impressive portfolio of business activities while finding time to raise four children with her businessman husband.

She will be in Dublin shortly to run a workshop for Vistage Ireland members and guests on Finance for Non-Accountants.

Jo is Yorkshire through and through.

Born in Huddersfield, a Yorkshire mill town around the same size as Cork, her parents both ran small businesses. Her father made children’s’ clothes. Her mother worked as a sheet metal engineer – she died when Jo was sixteen.

“Everyone says that I’m very much like her .. a bit feisty. Her death was a seminal moment.”  

Later, her father became a casualty of Britain’s infamous ‘three day week’, a period when the country’s economy went into a virtual lock down following the Yom Kippur War in late 1973/early 1974. “We ended up living in rental accommodation. It turned me into a survivor. I was determined to be absolutely self sufficient.”

Jo trained initially as a lawyer. “Finding that the law was not boring enough, I went into accountancy, instead”, she jokes.

Her first proper job was as company secretary and financial controller in a food and wine importing business. The firm also owned several restaurants.

“Eventually, I was made finance director at the age of twenty six. We became very acquisitive, we bought and sold. We did an MBO (management buyout). Eventually, the business was sold to Cannon Street Investments and floated on the stock market.”

By then Jo had four children. She felt herself being pulled in various directions.

She felt guilty if she was away from work attending a school event, and guilty if she was at work, missing such an event. And the solution? Start her own business, which Jo duly did – at the age of twenty nine.

“We rented out finance directors to people (firms) with particular needs.”

As it was a service business, she did not have to rely too heavily on the banks for financial support.

“I worked from home. I was very hot on debt collection. The first person I employed was a marketer. It was the best thing that I ever did. One can be too busy delivering to find time to look for the next job. At the time, it was a much less fashionable thing to do.”

Haigh also believes strongly that people should not undervalue themselves.

“I have always charged the appropriate industry rates. I have never been cheap and cheerful.”  

Jo sold the business and went to work for the accounting firm, BDO Stoy Hayward, helping to set up their corporate finance practice in the north of England.

Tips for business success:

Over the years, Jo has developed strong views about the sort of people she likes to work for, or with, in the world of corporate finance: “I have only wanted to work with people who have a clear vision of where they want to go. I never wanted to work with ‘ lifestyle’ companies. My skill set is in the strategic development and disposal of businesses.”

Over the years, Haigh has developed considerable expertise both in the craft of corporate finance and the arts of promotion and publicity.

She has become a bestselling author with titles under her belt including:

“The Business Rules 100 pitfalls that business should be aware of “Buying & Selling a Business” an entrepreneurs guide. and “Her book, “Tales of the Glass Ceiling: A Survival Guide for Women in Business” achieved sales of more than 500,000 in 2008.

“My last work was based on interviews with more than a hundred businesswomen, some of them in senior positions, some in the professions and some running their own businesses. The book is about hearing people tell their stories.”   

So what did she learn from the experience?

“I was very pleased to hear that ninety nine in a hundred of those interviewed hated ‘networking’ events. I have always hated them. The other thing I learned is that a lot of them had experienced prejudice at the hands of other women in senior positions.”

“The more mature women were a bit more pragmatic, more forgiving, accepting, better able to laugh things off.”

Vistage involvement:

Jo has been a member of Vistage for the past five years, and a regular presenter at Vistage meetings over the past eight years.

“I would not regard it (membership  at Vistage events) as networking in the traditional sense. It is about education. I have made lots of contacts – this is a side benefit.”

“I have been exposed to all sort of educational topics. The afternoon session is like a mini board meeting.” 

There is a strong sense of mutual obligation. “If you do not commit to it, you are letting the other board members down.”

Jo notes that in her group “Fifty per cent of the executive sessions are given over to personal matters. We have had people discuss their marital lives – and a lot more besides.”

“For CEOs, MDs, majority shareholders, it provides an outlet, an arena for debate. The people involved are not in competing businesses. My own group in Yorkshire includes people running a textile firm, a marquee provider, a crèche as well as a headmistress and a solicitor.”

“Our group, with a membership of sixteen is full. Any bigger and it would not have the camaraderie..”

These days, there are no shortages of problems to be discussed: falling sales, redundancies, a lack of bank finance. The impact can be seen on peoples’ personal relationships. It can be lonely at the top.

Coping in a Great Recession:

Jo specialises in providing strategic advice to people interested in developing, or disposing businesses. 

How has the recession impacted on the way she conducts her business?

“I t depends on whether one is buying or selling”. Without being glib, her view is that the downtimes clearly throw up opportunities as well as serious, even grave challenges.

Her advice to business people, in these times, is pretty down to earth :

“You have to control the cash. Don’t gamble. Be flexible.”

“Be flexible. My own business is flexible. When I am not doing M & A (merger and acquisitions) work, I help people to do ‘pre packs’, helping people to liquidate their debts, protecting personal assets.”

In these times, it is best to be patient: “It takes longer to do a deal, nine to twelve instead of six months.” Jo agrees that right now, there is good parallel with the time taken to sell a house in what is a fairly slow market.

As for the prospects of recovery?

“”I am a naturally optimistic person, but I am a realist. The banks will take a fair time to recover. The recovery will be slow. We are in for a less prosperous time.”     

Jo appears to be in a happy space when it comes to her own life.

“I am fifty this year. I have decided to enjoy the journey. My youngest is in her third year at university. I am going to stop continually striving and to enjoy what I am doing more.”

Jo’s husband, Mike Rosser was MD of the Ad Agency,. Walter Thompson.

Fourteen years older than Jo, he has blazed a trail into an active ‘retirement’ with five non executive directorships under his belt.

But Jo has no plans to tune out.

“It is great fun getting paid for doing what I love. I’m a bit of a workaholic.”

“It is important to remain positive without being unrealistic. One of my daughters is called Pollyanna ..she has always been the most positive, optimistic person, she has us in stitches and asks the questions we all want to ask but don’t dare.”

No better antidote when it comes to banishing those demons of depression..