So...Was It More Than Just a Talking Shop?

The Economist, 16 November 2008

The Economist concludes that this weekend’s G20 summit could never live up to the title of “Bretton Woods II,” given its hasty conception and last-minute planning (the original Bretton Woods conference lasted two weeks and took two years to plan). But the world's leaders did make headway, committing to not raise any new barriers to trade and investment and to restart the stalled Doha round of global trade talks, among other things. The most significant development, however, lay in the personnel. Rather than the much narrower G7 group, this is the first time a group of rich and emerging nations have held a summit to respond to a global economic challenge as equals. Crisis often prompts lasting change and this weekend could have been one example.

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As Companies Cut Learning and Development, Consider Online Training

When asked in a recent survey to indicate which HR function will experience the deepest budget cuts in 2009, 39% of responding executives acknowledged cuts in learning and development for employees. The next area to see cuts was recruiting at 29%, with 12.5% of HR functions experiencing no significant cuts. Organizations that continue to invest in employee learning and development during an economic downturn are better positioned to improve staff motivation, and so increase engagement and productivity. To help send the message of “credible commitment” to employees, the Corporate Executive Board is offering a series of Managing in an Economic Downturn training courses for finance and management professionals.

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Corporate Tax Loopholes: Effective Corporate Tax Rate 10% Below Statutory Rate

The Wall Street Journal, 13 November 2008

In a new study by the U.S. Internal Revenue Service (IRS), data show companies paid an income tax rate of 25.3%—well below the 35% statutory rate. During his campaign, President-Elect Barack Obama lamented the impact of such loopholes on effective corporate tax rates, so expect changes in the corporate tax code in the next 12 months.

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Related News: Concerns about the closing of corporate tax loopholes under Barack Obama’s administration are particularly acute in Ireland, where officials fear U.S. tax code changes could cost the “Celtic Tiger” up to 100,000 jobs.

Our view: While the scope of potential tax changes in President-Elect Obama’s administration is broad, political support for international tax reform may be growing. Following the Labor Department’s recent announcement that the American economy lost 240,000 jobs in October and city officials’ announcement that more job cuts are expected in their jurisdictions, we can expect President-Elect Obama will push to limit tax benefits of companies that “retain their earnings overseas” or “ship jobs overseas.” In this regard, the incoming administration is not raising new issues; instead they are resurfacing reforms that have been discussed previously, including proposals in House Ways and Means Committee Chairman Rangel’s 2007 tax reform legislation to indirectly limit deferral and foreign tax credit benefits.

Move by Insurers Exposes Car Firms’ Suppliers

Reuters, 14 November 20088

Troubled U.S. automakers General Motors and Ford Motor Company have been blacklisted by the three biggest European credit insurers, which control more than 80% of the world’s credit insurance market. The insurance companies are refusing to write policies for suppliers trading with GM or Ford on credit, meaning that suppliers will be expected to take on more risk or the carmakers will have to start paying for goods up front, further weakening the companies’ cash position.

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Related News: Siemens to Extend Financing to Customers (Financial Times, 14 November 2008)

Our view: More than half of respondents (61%) to a recent pulse poll conducted by the Procurement Strategy Council had seen or heard of a supplier to their organization having financial difficulties in the past 8–10 weeks. Communication and flexibility are key to supplier relationship management in a downturn, and progressive companies are taking creative approaches with their suppliers around payment terms to enable supply continuity.

Crises Provide Prime Opportunities for Corporate Growth

Fortune Magazine, 14 November 2008

The current economic climate is setting the stage for a shift in desired corporate executive skills. Aware that a crisis should never go to waste, managers are moving away from the image of a “celebrity” executive, prevalent since the 1980s, and adopting a more flexible, forward-thinking outlook. To weather and conquer the current storm, the new executive should collaborate with teams, work with government regulations and rules, and keep his or her mind attuned to future shifts to detect “weak signals” of future change. The current crisis is also “an opportunity to strategically rationalize” your business, according to one CEO.

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Ten Most Accountable Big Companies

Fortune Magazine, November 2008

Despite the downturn, these companies are maintaining a commitment to sustainable initiatives. Companies are increasingly seeing sustainability as a source of competitive advantage and a potential source of extra capital. Companies that make this list include Nokia, BP, Shell, and GE.

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Related News: This interesting comment piece from the Financial Times discusses the benefits Wal-Mart still sees in sustainability initiatives, despite the downturn. (Financial Times, 27 October 2008)

Daily Capital Markets Review: Dismal End to Stocks’ Week

This summary includes news items regarding global liquidity, the TED spread, commercial paper and T-bill rates, currencies and commodities, and corporate debt spreads and new issuances. If you would like to receive the Review after markets close (instead of the next morning), please click here.

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