Opening the ACT Annual Conference, journalist and broadcaster Jon Snow fully engaged the audience with his take on the impact of the digital age on business and society. “Embracing disruption?” he asked, “that’s my day job.” Beginning with a moving account of reporting the Grenfell Tower disaster and tracing a path from the tragic fire, through the impact of the global financial crisis, Brexit and Trump, Snow argued that while the digital age has brought formidable advances in technology and dissemination of knowledge, it has done little to even out divisions in society. “We are still very much a ‘them and us’ country,” he said. The vast take-up of social media and the imposition of austerity in the wake of the financial crisis have proved a pernicious combination, he argued. Austerity has made poorer parts of society even poorer, while social media has opened a window on the trappings and activities of the wealthy. Into this mix came the Brexit referendum and Donald Trump. “Feed a nation on austerity and then ask them to vote on what looks like a dramatic change – and leaving Europe becomes mainstream.” Snow compared the Brexit vote in the UK to the election of Donald Trump as president of the US in 2016. “Both are expressions of populist despair,” he said. The internet has proved a great force in news dissemination – via Facebook, Channel 4 News reaches viewers across the globe – but its abuses are well-documented and hard to check. Other technologies have great potential to advance our understanding of each other and the world, but likewise bring the possibility of cementing preconception and prejudice. The use of facial recognition technology based on artificial intelligence has recently come under fire in the US, Snow explained, where it was found that the technology used in San Francisco did not do well when it came to distinguishing dark skin or gender. The need to keep a close watch on technological advances and the quality of the information we disseminate has never been as important as today.
A discussion between economists – a tradition of the ACT Annual Conference – put the subject of global geopolitical disruption front and centre on Day One. Moderated by the BBC’s Jonty Bloom, panellists discussed Brexit, growing trade tensions, populism and likely growth trajectories for the UK, the eurozone, the US and China. In the UK, unanswered questions around Brexit continue to dominate, but other policy changes loom – a growing anti-globalisation sentiment plus political pressure on trade. Growth looks to be flat for the near future. However, technology may still have the potential to provide a boost. On the geopolitical front, the view was that populism has yet to run its course, whether in Europe or in the US. The attraction of populism often lies in charismatic leaders offering simple solutions to economic ills. Such individuals, while they succeed in elections, tend to fare less well while in government. However, with US elections on the horizon and the American economy currently buoyant, it seems likely that the most notable populist on the global stage, President Trump, will win another term in office. A fall in the US economy on the other hand might lead to him losing ground. Trump’s biggest nemesis, China, faces challenges – labour and capital supply constraints, issues with debt and a government increasingly inclined to re-exert a top-down approach to regulation amount to economic and political trends that will prove difficult to reverse. A major depreciation of the yuan may not be too far off. Meanwhile, in Europe, economic metrics are steady with low interest rates and low growth likely to remain for the foreseeable future. In Europe, as elsewhere in the world, policy shifts are emerging. Changes will be incremental. However, the European Commission’s next five-year budget may start to reflect that changing policy, as electorates question old alliances and governments move – potentially – to harden borders.
That was the question at the heart of a panel session on the inexorable rise of sustainable finance, where attendees were told in no uncertain terms that more and more corporates are issuing green bonds – often in response to investors’ demands. A sense of urgency is driving this corporate trend towards the environmental, social and governance (ESG) outlook, the panellists noted – particularly since Bank of England governor Mark Carney announced that the planet needs to invest $5 trillion to $7 trillion per annum to deliver on the United Nations’ sustainable development goals and save itself from untimely climatic ruin. As such, the discussion flagged up a number of initiatives that are helping corporates to adjust to, and integrate themselves with, the ways of sustainable investment – for example, NASDAQ’s recently launched ESG Reporting Guide, which aims to help private and public companies navigate the evolving standards on ESG data disclosure. The panel also informed attendees about the Corporate Forum on Sustainable Finance, launched in January by 16 corporates and since joined by a further five. The Forum serves as a permanent network for the exchange of ideas, bringing together a set of dynamic ‘Green Issuers’ determined to uphold and develop sustainable finance as a critical tool for fighting climate change and fostering a more responsible society. Current members include Ørsted, SSE, SNCF Réseau and Tideway. Treasurers who are seeking to play a direct role in the ESG groundswell were advised to:
Payment fraud should not be misconstrued as a bunch of chancers launching opportunistic, one-off hits on corporate financial infrastructures – it is a slick business that hinges upon its perpetrators developing highly accomplished skill sets. That was the alarming message that emerged loud and clear from a Day One presentation on a form of financial crime that is causing corporates ever-greater consternation. Attendees were granted a queasy insight into the modus operandi of a typical payment fraudster. As a first step, they heard, an attacker will remotely track legitimate users and find out as much as possible about them in order to unearth the passwords they use to access their company’s payment systems. With those access details in hand, the attacker will then hide within the system and simply watch what’s going on – constantly reviewing other users’ activities and building up a mental picture of what constitutes ‘normal’ patterns of behaviour. That reconnaissance phase may take months. With that information banked, the fraudster will then move into an active phase: logging in as, and impersonating, bona-fide operators and submitting bogus payments to move money outside the organisation – all while hewing as closely as possible to normative patterns to avoid detection. Indeed, this part of the process will often involve the creation of one or more new users, enabling the intruder to work from multiple, fake identities. If sensing that detection is under way, the attacker can then destroy those fake users at will – and even alter the corporate’s financial database – to hide evidence, thereby extending the target’s investigation period. On average, it takes 220 days to detect a pattern of payment fraud, and a further 100 days to complete an investigation: almost a year out from the corporate’s initial onset of suspicion. Treasurers were advised to:
‘Brexit-bound UK tops global ranking for M&A appeal’ was hardly the headline most British corporates expected to see in April, when the political picture around the UK’s coming departure from the EU was arguably at its most dissonant. However, that was exactly how Reuters reported news of an EY survey that ranked the UK above the US, Germany, China and France as the world’s most attractive destination for business investment. Flagging up the Reuters story was certainly an attention-grabbing way to open a Day Two session on managing financial risk throughout the M&A cycle – and if we still weren’t convinced, the spotlight promptly swivelled on to two of the biggest cross-border deals in the UK of recent times: Vantiv’s £9.3bn acquisition of Worldpay, and Comcast’s £30.6bn purchase of Sky. With the UK’s appetite for M&A activity apparently undimmed, though, it is incumbent upon treasurers to submit any deal they are involved in to the most rigorous risk analysis. Essentially, the panel said, treasurers must ask: “What are the risks I’m buying myself into?” Perhaps your acquisitive company is generally risk-averse, but the potential new subsidiary is more risk prone and already has a lot of hedging in place. Perhaps the target’s risk profile could actually hinder the combined entity in the long run. And protectionist policies in the target firm’s home country may spawn so much tension that the merger may prove unviable – so it is vital for treasurers to think a few moves ahead and consider what may happen if the deal doesn’t close, rather than bet the house on a swift and positive resolution.
How should a multinational parent company with a host of widely dispersed subsidiaries under its belt keep those firms fed and watered? Should it harness finance that is available internally, or rely upon external capital? A Day Two session on the process of funding subsidiaries walked treasurers through the fundamental logistical considerations they must make in the interests of ensuring that the parent outfit’s group of companies remains healthy and stable. One of the most helpful parts of the session was devoted to the pros and cons of tapping internal rather than external finance. On one hand, treasurers heard, internal capital enables investment-grade corporates to develop economies of scale, as well as creating efficiencies in financial monitoring and the deployment of resources. On the other, it may discourage entrepreneurial spirit at subsidiary level – and may not be wise in countries with high levels of political risk. The parent-subsidiary relationship may also suffer from ‘transaction leakage’, in terms of withholding tax. The session stressed that internal capital is not a panacea, and that subsidiaries must be given ample scope and opportunity to develop their own portfolios of lenders. But for treasurers who are looking to go down the internal-capital road, it is vital for them to work closely with their tax colleagues to iron out any relevant issues that may be incurred by the transfer of funds from the parent to the subsidiary. While that process may have its frustrations, the tax team is the critical link between the parent firm and the relevant region’s tax authorities.
Liz Loxton is editor of The Treasurer Matt Packer is a freelance business, finance and leadership journalist