August 21, 2014
Sanctions and fines for business compliance and ethics violations have increased noticeably under the Obama Administration in the United States and in other administrations throughout the world. Making a mistake to whom you sell goods or where your product ends up is becoming an increasingly costly one. With so much at stake, the focus on compliance and ethics programs is much higher than even a couple of years ago, but many in credit, even some managers whoâ€™ve demonstrated keen metrics acumen, still aren't developing or using metrics and benchmarking to analyze if their programs actually work.
"So many companies just donâ€™t even think about it," said Laura Pedersen, ICCE, CDCS, global banking officer for First National Bank of Omaha.
There is a deep importance to know whatâ€™s in the set of written compliance and ethics guidelines (or developing them if theyâ€™re nonexistent or badly out of date), what happens when a red flag is discovered and whose job it is to follow up on certain things. Some in credit believe that tracking effectiveness is a function typically left to chief financial officers and those of like positions, but Robert Brown, partner with Bingham Greenebaum Doll LLP, believes there is a very natural role credit professionals can play in tracking effectiveness through metrics or benchmarking against other companies.
"This is an emerging trend," Brown said. "This is something they should be endorsing because, in many ways, credit people are the stars in monitoring compliance. I would suggest creating metrics that fit your situation at the credit department level and take it to the CFO to show what can be done. Show them that 'we're ahead of the game.'"
Brown added that he believes having metrics in place and continuing to work on them in the future wonâ€™t be considered good business or ahead of a trend, it will simply be a requirement. "The debate that is emerging is not whether you should be using metrics to measure compliance, but what metrics you should be using," he said. "I wouldnâ€™t be surprised if this is eventually required in audits because it is so important. I think it's going in that direction."
- Brian Shappell, CBA, CICP, NACM staff writer
Look to the September/October issue of Business Credit for a deeper analysis of these issues. Interested in training for this topic? Check out FCIBâ€™s upcoming Export Regulations and Compliance online course by clicking here.
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To say construction firms, whether seeking credit or providing it on products that go into building, have been desperate for consistent good news would be an understatement given the depths of the industryâ€™s fall during the recession and slow rise since. This week brought the best batch of news in some time.
Within the last week, there has been positive news related to the residential real estate/construction industry from three very different sources: a government agency, a joint study produced by a trade association and financial institution and a publicly-traded companyâ€™s earnings statement. It seems buyers, notably younger and first-time buyers, are starting to come back to the market in enough numbers that such a trend is expected to continue.
The good news kicked off with the Commerce Department reporting that new, residential housing starts increased by more than 15% in July. A monthly index compiled by the National Association of Home Builders and Well Fargo focused on homebuilder confidence landed at a level of 55 in August, up two points from the previous month. That marks the best reading in seven months, with fewer threatening seasonal concerns ahead than were apparent during the yearâ€™s harsh first quarter.
Finally, Home Depot unveiled earnings this week that soundly beat market estimates. Company officials pointed to residential real estate, both new home construction and existing home renovation, as an impetus for the surge. Officials also predicted during the earnings call that revenues and profits would escalate at an even better pace during a majority of 2014's second half because of this area. Given where housing has been since 2007, itâ€™s not every week that such a rush of positive news comes in all at once.
- Brian Shappell, CBA, CICP, NACM staff writer
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Of the major trade policy concerns facing the United States today, there are four export-related issues that are especially significant:
- U.S. Export-Import Bank Reauthorization (Ex-Im Bank)
- Trade Promotion Authority (TPA)
- Trans-Pacific Partnership (TPP)
- Transatlantic Trade and Investment Partnership (TTIP)
Each has a direct impact on US businesses and their ability to compete in the global marketplace, which comprises 95% of all consumers and 80% of the worldâ€™s purchasing power.
US economic growth and job creation depends upon the expansion of foreign trade and investment opportunities for US companies and workers. In 2011, more than 38 million US jobs (about 20%) depended on US exports and imports. This represents 24 million more trade-related US jobs than two decades ago, before the US implemented a series of bilateral, regional and multilateral trade agreements. US Free Trade Agreements (FTAs) in effect in 2008 generated over $300 billion in US output (2.1% of U.S. gross domestic product), expanded US exports of goods and services by over $460 billion, and supported over 5 million US jobs. US exports have helped drive the US economy and its recovery in recent years, positively contributing to US economic growth every year since 2010.
This week, we look at the first policy concern: reauthorization for the US Export-Import Bank.
The Export-Import Bank of the United States (Ex-Im Bank) is an independent federal agency that supplements private export financing for US exporters. The Bank provides a variety of financing mechanisms, including working-capital guarantees, export credit insurance and financing to help foreign buyers purchase domestic goods and services. It also assumes credit and country risks that private sector banks are unable or unwilling to accept and levels the playing field for US exporters by matching competitive foreign export financing.
Since Ex-Im Bank is profitable, there is no cost to US taxpayers. In 2012, it actually contributed $1.1 billion to the US Treasury.
Benefits: In FY 2013, Ex-Im approved more than $27 billion in total authorizations to support an estimated $37.4 billion in US export sales and approximately 205,000 American jobs in communities across the country. The Bank offers financial resources that are especially critical for small businesses, providing credit insurance to small business exporters that might otherwise be unavailable through private sector banks for sales by US exporters to foreign buyers with insufficient credit history. Last year, the Bank approved a record 3,413 transactionsâ€”or 89%â€”for small-businesses.
Status: US Congress is considering The Export-Import Bank Reauthorization Act of 2012, which would extend the Bankâ€™s authority and increase its portfolio cap up to $140 billion.
- Robert L. Brown, partner, Bingham Greenebaum Doll LLP
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Who is taxed and by how much is one of the great ongoing controversies in politics. The latest of these controversies is the practice of tax inversion. This is when a company buys another company in a different country so that it can headquarter in a place that asks for a smaller tax take.
The US and Europe have been pursuing very different tax strategies, leading to a much more rapid development of these inversion strategies. The Europeans decided that high corporate taxes were making their companies less globally competitive and they also concluded that ever higher income taxes on the population was discouraging people from wanting to make more money as it just meant that most of it would be taxed away. The decision was made to focus more on consumption taxes and various types of user fees as well as the value-added tax. This is not a perfect system either, but it did make setting up corporate headquarters in Europe easier. The larger US company is buying a smaller European rival and using the smaller companyâ€™s location as the new headquarters so that the taxes are paid predominantly in that nation.
For the most obvious of reasons, the US is not happy with this practice as it is depriving the country of taxes it feels it should have. That there are perhaps thousands of tax loopholes designed to reduce or eliminate tax obligations is beside the point. Tax inversion has provoked opposition from both sides of the aisle, but with different emphasis. The Democrats see tax inversion as something wicked and tantamount to stealing, while Republicans see the inversion trend as an indictment of a unwieldy and unfair corporate tax system. Democrats want to ban it and the GOP wants the US to compete with the countries luring US corporations.
The White House is looking at tools that might make the process less appealing as it appears that a legislative solution is unlikely. The analysts are not sure just what the White House can do to make inversions less appealing, but there are ideas and these have been presented to the chief of staff. The earliest that these may be unveiled would be just before the election, but the fact that some of this is being explored has already put a damper on some of the plans for corporate shifts. It is not clear whether the new rules would affect those moves already made, but the betting is that there is not much that can be changed regarding the existing arrangements.
SOURCE Armada Corporate Intelligence
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Antitrust can be difficult to navigate for credit managers and sales staff alike, especially when doing business internationally. The Chinese government is lending credibility to such beliefs as it seems to be lashing out at companies in various industries, most noticeably the important auto-parts supply chain.
In recent days, Chinaâ€™s National Development Reform Commission began targeting automotive parts manufacturers from Japan to the European Union to the United States, alleging mass breaches of antitrust law via price fixing. The worst of it to date seems to have fallen on Japanese manufacturers. A fine total exceeding $200 million (USD) was levied upon various competitors from Japan during the most recent round of enforcement. The highest individual fine for alleged price manipulation of parts in the supply chain went to Sumitomo Electric Industries.
The best known brand name to be hit in recent days for alleged antitrust violations, for which the fine is not yet known, was European pacesetter Mercedes-Benz, owned by Daimler AG. Those alleged violations were tied to both parts pricing and high maintenance costs in China.
It remains to be seen how far Chinese regulators will go: if they are targeting just a few key industries in the short term or if they are testing the waters for more widespread crackdowns based on the argument that it is protecting its consumers. Enforcement, just or otherwise, has steadily escalated since China revamped its antitrust statutes late last decade.
- Brian Shappell, CBA, CICP, NACM staff writer
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