Business and Accounting After the Crisis

Now that global financial crisis (GFC) is waning, we’re seeing businesses return to their core areas of activity. They are concentrating on their core strengths and competitive advantage, looking at consolidation, and narrowing their focus.

 
We’re also seeing more emphasis on partnerships and collaboration. A good example of that can be found in the car industry, where a number of US and European companies joined forces, either one-off or on an ongoing basis.
 
Intrusive government
Post GFC, governments need to be mindful of imposing extra costs on businesses as they navigate some rough seas.
 
During the GFC, the way governments have reinserted themselves into the business and economic sphere was necessary, due to circumstances in which major institutions were either on the brink of collapse or actually collapsing with potentially disastrous flow-on effects.
 
However, there are questions around the viability of ongoing Government intervention. At the many meetings of world leaders on this subject, there has been much talk about imposing levies, taxes and so on to ensure against the excesses that created the latest crisis. Governments must not be heavy-handed.
 
Access to finance
The best way to achieving wealth and higher living standards across the community spectrum remains a healthy, dynamic private sector. And that means addressing some critical issues like access to capital, which was prominent among the challenges facing businesses over the past year.
 
This was particularly the case for the operators of small to medium enterprises. They found that the usual sources of capital had dried up due to a tightening of lending conditions. In addition, there was also a decreased appetite for risk on the part of banks and other financial institutions and an increased cost of borrowing.
 
Banks and other financial institutions should bear in mind the importance of access to capital for enterprises of all sizes and especially SMEs, which make up a large proportion of businesses. While there needs to be rigorous processes in place when assessing a company’s suitability for a loan, it should not be unnecessarily onerous. Businesses need a degree of certainty to enable them to make important capital investments to grow and develop new markets.
 
Lessons for business
Another issue businesses faced during the GFC was a general drop in confidence as many companies took a “wait and see” approach, putting on hold any plans for purchase or expansion, with some obvious flow-on effects. 
  

The GFC provided a hard but invaluable lesson for some companies that they must have meticulous business systems and processes such as keeping track of stock, financial management, forecasting and greater debtor control. In good economic times it can be easier to let these things slip, but if companies are to strengthen their balance sheets and importantly, position themselves to take advantage of any upswing, they need to be more disciplined in adhering to best business practice.

 
Moreover, businesses that rely on exports need to be even more aware of exchange rate volatility and the domestic business climate in their key markets.
 
While getting on top of the basics, businesses must also pay even greater attention to the bigger picture. They must maintain an awareness of trends and occurrences elsewhere – business, political, cultural. The events of the past two years have driven home just how globally interconnected the business world has become. This is the case even for those not directly involved in import/export. Big picture strategising is critical.
 
Remember, the GFC “went public” with a credit crunch, mainly in the form of the sub-prime collapse. The immediate fallout saw Iceland slide into bankruptcy. It then bled out into the broader finance markets and ultimately into the real economy. What we’re seeing now is that the GFC has tapered off into yet another credit crunch with some fairly sizeable victims such as the Greek economy, considerable uncertainty around the other ‘PIIG’ nations and a period of austerity for Europe being forecast by some commentators.
 
Role of accounting
Failure to instil a culture of compliance which, in turn, led to a lack of transparency was at the heart of much of what caused the GFC. I believe that the accounting profession has a key role in shaping business approach and strategy moving forward.
 
These issues fall directly within the remit of the accounting profession and acting in the public interest. The accounting profession must take a leading role to ensure the development of a financial system with transparency, consistency, accountability and reporting rigour at its core.
 
Issues of corporate governance, in the assessment of risk, executive remuneration, corporate culture and other key areas will need to be effectively resolved if mistakes are not to be repeated. The role of boards will be critical too, because the ultimate responsibility for an organisation’s activities reside with them. Regulators have a role but it is incumbent upon a board to impose a culture of risk assessment, compliance and ethical behaviour on an organisation.
 
Finally, it is impossible to regulate for ethics or common sense. They come about through implementing proper processes and instilling a culture of compliance. We must not forget how important it is that we take individual responsibility for doing the right thing – both in the sense of the individual organisation and on the personal level as individuals who are business leaders. 
 
About the Author
Alex Malley FCPA is CEO of CPA Australia. 
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