S&P 500 corporations continue to grow cash and short-term holdings abroad, strugglewith tax-efficient repatriation and apply short-sighted views to surplus investment, Kisandka Moses asks, what must be done to bring an end to practice of cash hoarding.
When asked to define their central purpose within a corporate entity, the vast majority of treasurers would most likely refer to their roles as central to the ‘purveying and optimization of corporate funds’.
By the end of last year, the largest 500 corporations listed on either NASDAQ or the New York Stock Exchange had stashed approximately $2.4 trillion in foreign subsidiaries and bank accounts, according to an analysis of corporate financial statements by the research group Citizens for Tax Justice.
Of late, corporate and retail reactions to adverse economic conditions have been near identical. Most notably, residents of Switzerland responded to the introduction of negative interest rates with a large-scale cash withdrawal from domestic banks; essentially stashing salaries, savings and inheritance funds at home under the mattress or in safe-deposits boxes. Similarly, after the Bank of Japan announced negative interest rates on some reserves, Japanese private security firm Secom cashed in on heighted demand from tense savers on cash deposit boxes which saw shares increase by 5.3% in a single week.
With Apple accumulating by far the largest hoard of cash at nearly US$200 billion, Google’s parent company Alphabet holding over $80 billion in global bank accounts and short-term investments and General Motors maintaining nearly half of its value in cash; politicians, institutional investors and even ordinary citizens of the U.S. have expressed exasperation at the unwavering practice.
The roots of the corporate practice extend further with hoarding having increased significantly since the mid-to-late 1990s before briefly dipping during the global financial crisis and picking back up thereafter.
Largely confined to MNC’s across the technology, pharmaceutical, telecommunication industries, the post-2008 recession produced a precautionary preoccupation from the CFO-Treasurer dynamic to re energise efforts into monitoring rising profits made everywhere but the USA. In optimal circumstances, the overseas cash would then most likely be used as a cushion to gain first-mover advantages – think research and development or mergers and acquisitions.
Yield-seeking corporates bemoan short-sighted investment policies
Putting capital conservative theory aside; with regional cash pools and treasury shared service centres used to centralize regional revenues and ultra-short intercompany loans relied upon to funnel across monies generated overseas, one may ask what led to a record $1.9 trillion of U.S. corporate profits languishing abroad. To add insult to injury, a wave of cash conservatism has also spread to the very institutions designed to re-invest corporate cash.The Bank of America Merrill Lynch’s February Global Fund Manager Survey revealed that,
‘…the average cash balances of the 198 [investment firms] surveyed was as high as 5.6 per cent, at their highest point since November 2001 in the wake of the dotcom bubble burst, global energy giant Enron’s collapse and the September 11 attacks’.
Essentially, investment managers are treading carefully and protecting fund performance by taking profits and moving from illiquid options to cash assets. Reactionary advice from Ian Spreadbury, a senior portfolio manager for the second largest fund group, Fidelity Investors prompted institutional investors to re-prioritize liquid investments with a heady warning to preserve cash in saving accounts. He also advised investors to re-allocate surplus to physical currencies to guard against systemic economic risk.
Essentially year-on-year growth of foreign corporate cash hoards is also partly a product of short-sighted investment policy as multi-nationals opt for a “hands-off” approach to no-yield, low-risk options for surplus reinvestment.
‘Panama Papers’ leak and crackdown on inversions spark fresh U.S. repatriation row
Conservative re-investment is far from the only cause of hoarding as the pains of U.S. cash repatriation for most multinationals headquartered in the U.S. as the fall out from global tax avoidance discourse reveals.
In the wake of an unprecedented leak of 11.5m files from the database of an offshore Panamanian law firm, Mossack Fonseca dubbed ‘Panama Papers’ in April, the row over cross-border tax avoidance intensified. The leak revealed how wealthy investors, high-powered entertainers and politically-exposed-persons sought out both the fast-growing economy as a tax-haven and the law-firm to help set-up shell companies and offshore accounts to shield wealth and avoid domestic taxes.
Tax-efficient repatriation has long been a challenging responsibility for the U.S-based corporate treasury-tax duo as the statutory corporate tax rate progressed to 35% on incomes over $18.3bn.
Unsurprisingly, the comparatively high rates have led to a variety of tax-avoidance strategies gaining popularity in recent decades with the latest row over corporate inversions sending shockwaves through corporate M&A, treasury and FP&A departments alike.
Under current rules, U.S. companies can relocate their headquarters abroad if they can acquire a foreign company and transfer more than 20% of their shares to foreign owners with the Obama administration pledging to raise the share threshold to over 50%. The term corporate inversion refers to the prominent tax loophole and practice of big multi-national corporations either merging with or acquiring foreign businesses located in a country with a lower-tax rate, moving headquarters and saving billions on domestic taxes.
In just under two decades, over 40 publicly-traded U.S. have become “expatriated entities’” following high-profile tax inversions; most notably, AbbVie’s planned $54bn acquisition of Ireland’s Shire and Burger King Worldwide’s merger with Canadian headquartered Tim Hortons Inc.
By some strange political osmosis, opposing fractions appear united on the ‘tax-clampdown’. If the forthcoming President of the United States is sought from the centre-left’s Democratic Party, then we can expect a path of tough corporate tax reform to continue with Hillary Clinton proposing an ‘exit tax’ policy to deter U.S. corporates from relocation. Bernie Sanders is pledging to end loopholes altogether by requiring firms to pay taxes on offshore profits.
Such is the media fever and law-maker outrage surrounding corporate tax avoidance that Republican presidential front runner and business tycoon Donald Trump has joined the fore in outlining plans to introduce a ‘repatriation tax holiday’. Trump’s manifesto outlines plans for a one-time deemed repatriation of corporate cash held overseas at a 10% tax rate and followed by an end to the deferral of taxes on corporate income earned abroad.
The largest pharmaceutical merger in history valued at $160bn which was set to take place between U.S. giant Pfizer and Ireland’s Allergan was scrapped this month amid a crackdown on “serial inverters“ led by the Obama administration and US Treasury Department.
U.S. multinationals continue to flee corporate America in droves seeking tax shelters in Dublin, London and Zurich. With a planned merger between Tyco International and Johnson Controls underway, Coca-Cola Enterprises set to move its headquarters from Atlanta, Georgia to Central London after a mega-merger between CCEAG and Coca-Cola Iberian Partners and the $49.9bn purchase of Ireland’s Covidien by U.S-based Medtronic on the horizon; inversions are essentially the “symptoms of bad tax policy”.
In response to Bernie Sanders’ scathing attack on General Electric’s operations abroad, Jeff Immelt, Chairman and CEO at General Electric, responded with a 641-word tirade on the social networking site LinkedIn defending the ethics of global business growth and laying the fault for cash hoarding, inversions and the like at the door of tax lawmakers;
Immelt stated, “…US companies continue to wrestle with an outdated and complex tax code that puts them at a distinct competitive disadvantage…the U.S. tax system has not been updated in 30 years and isn’t designed for today’s economy which is why we support comprehensive tax reform – even if it raises our tax rate”.
It is no wonder that under the premise of a 35% repatriation cost on honest corporate revenues, that multinationals have opted to stash the cash instead and law-makers must act now to reform an ancient tax-code – even if a greater percentage of tax on profits is the underlying goal.
Written by Kisandka Moses, Treasury Lead, FinTech Connect
1Desloires, V, ‘Cash highest since 2001, signals ‘buy’: Bank of America Merrill Lynch’, The Sydney Morning Herald, http://www.smh.com.au/business/markets/cash-highest-since-2001-singals-buy-bank-of-america-merrill-lynch-20160217-gmx1cr.html (February 18th, 2016)
2Oxlade, A, ‘It’s time to hold physical cash, says one of Britain’s most senior fund managers’, The Telegraph, http://www.telegraph.co.uk/finance/personalfinance/investing/11686199/Its-time-to-hold-physical-cash-says-one-of-Britains-most-senior-fund-managers.html, (June 20th, 2015)
3Winegarden, W, ‘Corporate Inversions Are The Symptoms, Bad Tax Policy Is The Disease’, Forbes, http://www.forbes.com/sites/econostats/2016/03/08/corporate-inversions-are-the-symptoms-bad-tax-policy-is-the-disease/#665ddf1814ce (March 8th 2016)
Immelt, J, ‘Bernie Sanders says we’re destroying the moral fabric of America. He’s wrong’, Linkedin, https://www.linkedin.com/pulse/facts-matter-jeff-immelt?trk=hp-feed-article-title-comment (April 6th 2016)
Research exposes the £68.8 billion opportunity for UK retailers
- Modelling shows increasing the proportion of online sales by 5 percentage points would have significantly boosted retailers’ revenues during the first lockdown
- 72% of Brits want retailers who started an online service during the pandemic to continue operating it full time
New data released today by global payments platform Adyen, outlines the economic gains that could be accessed by getting more UK retailers online.
Economic modelling conducted by Cebr for Adyen indicates that if the retail sector increased the proportion of turnover stemming from online channels by 5 percentage points, £68.8 billion would have been added to the economy during the first lockdown.
While retail turnover stemming from online sales has grown significantly during 2020 – from 19% to 28%, there is still considerable room for growth.
Myles Dawson, UK Managing Director of Adyen comments: “The UK retail sector is facing an incredibly tough quarter, so creating the link between physical stores and online channels is more important than ever. With the festive period approaching and many shoppers unable, or uncomfortable leaving their homes, establishing and maintaining a positive online experience is a billion-pound opportunity for retailers.”
The research of 2,000 UK consumers found that 31% are less likely to shop in physical stores now because of positive experiences shopping online during the pandemic. Furthermore, 72% of these consumers want retailers who started an online service during the pandemic to continue operating it in the long term.
However, making the process of shopping online as frictionless as possible will be key to unlocking the opportunity presented by online channels. 70% of Brits say that when shopping online, the ease of use is as important as the quality of the product, and 72% won’t shop with a retailer whose website or app is difficult to navigate.
Myles Dawson concludes: “Many retailers did amazing things during the pandemic in terms of adapting and creating new experiences – it’s a testimony to their agility that 57% of Brits said their expectations of the retail sector has improved during the pandemic. The challenge now is to consistently meet these expectations going forward. With local lockdowns in place, online channels will be key to serving many consumers in the short term. However, retailers need to see the shift to unified commerce as a long-term trend. The sooner they can demonstrate agility and jump on board, the longer they’ll reap the rewards.”
2 Research conducted by Opinium Research LLP
Want to serve your customers better? An effective online strategy is what financial institutions need
By Anna Willems, Marketing Director, Mention
A strong online presence matters.
Having a strong online presence, that involves social media is now a crucial part of all business strategies. Whether they are retail brands, sports teams, libraries or even restaurants, most companies are investing more and more in developing their digital brand image and online presence – financial institutions are no exception.
When it comes to market trends and innovation, financial institutions are first on the line. After all, we — people and companies — trust them to manage our money to the best of their abilities. And even more so than any other market, we demand secure, trustworthy, fast and user-friendly services.
Reaching such high expectations is not a given. To this point, banks and other financial institutions have no other choice but to have a perfect understanding of their market, their audience, and their needs. What they need to get there is a fail-proof online strategy.
Gaining a deep understanding of your market
One of the best things about using social media to learn about your audience is that people give unsolicited opinions. They speak their mind and share their thoughts candidly.
This is the key to help any business to learn about themselves. They get to analyze their audience’s challenges and aspirations without having to ask them directly or serve them time-consuming surveys and polls.
UK-based Asto, a company that is part of the Santander Group, is committed to helping small businesses have access to financial and non-financial tools. Asto was looking for something that could help them discover what their target audience was talking about and find opportunities to add to the conversation. Mention enabled Asto to keep on top of reviews and customer comments, which has helped us provide a better service for our customers.
Which platform suits your offering the best?
There’s no point choosing to create campaigns on TikTok if your customers don’t use it – you need to think about who they are and work back from there.
You do this by automating the process using a social listening tool. A social listening tool will help you to view your market as a whole and identify where the key conversations are happening — and, therefore, where you should be. What’s more, you will never miss any relevant mention of your institutions, products, services, or competitors.
Handling a crisis
Financial institutions need to watch carefully for negative press – social media is the first place people will go to if they feel they’re not getting the service they need. In theory, rogue employees or unhappy clients can post anything they like online to try and hurt your brand. And if their messages gain traction, you’ve gone from one person saying bad things, to thousands.
That’s why listening needs to be part of any crisis management plan. Now, sometimes, there are crises you cannot prevent. And those usually hit pretty hard.
Power of influencers
For an influencer marketing campaign to work for your financial institution, partnering with nano content creators may well be the best way to go. They’re ability to play a part in how they shape your brand story can make a huge difference when it comes to engagement and reason to believe in your service.
Many financial institutions are already leveraging influencer marketing. It’s an efficient strategy to: Build trust and gain credibility, reach out to new audiences and share engaging stories.
The online review conundrum
94% of consumers check online reviews before they decide to buy something or subscribe to a service. They need what we call social proof. It says that the more people say they use your service, the more it will look like a good service. In short, you need to show how happy people are using your service. But not all online reviews are positive.
Having said that, we find that financial institutions shouldn’t ignore negative reviews. Instead, embrace them as an opportunity to rebuild trust in your brand. Less delicately put, take the bull by the horns and turn them to your advantage. Always respond to relevant complaints (and as fast as possible). Take responsibility for what happened. Be helpful.
And ignore trolls.
Learn from the competition
Over the last two decades, a marketer’s daily life has greatly evolved. Most importantly, we now can measure everything we do, including the consequences of our actions on our business. Having said that, you can’t evaluate how well you’re doing without comparing against
Truth is that 77% of businesses rely on listening to keep an eye on their competitors. What this means is that 4 in 5 of your direct competitors are likely watching each and every single step you take. And you should do the same.
Setting the trend
From staying up to date with the latest industry trends and innovations, to keeping an eye on the competitors’ newest services, to being the first to know of potential brand crises – tracking relevant online conversations lets marketing and communication professionals working for financial institutions to stay one step ahead in an industry that is leading change and innovation.
Why the Boom is Long Overdue (and Here to Stay)
By Roger James Hamilton, CEO, Genius Group
Virtually every aspect of our lives has been taken over by tech, so why is it that our schools, that are educating the business leaders of tomorrow, are still operating in much the same format as they did 100 years ago?
The global pandemic put digital learning in the spotlight and an Edtech boom has ensued, with companies like Coursera, Quizlet and Udemy seeing unicorn style growth. And the market is not slowing down. The education technology (Edtech) boom will continue.
Resilience and Growth
Unicorns are defined by rapid growth. Traditionally, these companies are not overly concerned with early profitability, long-term sustainability or value creation as much as with putting their competitors out of business.
But something different is going on in the Edtech market. The unicorn has lost its appeal. When learning platform Quizlet achieved unicorn status this year, CEO Matthew Glotzbach was keen to play down the moniker reserved for start-ups valued at $1 billion or more, preferring to liken his company to a camel.
Unlike unicorns, camels are real, hardworking beasts. Respected for their adaptability to various climates, resilience, and abilities to survive for long periods without sustenance. These are all traits much better suited to weather the economic storms created by the pandemic.
Despite their considerable abilities to adapt to challenging conditions, the climate is looking particularly sunny for camels within the Edtech market. In fact, all creatures great and small have the potential to capitalise on unprecedented growth in this sector.
The nature of education makes it a traditionally slow-moving area, which renders it unattractive to some investors. Yet, the coronavirus outbreak and subsequent surge in remote learning this year triggered a flurry of uptake in e-learning platforms.
We’ve seen the adoption rate for new technologies be accelerated by events like this before. For example, the SARS crisis of 2003 contributed to the boom in China’s ecommerce industry, as quarantines lead consumers to shop online. Of course, this market trend did not slow down once quarantine restrictions were lifted. Ever since, global online sales have risen exponentially. The same is set to happen in the Edtech market.
Providing a Solution
As with ecommerce in 2003, the demand for Edtech in 2020 was already there. It has been there for years. For the past decade at least, there has been a notable need in recruitment for qualified talent in data science, coding and digital. Edtech can bridge the skills gap, not only within formal education but also for adult learners upskilling and reskilling for today’s digital world.
Similarly, the financial crash of 2008 had the effect of fast-tracking the rise of the gig economy, requiring millions more to learn entrepreneurial skills. The idea of a job for life is now a distant memory. The Edtech sector can deliver the tools to equip students of all ages with the skills necessary for creating their own opportunities, as well as exchanging knowledge and collaborating in a digital economy.
Rising unemployment, as well as competition for jobs and government furlough schemes has seen interest in digital learning courses for adults also soar during the past few months. Figures show that the corporate e-learning market is set to increase by as much as $3.09 billion between 2020 and 2024.
The Edtech boom kickstarted by the pandemic is just the beginning in a paradigm shift in how we view education and work.
Over the next 10 years, with the rise of artificial intelligence, automated technology, and augmented reality, traditional, manual and customer service based roles will diminish and there will be less need for a large workforce when computers and machines can do the role equally well.
The need for a truly 21st century education system that reflects the needs of the job market is long overdue. Edtech companies are offering solutions to many of these issues that have troubled the economy for the past decade or more.
A Different Animal
Enter the zebra (back to our animal analogies). These types of Edtech businesses will be the ones to watch within the sector. With zebra companies, there’s a sense of community and collaboration, rather than competition. They understand that there’s room for more than one superstar in a market. Zebras are herd animals after all. The zebra believes that competition is healthy for everyone involved—something to watch and use for motivation and growth. It closely observes consumer trends and continually strives to solve new and developing problems for those consumers.
For zebra companies, profit margin is vital because it is necessary for steady growth and sustainability. Revenues hover between $5M and $50M, it serves customers within a specific niche, requires annual growth capital of $100K to $1M, and generally has more than four streams of revenue.
Zebras are both black with white stripes and white with black stripes – they have a fluidity in their approach and are camouflaged at the same time. This creates a double bottom line: Zebras want to conduct real business, by solving a pressing problem in a sustainable way, whilst reacting to contemporary challenges. This too could be said of the Edtech industry as a whole.
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