Disruptive Forces - What Business Leaders Need to Be Doing Now

Stock markets are hitting new highs. Housing starts are on the rise and home values may have hit bottom and are trending up. The private sector is adding jobs and the unemployment rate is improving while, life for the long-term unemployed or out-of-the-workforce, statistically is not.

Even though U.S. inflation is pegged at 1.6%, every household that does breakfast and dinner at home is feeling the squeeze of higher commodity prices, foodstuffs and the fuel it takes to shop. Insurance premiums; health, auto and liability all are on the rise. Just the other day folks I was with engaged in that old 'game' of "Remember when tap beers were a dime and a gallon of gas was twenty-five cents?"

WHAT ELSE IS NEW?

There is a different answer that's appropriate for the individual investor than might apply to the business leader. For today, my objective is to stick with business.

Managers ought to be thinking seriously about what the most significant disruption to their business could be in the coming months while their charges concentrate on executing the plan that has been entrusted to them. Those that are complacent  and fail to concern themselves with possible and significant disruptions to their business pay a stiff price for doing so.

It's been five short years since the economic disruption spurned by loose banking practices caught up with everyone. Some are convinced banks once again will be at the center of the next disruptive force that could affect your business.

READ BETWEEN THE LINES

Neil Weinberg, Editor-in-Chief at American Banker caught my attention with his recent blog post title, "Beware of the Banking Bubble."[1] Let's face it, since the so-called "Dot.com Bubble" disrupted the easy flow of money thirteen years ago, we tend to pay more than usual attention to bubbles forming, or worse, those that are about to burst.    

Mr. Weinberg voices a concern that hearkens back to the overall attitude bankers held in 2007 and he fears that some of the same are surfacing today. Among other things, he notes that "Compressed net interest margins mean bankers face pressure to under-price risk to win loan business and to look to other questionable tactics to turn a buck." Think fees -  back-end, front-end, small print, you name it. Retail and Commercial borrowers and depositors know what Weinberg is talking about. He then asks a relevant question; "In what imprudent ways are bankers likely to respond to these various pressures?" Great question.

Enter stage right, the Federal Reserve and Ben Bernanke. Edward Luce at The Financial Times opened a recent piece by stating the obvious, "The Federal Reserve under Ben Bernanke has been the only serious economic actor in Washington."[2] If you're leading a company today, it goes without saying that the disadvantage of not being able to print money in order to buy down your own debt handicaps you against your competitors. The good news is that neither can your competitors do so. The bad news is banks will make life miserable for lenders when and if rates head north.

While Luce generally heaps praise on the Fed Chairman, he acknowledges that, "Without the Fed's easy money, the stock market would be languishing and unemployment would be rising." As a former portfolio manager, this scares the (insert your own) out of me. Mr. Weinberg quotes from Moises Naim's[3] new book, The End of Power, wherein the author accurately noted that "When the Fed has met a new problem it has usually engineered a new solution." Note that the Fed has signaled its intent to discontinue this engineered strategy once unemployment falls to 6.5%. Many are urging Bernanke to curtail the practice sooner.

MANAGE THE DISRUPTIVE FORCE

Leaders of any size company ought to be thinking about the next disruptive force that will affect their business and in so doing will make a huge mistake if banking isn't on their short list. Everything from short-term lending to insurance premiums will be adversely impacted when the Fed halts the presses leading to higher interest rates and a less than subtle upward inflationary course.

This is a discussion that must take place within companies, now. Strategy considerations should include everything finance related, including the unorthodox. It might make sense to renegotiate a higher rate on your current short-term or line of credits and lock them in for as long as possible. It might make sense to take advantage of rates and increase your debt on the balance sheet if a three to five year term is offered. If you've contemplated selling out, it might make sense to do it as soon as practical while cheap money is still available to your potential suitors. In other words, pull your team together and put all of the banking "If's" and "Might-make-sense" ideas on the table.

Ben Bernanke has been frequently reminding whoever is listening that "There is only so much the Fed can do." So, manage the potential disruptive force a change in Fed policy will bring to business and banking practices. Move it up on your to-do list, now.

As you if you didn't have enough to concern yourself with!

Jim Naleid is a Life-long Entrepreneur, Change-Agent and Thought Leader, Managing Director of Naleid & Associates and Regional TEC (“The Executive Committee”) Chair leading a group of executives to become Better Leaders, Making Better Decisions with Better Results. http://www.linkedin.com/in/jimnaleid

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[1] Neil Weinberg; Editor-in-Chief at American Banker; "Beware of the Banking Bubble", March 7 2013

[2] Edward Luce; Columnist for The Financial Times; "A good engineer that knows his own limits", March 10, 2013

[3] Moisés Naím (born 1952) is a Venezuelan writer and columnist. He is a Senior Associate in the International Economics program at the Carnegie Endowment for International Peace.