Look behind you
There are two reasons you might look over your shoulder. First is fear: what’s approaching out of your eyeline? You might have an uneasy feeling or hear a noise. That glance is to reassure, to resolve uncertainty, or update your situational awareness.
It’s a pretty common instinct at the moment. It feels like we’re making progress economically – inflation is drifting down, for example, so rates should ease later this year. S&P Global’s Purchasing Managers Index (PMI) is positive again for all three main sectors of the UK economy for the first time in nearly two years.
But there’s that nagging feeling something is creeping up on us. Geopolitics doesn’t help. We’re not out of the woods in terms of business financing, especially around re-fi for debt taken out before 2021 (see below). I’m seeing fewer young businesses secure funding as investors get more risk-averse. Then there are big structural questions. Are we missing the AI train? What happens if government finances get worse? How sticky is the recent dip in recruitment activity?
The second reason is much more positive: you look over your shoulder to see who’s with you, to reassure them, and to reinforce your collective spirit. I’m in that camp.
When we work together, challenges can be opportunities. For example, we don’t have cheap debt like we used to. But that’s pushing private equity, and other investors, to focus on value creation (which is much more fun for the finance team).
Businesses look to protect margins with lower costs and greater productivity. I’m seeing that in changes to the way they’re hiring. I’ve been working with a US firm that’s carving out a UK business. They need a hands-dirty, self-starter type financial chief. They could get a £50k finance manager to crank the handle on Xero, but that offers minimal added value. So we’re looking at a £100k head of finance, but working on an part-time basis. Win-win.
The team looked over their shoulder to see who’s got their back, and we’re there – debating creative solutions to their skills challenge. We’re seeing that a lot where people are hiring for teams that need a better balance around coming into the office, say, or seeking optimum work-life balance.
It comes back to one of my regular themes: building relationships that are more than just transactional. When a transaction (or tricky event) crops up, you want to be able to glance over your shoulder and see people you trust, who have ideas, who have got your back. I genuinely feel that things are moving in the right direction. So now’s the time to take confidence from the people behind you.
- Ray Nicholls
Things to do...
Next...
Summer of sport A T20 World Cup. Euro 2024. Olympics and Paralympics. Add a Windies test series, the Tour de France, Wimbledon and all the other regulars, and it’s non-stop sports from June to September. Planning hospitality events and staff availability will be interesting…
Later...
2025 visa prep
Rules on required earnings for foreign-born employees have shifted (and finance folks still aren’t on the skilled worker scheme). The thresholds bumped up this month, but they’re rising again early next year – so early prep for teams affected is key.
Lies, damned lies, and...
Calm or calamity: $329bn
I’m picking up a bit of chatter about companies having to work harder to attract investment. The venture funds seem quite cautious – especially as the glow fades from once on-trend tech plays such as AI – and raising debt finance has got trickier in the mid-market.
But over in the US, ‘maturity wall’ warnings about corporate debt trading at ‘distressed’ levels have abated. According to Bank of America, the amount of debt falling due in 2024-26 dropped 40% – or $329bn – in the past year as companies have refinanced, despite higher interest rates. The caveat? The ever-rising stock market is partly to blame, with equity returns looking meagre against high share prices, pushing investors into the corporate debt world for returns.
Here in the UK, tricky refinancings have hit the headlines (notably for pub group Stonegate and The Body Shop). The unwinding of Covid support schemes and higher rates meant UK loan defaults rose 65% from 2022 to 2023, and EY reckons the maturity wall is alive and well this side of the Atlantic: between 2024 and 2027, £500bn of debt will need to be refinanced just by UK listed companies, costing up to an extra £25bn in annual debt service costs. This year over £100bn will need to be refinanced. Outside the corporate debt world, things are murkier, too.
This month’s IMF report on private credit – admittedly, most of which is in the US – makes for sobering reading. With $2trn outstanding (the real figure might be as high as $3trn, says JP Morgan), it argues that even its relative insulation from broader financial markets makes private credit a risk to stability if there were a sudden downturn. And just this week, the Bank of England has warned about the risks of banks not having enough visibility into the performance of loans to private equity. So mid-market finance teams might need to pay heed, not just corporate treasurers.
A reminder that for the savvy finance exec, planning financing requirements isn’t just a question of working the balance sheet. Staying tuned to the big trends is a must.
On trend
The skills that we spill
“The skills that you spill up my back keep me filled, With satisfaction when we're done, Satisfaction of what's to come…”
Dee-Lite might not have been singing about accountancy skills (Lady Miss Kier actually says “chills” in the first line of Groove is in the Heart - which is 34 years old, by the way 👨🏼🦳) but the talent shortage remains a real issue, not least in UK finance functions.
The skills shortage is apparently hitting both audit fees and quality as accounting firms scramble for bodies. There’s demand for new skills – such as AI and cloud computing – that finance managers and FDs increasingly need. And a skills gap in fintech risks drawing off folks with precisely that mindset from working in finance functions.
I’ve been filling some junior roles on behalf of FDs I’ve placed – fairly straightforward financial accounting roles, working with people I know are going to be finance superstars in the future. But the truth is that it’s harder than ever to find those people (which is perhaps one reason my contacts aren’t going to the High Street recruiters…).
Anecdotally, shifting migration patterns – post Brexit and Covid – and changes to IR35 seem to be shrinking the pool. When I was at Michael Page years ago, accountants from the antipodes were a fluid resource for these types of roles. Now, there’s fewer of those people travelling the world for work – and those that are want longer contracts.
The problem for many FDs is national recruiters need to be told what you’re looking for – a cookie-cutter job description and a basic sales message to put out to the market. As a boutique operation, I can think about it slightly differently, finding alternate solutions and helping clients think about ways to re-cast their skills needs. With even senior execs now looking for different, more flexible, ways of working, that’s a must.
Words from the wise
"Technofeudalism"
Remember Yanis Varoufakis? He’s the Greek economist who shot to fame during the European debt crisis after the Global Financial Crisis, and briefly became finance minister as Greece negotiated its way out of its very deep debt hole. He’s got a new book out, Technofeudalism: What Killed Capitalism, and it’s well worth reading this extract in Current Affairs magazine.
His thesis is interesting – and for finance execs thinking about profit, risk management and strategy, it’s worth digesting. Essentially, rather than being a playing field for creators and hard-workers, capitalism has been perverted by technology to create locked-in value for platforms. Rent-seeking has replaced entrepreneurialism, and the concentration of market power in the hands of the likes of Apple, Google, Amazon and Meta means they have become like the feudal lords of old.
That makes most of us peasants – toiling their land (using their cloud services), paying them rent (often in the form of commissions on app stores), and being thwarted when we innovate (thanks to their control of the market - and their financial muscle – they're able to outlast and undercut smaller rivals, even in brand-new markets).
Looking back at the original feudal lords, Varoufakis says, “Capitalism prevailed when profit overwhelmed rent, a historic triumph coinciding with the transformation of productive work and property rights into commodities to be sold via labour and share markets respectively.” The internet behemoths aren’t the first to reverse the trend, he argues, with oil companies and later high-concept brand development starting to allow rent (not profits) to accelerate the concentration of capital. (We even talk about competitive 'moats' these days around business ideas and processes, a coincidental metaphor rooted in the feudal castles that gave barons impunity.)
It's an unashamedly Marxist take, despite his mourning the death of true capitalism (or perhaps "enterprise" would be a better word?). But the point – that capitalism is eating itself – can be felt in boardrooms the world over. Ask yourself: could your business survive without Google? Without Amazon? If not, where do you sit in a feudal pyramid?
