A group of finance experts met yesterday at Bucharest’s Athenee Palace Hilton, at an event organised by ACCA (Association of Chartered Certified Accountants), to share their ideas about how businesses might finance themselves in the year 2050.
The future-looking roundtable, which was attended by leading bankers, auditors, practitioners and academic researchers, is the first of up to five workshops, each focussing on a major ACCA market outside Western Europe.
The next workshop is taking place in China in early 2013.
Taken together, these workshops will inform ACCA’s Financing Futures project, which in turn is part of the global body’s research and thought leadership programme. Financing Futures is based on four scenarios about the future of the financial services industry that were developed in earlier research by the Long Finance Forum of Futurists (L3F). Workshop attendees were invited to consider how each of four ‘typical’ businesses (an informal enterprise, a steady-state family firm, an innovative, disruptive start-up and a very large consumer goods group) would finance themselves under each scenario.
Emmanouil Schizas, Senior Economic Analyst of ACCA and a panellist at the event said: 'Forecasts are useless against a 30 or 40 year horizon and yet a lot of the regulatory infrastructure of the global financial sector is supposedly built to last that long; scenarios give us a means of dealing with this level of uncertainty that doesn’t risk being very precisely wrong.'
The four scenarios used in Financing Futures were developed by consultancy SAMI Consulting and are based on two key long-term uncertainties - whether the Washington Consensus of democracy, market economies, free trade, fiscal discipline and global governance institutions will survive, and second, whether physical geography will continue to be important relative to virtual networks.
The workshop found that some key trends are seen as ‘givens’ regardless of how the future will turn out:
- In the coming decades, small and medium-sized enterprises (SMEs) will need to be matched to more risk-loving investors, but with the world population growing older and more risk-averse this will be a challenge.
- Under most scenarios, integrated reporting will become more important for larger businesses, and even smaller, low-profile businesses could come under scrutiny as their impact on their communities becomes more obvious. Different scenarios might see more or less standardised approaches to measuring impact.
- Medium-sized and large firms will have strong incentives to invest further in their finance functions in order to develop tailored in-house expertise to help them access finance.
- New financial products will need to be developed for medium-sized and fast-growing firms, occupying the space between equity and debt, and finance providers will gradually come to accept intangible assets as collateral.
- Informal businesses will have to transform in order to survive by either going formal themselves or developing formal ties to affinity groups.
- Although equity finance will gradually become more popular in general, family businesses are unlikely to truly embrace this type of funding.
Other trends depend on how the future scenarios will play out:
- Under some scenarios, affinity groups (whether ethnic, linguistic, social or religious) will start to emerge through co-operatives, mutuals and other associations as de facto regulators, business support providers and even finance providers in their own right.
- The rise of local government and/or affinity groups are both likely to be major influences on business financing, empowering bank managers and supporting relationship banking. These developments, however, are also likely to make business financing a more political, as opposed to market-driven, process, allowing room for inefficiencies to develop.
- ‘Steady state’ family businesses growing at only a moderate pace are unlikely to be viable under some scenarios – their efforts to retain control by financing themselves through retained earnings could leave them at the mercy of larger competitors unless they are aggressively protected by their governments.
- Under ‘muddle through’ scenarios in which the status quo survives mostly unchanged, large businesses will increasingly make use of bond issues to finance themselves.
Andreia Stanciu, head of South Eastern Europe, concludes: 'Due to the number and calibre of participants, the workshop raised questions and dilemmas we weren’t expecting. This is a great start to the programme and we look forward to hearing about what other roundtables envisage for the future.'
About Financing Futures
ACCA was involved in the original project behind the SAMI/L3F scenarios as a result of its work on bank regulation and governance in the aftermath of the financial crisis. ACCA started exploring the possibility of a futurist project on business finance as soon as the original project came to a close in late 2011, and the launch of Financing Futures coincided with the launch of ACCA’s Accountancy Futures Academy, the global body’s own panel of futurists. The development of the project was also spurred on by the realisation that major regulatory developments, such as Basel III / CRDIV, were likely to have unpredictable qualitative effects on smaller businesses’ access to finance.
The purpose of Financing Futures is to challenge governments and leaders in the financial services industry to follow current regulatory, political and technological developments to their logical conclusions. It is hoped that this thinking will develop much-needed new types of business support as well as new business models for financing enterprise. For the time being, Financing Futures will only be rolled out to major ACCA markets in Eastern Europe, China and Emerging Asia, but there are plans to extend its scope further – with Sub-Saharan Africa a major candidate.
About the Long Finance initiative and the Long Finance Forum of Futurists (L3F)
The Long Finance initiative was established in 2007 by Professor Michael Mainelli, Z/Yen Group and Gresham College. It was created to research ways in which to implement long-term thinking across a global network of people. We aim to develop an organisation capable of deploying new financial approaches in pilot projects and research prototypes, that operates openly and transparently and works to scientific standards and ideals. At the same time, we are looking to create a supportive and caring community where people can truly question the accepted paradigms of risk and reward.
L3F is a group of professionals working under the Long Finance umbrella to formulate scenarios for the future of finance services. These can then be used to draw out the near term implications of possible future events for the various parts of the financial services sector such as insurance, investment banking, retail banking, institutional fund management, etc. The intention is that these scenarios be exposed to wider comment and then used as the basis for financial services organisations to make better decisions in the near to medium term, based on better views of the future.
About SAMI Consulting
For over 20 years SAMI Consulting has been helping organisations make robust decisions in uncertain times. We are known as the home of scenario planning, and also for helping organisations implement their strategy. We work through consulting, executive education and events, and research studies. SAMI Consulting works for private, public and NGO sector clients. We tailor methods for each client from a range of tools and methods including conferences, workshops, reports, audio-visual presentations, executive mentoring, action learning, horizon scanning and training courses.
Our core expertise is to future proof our clients’ organisations. We understand political, international and regulatory risk, economic uncertainty, social and cultural change, and the opportunities of technology.