CFO Blog: Commentary and Opinion

Banking regulators love to come out with surveys that say small businesses have all the access to credit they need. So it was no surprise today that Federal Reserve Governor Frederic Mishkin, testifying before the House Committee on Small Business, went so far as to call access to credit for firms with 500 or fewer employees — the Fed's definition of a small business — "robust."

Further into his testimony, though, Mishkin hedged — a bit, and then a lot. "Recent events have nonetheless almost surely had some negative effects on small business access to credit, and we cannot rule out further effects," he warned.

Indeed, the evidence that credit conditions are deteriorating is not hard to find. According to the Fed's own senior lending officer survey released this week, about one-fifth of respondent banks reported charging higher loan rate spreads to small businesses. Likewise, the National Federation of Independent Businesses noted this month that the net percentage of small business owners reporting loans being harder to get rose to its highest level since 1993. "Perhaps the 'tightening' we heard about on Wall Street is leaking out into the countryside," said the report, written by noted Temple University economist Bill Dunkelberg.

Problems lurking in other parts of the economy are likely to have a spillover effect. For example, many small businesses use personal real estate assets to secure loans, but the value of that real estate is declining. In the last few years, in fact, many banks have created small business line-of-credit products secured by the owner's home.

Those sneaky off-balance-sheet bank conduits could also stall the small-business credit engine. "If banks place on their balance sheets some assets that they had expected instead to place in conduits or otherwise sell to investors, the move could crowd out loans to small businesses and other borrowers," Mishkin pointed out.

Wall Street's blunders are bad for small businesses. That's not good news for entrepreneurs. But at least a federal government employee has finally admitted it, and small businesses can prepare accordingly.

Two CFOs on an SEC advisory committee found themselves in the minority when they voiced their fears of implementing XBRL at their companies. But they didn't hold back on their worries that the data-tagging technology will result in burdensome cost and work that would have to be done in a short amount of time.

Varian Inc. finance chief Edward McClammy compared the potential cost and time to the internal-control provision of the Sarbanes-Oxley Act. "When I read this, 404 flashed in front of my eyes," he said, of a committee document that implied implementing the data-tagging technology at companies would be smooth sailing and inexpensive. He reminded the group that regulators once vastly underestimated the cost of Section 404.

A former CFO of Business Objects SA took a similar tack after hearing that an auditor's assurance on companies' tags may be required. "I'm concerned that when you get the auditor involved, it will create another 404," said Thomas Weatherford, who retired as CFO in 2002. "There's no doubt in my mind that litigation will happen. This will be a disaster." Transferring data from Word documents, Excel spreadsheets, and even hand-written general ledgers could create heartache for companies running more than one software program in different departments and for small companies with small accounting staffs, according to Weatherford.

The committee has suggested that the SEC mandate XBRL's use for financial statements for fiscal years ending December 31, 2008 for large businesses. While McClammy said he believes interactive data will likely be inevitable, he said it'll take time, for even midsize companies that would need more than the next two years to make it happen.

Judging from the response to "Today's Accounting Crop: Spoiled Rotten," the upcoming generation of accounting and financing pros are a lot more independent and intellectually engaged than their elders give them credit for. They just see things from the other side.

For at least two years now, we've been hearing a wide range of CFOs complain about the lack of skilled, committed finance and accounting help. The finance chiefs I talked to for the piece went further, suggesting that the new "millennium generation" (folks born in 1982 or thereabouts) is a bunch of spoiled brats in need of constant reassurance and unable to complete challenging tasks. But the most serious problem the finance chiefs see is the millennials' propensity to jump ship when they're offered a few dollars more: in a word, their lack of loyalty.

That, as it turns out, is a fighting word. Readers fired back, contending that the prior generation was reaping what it had sown. "[W]hy should we show loyalty when corporations will layoff anytime to make the bottom line look better?" one reader asked, adding, defiantly, "If you do not give us the perks and comp we want, we WILL go somewhere else, so get used to it."

That last sentence shows something of what rubs the older generation the wrong way. But the comments overall reflect a reality that many senior finance execs must deal with every day. "We're in such an affluent society that you just go where the money is because you want to be part of that affluence, chase after the buck," Michael Peters, a Villanova accounting professor, told me.

Further, many millennials may have grown up in homes where parents became embittered after being laid off after long commitments to their companies, he said. Some of those parents are likely to have counseled their kids to look out for themselves.

To their credit, however, the millennials — or their advocates — come off as pragmatic, not bitter. Along with the defiant words come solutions. One reader provides a useful list: "Provide meaningful training, assign jobs that allow for growth, mentor—don't micro-manage, work with the employee by providing meaningful job experiences, pay a good wage... ." Interestingly, as I've found in my reporting, a number of finance chiefs are keeping turnover to a minimum by doing just those things. Stay tuned.

Some small businesses can't catch a break. While senators may be scratching their heads to close the tax loophole private equity firms and hedge-fund managers enjoy on their "carried interest," the state of Iowa has bigger fish to fry: pumpkin farmers.

The Iowa Department of Revenue has decided that pumpkins, long exempt from taxes because they are a type of squash that can be eaten, should be taxed when sold for decorative use. One pumpkin farmer in Grinnell told the Associated Press the tax would cost his business 6 percent of its income, as he will pay it from his profits.

Pumpkins intended for consumption (pies, pudding, seeds, etc.) can continue going untaxed as long as customers sign a form promising no carving or painting will occur.

Of course, it's not the first time that those lacking the spirit of Halloween have called it a waste. Last year Kevin Hassett, a resident scholar at the American Enterprise Institute, noted that Americans spend billions of dollars a year buying candy for people that don't really want it.

"It's the dead-weight loss, or pointless lost utility of the entire enterprise. That likely has a dollar value that exceeds $1.5 billion annually," Hassett said. "American citizens squander more than a billion and a half dollars a year on an economically inefficient holiday."

So perhaps Iowans wasting their money on jack-o-lanterns will see it put to better use with the new tax. But re-branded "squash" farmers must be hoping the tax man will either change costumes or goeth away.

Halloween is here, and time once more for me to stretch the bounds of imagination for a finance-themed costume to wear to work.

To be honest, it's been a tough haul in the years since my relatively simple Andrew Fastow costume — all that required was a suit with no belt, though the handcuffs made it tricky to type the letters on the far edges of my keyboard.

Last year, I draped a large cardboard pendulum around my neck, but even when I explained that I was the "regulatory pendulum" and helpfully swung it from left to right, I got mostly blank stares from my colleagues. "Not one of your better ones," said our managing editor.

Philistines.

Truth be told, the failure of a concept costume had me worried this year — I needed that to work, because otherwise, most finance personalities pretty much just require a suit:

"Hi Tim, Andy Fastow again?"

"No, I'm Sir David Tweedie this year. See? No handcuffs."

And, then, thank goodness, came the subprime crisis. Sure, by day, as mild-mannered Treasury Secretary Hank Paulson, I might still wear a suit (and bald wig), but when trouble arises for America's banks, I doff my custom-tailored government bureaucrat street clothes to reveal my alter ego . . .

SUPER-CONDUIT!

With an "S" emblazoned on my chest (and an "I" and a "V"), and buckets in hand, I race faster than a falling credit rating to bail out the nation's banks, fighting for the American way, if not exactly for truth or justice.

I was even going to ask a co-worker to go as Lois Citigroup, my headstrong love interest who is always getting in trouble, but I thought that might seem inappropriate.

Then again, that didn't bother Paulson.