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VOX POPULI, VOX DEI AND OTHER IMPORTANT VOICES WE SHOULD LISTEN TO

Recently I wrote about the importance of asking the right questions in exercising any kind of leadership. The results of the latest parliamentary elections in Poland – surprising for some, unnerving for others and a reason to celebrate for still others – show how important it is to listen to the questions asked of the leaders by the led, to whom the latter have entrusted their affairs. You have to be able to hear the question before you can attempt an answer, whether the answer is words or deeds.

The elections, which invariably entail change, prompted me to think about changes which affect us on all fronts. This was all the more so because I happened to take part in a panel debate on the New Environment For the Operation of Listed Companies during the tenth anniversary of the Listed Companies Congress.

We are preoccupied with the elections in Poland while the attention of world business leaders is focused – understandably – on the COP 21 climate change negotiations in Paris. The summit starts on 30 November and will last until 11 December but as early as today negotiations are underway over documents which are to be the basis for the successor to the Kyoto protocol. One of the dividing lines runs between the north and south (especially the poor south represented by Club 77) and the agenda features the costs of pollutant emissions reduction to be shared by the participating countries. The problem is a familiar one in Poland where the coal mining lobby has a lot of clout. Why am I writing about this in the context of the changes taking place? Well, it does look like our natural environment is in serious trouble if the White House itself has let to be known it has an emissions reduction programme and has signed an accord on tackling the problem with China. At stake are average global temperatures and the aim is to stop them rising by more than 2 degrees Celsius by 2100 because otherwise life on Earth will be close to impossible and the future of our civilization might be in danger. Without further emissions reduction (that is maintaining current levels) we will be seeing a 6 degree Celsius rise in temperatures. Inevitably, new regulations will be brought in and we will have to pay more either for clean technologies or emissions production (higher costs means lower demand, there is less call for the use of transport and consequently less pollution – says the economic theory of external costs).

For companies like ABC Data, for whom logistics is an important cost component, climate change and the resultant regulatory changes mean having to adapt. We will have to rise to the challenge. But it is still small beer compared to what the energy sector guys have to contend with.

One of the side effects of climate change will be mass migration. What if the wave of migrants sweeping across Europe at the moment is a harbinger of unstoppable massive population shifts in the future, on the scale of great population movements in ancient times? It would be short-sighted to ignore such factors in planning strategy because, besides the fears they might stoke in the indigenous populations, they will also affect the customer base. And no business can remain indifferent to such changes.

The elections, the panel debate and reflection on the new regulatory environment for listed companies have obviously turned my thoughts to the economy. Things aren’t too good on this front either. The election slogan “Poland in ruins” is a gross exaggeration, but “Europe in ruins” …, who knows, maybe there is something to it. The situation in the Eurozone is encapsulated in the problems to which head of the ECB, Mario Draghi, is currently trying to find a solution. Under the asset purchase package worth 1.1 trillion euros, which he launched in January, the Eurozone central banks have been buying some 60 billion euros worth of assets every month (mostly European member states’ government bonds), pumping money into the economy that way in order to prop up the loans market, so that it in turn could help finance consumer purchases and put the economy on an even keel.

The expected rise in inflation however has not materialized. Consumer demand is low, which coupled with the economic slowdown in developing markets, China in particular, and falling oil prices exacerbates deflationary tendencies. During the ECB’s meeting in Malta on the Thursday before last (22 October 2015), Draghi said: “We are ready to act if needed … and we are open to the full menu of monetary policy,” which means a more aggressive Quantitative Easing or a rise in the negative interest rates (e.i. further reduction). Even at today’s money, a company from the Eurozone wishing to save money against a rainy day must pay in order to be able to do so because the interest rates are negative. The recession bites deep indeed.

Although the situation in Poland is much better with the second quarter GDP at 3.3%, the figure is lower than the 3.6% in the first quarter. When I look a little further down the road, I feel a slight chill, because the Eurozone markets are – I say this with a woman’s modesty – very important for Poland. Of the 115 billion euros worth of Polish exports in the first 8 months this year, 91.5 billion euros were to the European Union. The importance of the Eurozone for us can be glimpsed from these figures for 2014: total Polish exports -165.7 billion euros, of which 128.3 billion euros to the EU28, of which 89.1 billion euros to the Eurozone, in which Germany alone accounts for 43.5 billion euros. Exports make up about 45% of our GDP, so when it gets frosty in Germany, I get a chill down my back too. And although I cheer up at the news about unemployment in Poland falling to the historical low (the latest statistic is 9.7 per cent, the previous record low was 9.6 per cent in 2008), I fear that this may not last.

And this takes me back to the election results. It is the first time since 1989 that a single party has had a big enough majority to govern alone. What are their plans? They say they want to repair next year’s budget because the planned deficit is over 50 billion zloty. We haven’t had a deficit at this level yet. The question is whether trying to fulfil the pre-election promises will not burst the purse strings. Perhaps the new government will not stick to any of its promises? Changes in the VAT are planned as early as January, say some PIS party activists. We shall see …

Change is in the air, so, my dear readers, a lot of hard work will be needed to keep on top of the changes. I like work, so generally I am not against there being more work. But this work may not be very creative work, work with a view to developing business, it may just mean plodding along in order to adapt to the new reality, and plodding along is far less satisfying.

The financial markets are definitely set to see some changes in the regulatory environment. Changes are planned in public procurement rules. Anyone wishing to get financing will suddenly find themselves operating under new rules. The draft EU directive is said to come into force on 15 January. I have a hunch that not much is going to happen in the next few months, but sooner or later the changes will kick in.

We are told that by 3 July 2016 (the new year is only two months away) we should see the implementation in Polish law of the Market Abuse Directive II. 3 July 2016 is the date from which the Market Abuse Regulation must be enforceable. Even before then, by 16 June 2016, Polish lawmakers must implement the rules on statutory audits of public interest entities. Broadly speaking, these are designed to toughen the requirements for auditing firms, their modus operandi, including for the internal audit committees in such entities (or in listed companies), and limit the extent to which public regulators can delegate their supervision responsibilities to self-governing bodies.

A similar time frame has been set for the introduction of non-financial reporting requirements for listed companies. The requirements cover information about the diversity of the companies’ management and supervisory boards (age, sex, where the members come from, education, work experience) and CSR. If the draft directive becomes EU-wide law, the Polish legislator will have to bring the Accounting Act into line with it.

1 January 2016 also marks the introduction of new corporate governance rules “Good Governance Practice at the Warsaw Stock Exchange listed Companies 2016”. Changes in corporate governance are dictated by the new market reality and European regulations. The window for the implementation of the Directive on the harmonization of disclosure requirements for share issuers (Transparency Directive II) is even smaller: 26 November 2015. Its implementation requires amendment of the Public Procurement Act with regard to the “country of origin” definition, notification of the shareholders, penalty regulations, as well as changes to the Ministry of Finance regulation on interim and periodic reporting, especially with regards to the latter. The window is small indeed, just 28 days, so it’s anyone’s guess.

Of changes further up the pipeline, but more important I should think, is the new concept of capital markets, first set out in the Green Book in February 2015. The Capital Markets Union’s role would be to enable businesses to raise financing across the entire European Union, where today it is difficult to match demand for capital with the willingness to take risks. The result is that European companies are slavishly tied to the banking sector. Brussels officials believe that a capital markets union would drive down the cost of capital, open up new financing routes for small and medium-sized companies, diversify the financing options and improve Europe’s global competitiveness.

On the one hand, I am all excited at the prospect of being able to raise financing in foreign markets, on the other, I am worried this might undercut our good old the Warsaw Stock Exchange. If the capital markets are pressed into a union, only those markets will prosper that have access to investment-seeking capital. And that has been in short supply here recently.

But the time of changes of which we have been forewarned (or which we are perhaps experiencing now and which is doing just fine for itself) has never been promised to be easy. Still, we’ll manage!

 

If you wish to read on, here is the usual bunch of links:

First hand news from the COP 21 Paris negotiations:
http://www.cop21.gouv.fr/en

About the negotiations before the start of the summit:
http://wiadomosci.onet.pl/swiat/decydujaca-faza-negocjacji-przed-szczytem-klimatycznym-w-paryzu/55jc6m

An interesting link to the White House website featuring Barak Obama’s emissions reduction programme:
https://www.whitehouse.gov/climate-change

A user-friendly look at Poland’s economic performance from GUS (Office for National Statistics):
http://stat.gov.pl/podstawowe-dane/

and one for the sophisticated reader:
http://stat.gov.pl/sygnalne/opracowania-sygnalne/

The Ministry of Economy has posted a very interesting report on Poland’s exports:
http://www.mg.gov.pl/files/upload/8437/syntzewn2014ost.pdf

If you can spare the time to read all the 170 pages of PIS’s political manifesto to make up your mind for yourself (better than having it made up by someone else), go to:15
http://pis.org.pl/dokumenty

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