GDPR one year on – how well is it working?

GDPR and data securityIt is almost a year since the new EU-wide GDPR (General Data Protection Regulations) legislation was introduced and so far approaching 60,000 breaches by companies have been reported across Europe.

The UK, the Netherlands and Germany have reported the most, ranging from minor errors such as missent emails to major cyber hacks.

In the UK the ICO (Information Commissioner’s Office) oversees and takes action on GDPR breaches and has powers to impose massive fines for those found guilty.

In a speech in New Zealand the UK’s ICO commissioner Elizabeth Denham revealed that in the first six months of the new law her office was seeing “More complaints from the public – from 9,000 to 19,000 in a comparable six month period. Complaints about subject access, data portability and data security. All of our front line services have jumped by at least 100%. More breach reports – over 8,000 since the end of May when it became mandatory in some high risk circumstances”.

Where has GDPR had most impact?

GDPR has certainly made the job of marketers and advertisers more difficult, not only in how they go about promoting products and services on behalf of their clients but also in collecting and analysing the results.

Facebook and Google (the two largest digital ad platforms) changed their rules to make themselves GDPR-compliant. They ended support for third-party audience technology and prevented marketers from exporting data. LinkedIn on the other hand still allows data to be downloaded.

In fact, in January in France, Google was hit by a €50m fine by its regulator for “lack of transparency, inadequate information and lack of valid consent regarding ads personalisation”.

In the UK in March the ICO fined Vote Leave Limited £40,000 for sending out thousands of unsolicited text messages in the run up to the 2016 EU referendum. It also fined a Kent-based pensions advice company £40,000 for being responsible for sending nearly two million direct marketing emails without consent.

From personal experience, the volume of unsolicited marketing calls has diminished noticeably and it is rare nowadays to visit a website that does not immediately advise visitors in a pop up of its cookie policy on information gathering and offer the option to manage or opt out altogether.

Despite the reduction in marketing emails and texts the volume of unsolicited telephone calls seems to continue, but most seem to come from abroad while purporting to be via BT.

While all this clearly means that UK advertisers and marketers may have to come up with more innovative methods it is surely a welcome relief to be pestered less frequently.

April 2019 Key Indicator – the state of the EU economy

Car manufacture mainstay of EU economyLeaving aside its obvious concerns about its future relationship with the UK, the EU economy has more than enough troubles of its own to contend with.

With global growth slowing the EU economy can hardly expect to be immune, but there are some inbuilt issues that are likely to become more pressing and will need to be dealt with as a result.

Europe’s demography is against it with an ageing population and the number of people of working age falling by 0.5% a year despite which the EU unemployment rate has remained stubbornly high at 8% since the 2008 global financial crisis. This is unlike the USA which has a rising workforce, while the UK has a growing immigrant population, with both countries’ unemployment reducing significantly.

The global pecking order in terms of the size of national economies is changing with EU countries falling down the global rankings according to the latest HSBC economic model as highlighted by Hamish McRae in yesterday’s Evening Standard. Germany falls from fourth behind the US, China and Japan, to fifth, France to seventh, Italy to ninth.  HSBC notes that Austria and Norway won’t make it to the top 30 by 2030 and Denmark will drop out of the top 40. The UK, however, is ageing marginally more slowly.

McRae calculates on this basis that the EU falls from about 22% of the world economy to about 17% and without the UK it falls to below 14%.

There are political tensions in several EU countries, as elsewhere, which have given rise to populist movements, such as in Italy and in the ongoing push for Catalonian independence in Spain. With EU Parliamentary elections due in May, this is likely to be a worry.

The ECB (European Central Bank) is regarded as notably conservative and this may, in part, explain why recovery since 2008 has been so slow.

It must also be remembered that the EU is a mix of widely disparate countries, some still using their own currencies, others having adopted the Euro and this, too, creates some tension.

The “powerhouse” countries in the EU have always been Germany, UK and France, with the French and German economies relying heavily on manufacturing and exports, but these have become the source of their current troubles.

Germany narrowly avoided recession in the fourth quarter of 2018 with its largely export-oriented industry suffering, particularly the automobile sector due to a decline in the sale of new cars not least down to tariffs on imports into US and a significant drop in sales to China.  Its banks, too, have been struggling, hence the proposed merger currently under way between its two biggest banks, Deutsche and Commerzbank, a merger aimed at survival based on weakness not strength.

France has fared a little better, but not by much, and it has brought political troubles in the shape of ongoing weekly protests by Les Gilets Jaunes.

Italy’s banks, too, are in dire shape and the Italian economy has been struggling for the past 20-plus years, not helped by its national debt relative to its GDP being second only to Japan’s and its population getting smaller.

After narrowly winning its argument with the EU, which refused at first to accept its latest budget, Italy has recently announced that it will be the first EU country to take part in China’s Belt and Road initiative – an attempt to link Asia, the Middle East, Africa and Europe with a series of ports, railways, bridges and other infrastructure projects. Clearly, Italy has become tired of waiting for the EU to put its monetary house in order, but what are the prospects for its economy?

It has been argued, not least by the Guardian’s Larry Elliott, and by the French leader Emmanuel Macron, that the EU needs closer political and economic integration and that there are design flaws in monetary union that are becoming more obvious and in more urgent need of a fix.

Another issue that, Elliott argues, is making countries in the EU less competitive when pitted against the likes of China is that EU industries are mostly mature, more than 25 years old, and there are no equivalents to Facebook, Google and the like, nor any significant businesses in the emerging technologies of the fourth Industrial Revolution, such as artificial intelligence.

Clearly, there is much to be done to improve the EU economy although it does seem to focus on old industry rather than stimulate business based on new technologies and in Hamish McRae’s view, whatever the current Brexit troubles, it is in the interests of both UK and EU to co-operate.

 

Is HMRC buckling under the strain of too hasty IT and insufficient staff?

HMRC needs a conductor to manage the orchestraDoes anyone love the taxman? HMRC is an easy target when it gets things wrong and equally when it seems to be altogether too prompt with reminders!

Earlier this year, for example, the website accountingweb reported an ongoing problem with HMRC charging for late tax return filings for trusts. It transpired that these are not as automated as personal returns and the information on the return has to be input or re-keyed by staff. As a result, even if the tax return is filed on time, any delay in inputting and the HMRC system will flag up a late return and send out a penalty notice.

But HMRC’s system has also been found to not have recorded payments on account on online personal accounts and on paper statements, allegedly a “widespread problem” according to the website.

Other examples have been staff ignorance of the NI (National Insurance) system as it relates to PAYE, of employment allowances, and even miscalculation of tax owed after statements have been submitted, again resulting in incorrect communications.

It is fair to say that HMRC is extremely diligent in following up on late filings, penalties and late payments and in passing cases to its debt recovery teams and in taking swift action to recover monies owed.

At the same time, the Government has been pushing for more and more transactions and communications to be done online.

However, MTD (Making Tax Digital) for example has already overrun deadlines and had to be scaled back – presumably because of problems with the software.

The Treasury was recently accused by the, until yesterday, business minister Richard Harrington of giving SMEs trading with EU States inadequate guidance, which consisted simply of a letter from HMRC advising them to “buy customs software and seek the advice of specialist agents”.

While Adam Marshall, director general of the British Chambers of Commerce, has called for a one-year delay to “Making Tax Digital” – which HMRC still intends to switch on three days after the now-postponed March 29 Brexit deadline.

He argued that it would “give businesses and the Revenue needed breathing space to deal with change.”

When so many Government-inspired digital initiatives have to be either abandoned, delayed or launched but riddled with flaws perhaps it is time to remember that these systems are devised and managed by human beings.

Human beings, even IT developers and HMRC staff, are fallible, but in order to do their jobs the first thing they need is realistic, accurate, clear and detailed information with which to operate.

The orchestra needs to be ready before the conductor can begin.

UK business rescue culture isn’t working and new proposals won’t work

Rescue culture is surely preferable to the grim reaper of insolvencySince the Cork Report in 1982 that led to the Insolvency Act 1986 (IA86) there have been a number of initiatives that have led to legislation aimed at promoting a rescue culture in UK.

The shift was from a penal approach to insolvency one based on a belief that saving insolvent companies by restructuring offers a better outcome for all concerned than the alternative of simply closing them down.

This can be achieved by putting the company into Administration, where an IP (Insolvency Practitioner) takes over the running of the company, including negotiating with creditors with the aim of saving the company or at least saving the business by selling it to new owners. In addition to benefitting secured creditors Administration also helps save jobs.

The alternative is a CVA (Company Voluntary Arrangement) where the directors effectively reach agreement with creditors for revised payment terms such as “time to pay” and sometimes for a write down of the debt as a condition for the company surviving. A CVA is supervised by an IP but the directors remain in control providing they meet the revised terms.

There are problems with the current regime as both cases require an IP to be involved and both are enshrined in the IA86 which means that they are tarnished by the reference to insolvency. While this might be the case, it encourages a self-fulfilling prophesy and all too many companies fail again shortly after going through Administration or a CVA which might suggest the restructuring measures were not sufficient when perhaps other factors might also contribute to the restructuring not being successful.

One provision that is missing from insolvency legislation in the UK, when compared to the USA’s bankruptcy protection (Chapter 11) and Canada’s Companies’ Creditors Arrangement Act (CCAA), is some breathing space, or moratorium, that works in practice to allow time to develop and agree a plan before entering any formal procedures.

A moratorium would provide for a temporary stay of action by creditors and suppliers while a rescue plan is devised, and it is argued, would encourage directors to act earlier when their business is in difficulties.

Indeed, there are current provisions for a CVA moratorium as a 28-day period to allow for preparing CVA proposals but it doesn’t work and is rarely used because IPs as supervisors of the moratorium have been advised by their lawyers that they could be held liable for credit during the moratorium period. It is logical therefore that IPs prefer Administration which gives them the control necessary to manage any such liabilities.

This has been ignored during the latest initiative by the Insolvency Service who, as part of efforts to improve the UK rescue culture, have consulted on proposals for a different moratorium period, presumably one that that would allow for a broader breathing space than the current CVA moratorium.

While new legislation has not yet been enacted, it would appear that the consultation has resulted in plans for a 28-day moratorium with scope for a 28-day extension. This proposal on the face of it would appear sensible but like the CVA moratorium it won’t work in practice for the same reasons: it must be supervised by an IP and it could expose IPs to liability to creditors.

Further confusion on behalf of those proposing the new moratorium relates to proposals that a business may only apply for a moratorium if it is still solvent and able to service its debts. This makes no sense, why would a business that is able to pay its debts risk damaging its credibility and ability to operate by advertising the fact that it is heading into difficulties by appointing an IP as supervisor of a moratorium that is part of insolvency legislation?

This is surely counter-productive to any attempts at saving a business since the moratorium would cut off its credit.

In my view, rescue legislation should be part of the Companies Act and if supervision is deemed necessary, then a broader range of professionals ought to be approved, not just IPs.

Furthermore, it is hard to see why an IP would not push for Administration instead of a moratorium and taking on the related liabilities; turkeys don’t vote for Christmas.

The credit for the prospective and in my view flawed legislation goes to R3 whose lobbying on behalf of IPs has captured the turnaround space and in doing so has helped kill off initiatives to develop a rescue culture.

Flexible working can foster innovation and creativity

flexible working is good for businessA set of annual awards launched seven years ago is demonstrating the positive benefits of allowing employees to work flexible and part time hours.

The Timewise Power Awards winners for 2019 have just been announced and, as the founders say, they demonstrate the art of the possible.

Among them is Srin Madipalli, a wheelchair user who works 85% full time for AirBnB and combines this with public speaking to raise disability and accessibility issues at forums including the United Nations, Rio Paralympics and the Tech Inclusion Summit.

Chris Bryant, a partner at Bryan Cave Leighton Paisner, works three days a week helping clients from all sectors to prepare for Brexit, and at the same time cares for his daughter and writes for musical theatre. His work has been performed at the Edinburgh Festival and is now being developed for a nationwide tour.

Amy Haworth, a director working on an 80% contract for Deloitte, combines her working life with 60 to 80 performances a year as an international classical singer, and Joanna Munro, creative head of Fiduciary Governance at HSBC Global Asset Management, has managed to combine her three days a week working for HSBC with completing a Masters in creative writing and is now writing a crime novel.

While others have combined their flexible working with starting up a new business, developing an app or caring for relatives, what they all have in common is that the businesses they work for are able and willing to accommodate and see the benefits of allowing their employees to work flexibly.

Often their work feeds back into their work for their main employer, to the benefit of both parties.

How a willingness to accommodate flexible working could benefit your business

There is some truth to the adage that a change is as good as a rest and certainly if you want to retain key people it is important that they feel valued and fulfilled.

However, it is perhaps taking too narrow a view to assume that their focus should be only and entirely on their work for the business.

The stimulation of an outside interest, or the possibility of pursuing a related interest that is not directly within the scope of their primary role can lead to innovative ideas being brought back into your business.

Also, the success stories of the winners mentioned above can benefit your business reputation, not only by demonstrating that it is a forward-thinking company when it comes to the terms and conditions of employment but also in the additional kudos from those employees’ successes in other pursuits.

Such enlightenment can also help a business attract and retain both outstanding and highly motivated people.

Please do respond with your own stories about similar examples.

Can zombie and critically distressed businesses be resurrected from near-death?

zombie and critically distressed businesses - can they be rescued?More than one in ten (11%) UK businesses is a zombie business at the start of 2019, according to the Business Distress Index produced by the insolvency and restructuring trade body R3.

The figure rises to 16% of businesses in the North East, according to the Newcastle Chronicle, and the state of many more UK businesses is graphically illustrated by research from Begbies Traynor’s most recent Red Flag Alert, which showed that the number of businesses in “critical” distress leapt by a quarter to 2,200 in the fourth quarter of 2018 while those in “significant” distress remained roughly flat year-on-year at 481,000.

A zombie business is generally defined as one that is only able to pay the interest on its debts, not repay the principal debt.

As such, economists argue, these businesses act as a drag on investment, productivity and the economy, because they do not have the available capital to invest in new operations, products, or services, while the investment tied up in them is denied to other, nimbler companies.

Also, it is argued, many of them are only surviving because of the continuation of the very low interest rates that Central banks put in place in the wake of the 2008 Crash. Indeed, the BIS (Bank for International Settlements), the umbrella organisation for global central banks, has argued that the steep increase in the numbers of zombie companies has been “one of the dangerous by-products” of persistent low interest rates.

Is there any point in trying to rescue zombie and critically distressed businesses?

Inevitably all this supports the doom and gloom merchants who are predicting an imminent recession exacerbated by Brexit uncertainty, a decline in globalisation and ongoing trade wars.

Ric Traynor, executive Chairman of Begbies Traynor, suggests that in today’s world businesses need to be able to change direction quickly.

“Far too many companies have been caught out by an unwillingness to rapidly evolve and adapt to the new climate we are in,” he says.

We would argue that before such businesses throw in the towel completely it is worth getting help from a turnaround and restructuring adviser.

They will conduct a thorough and in-depth review of the state of the businesses and identify its weaknesses and strengths and may be able to offer solutions, some of which may involve radical restructuring and reorganisation to fundamentally change the business.

This may involve slimming down the business to a core activity that is profitable in a way that justifies investment in a new strategy that becomes the foundation for future growth.

We have some Guides that might help here such as a Guide to Productivity Improvement. Do look up our library of Guides at:

https://www.onlineturnaroundguru.com/knowledge-bank

 

The tide may be turning to improve workers’ rights

demonstration for workers' rightsIn December Christina Blacklaws, the president of the Law Society, warned in a letter to the Financial Times that employment law on workers’ rights had not kept pace with the changes in the way people work nowadays.

Her concerns were primarily for people working in the so-called ‘gig’ economy after the High Court ruled that Deliveroo riders had no right to bargain collectively.

Her letter said: “Case after case highlights concerns about how the workplace rights of employees, workers and contractors are affected by a law not fit for purpose and not easily understood. The lack of certainty means people are having to go to court to clarify their rights.”

Perhaps in some areas the situation is being clarified by case law such as the recent Supreme Court ruling re Pimlico Plumbers that a sub-contractor cannot be classed as an independent self-employed contractor for employment law purposes and should be treated as a “worker” who is entitled to holiday pay and other basic workers’ rights. This was similar to the Appeal Court ruling re Uber that its drivers should be classed as workers with access to the minimum wage and paid holidays.

The Government has published its proposals for employment law reform, which included giving workers the right to request more predictable hours, as well as offering enhanced protections for agency workers and heavier fines for malicious employers.

Not surprisingly, the more predictable hours proposal was dismissed by TUC leader Frances O’Grady as likely to give workers on zero hours contracts “no more leverage than Oliver Twist”.

No doubt, SME owners will say that the burdens placed on them by the living wage, work-place pension legislation and existing rules governing how they can and cannot treat employees are already onerous enough.

However, given the uncertainty surrounding a post-Brexit future and the fact that much of existing law protecting UK workers is EU law, it is understandable that employees are concerned about their future position.

In an effort to alleviate their concerns, the Government earlier this month issued guarantees on workers’ rights after Brexit, although this was quickly dismissed by an EU and employment law barrister as “meaningless” because there was no guarantee that a future UK Government would enact any future EU legislation protecting workers.

Certainly, the Labour party is offering the prospect of improved workers’ rights and a significant improvement in the power of Unions with a view to reversing the demise of the Unions and the lack of collective bargaining.

Independent of new legislation, the current low level of unemployment and large number of job vacancies would suggest that workers may regain some of their lost power and rights through their right to provide or withdraw their labour and more pertinently their confidence that they can offer it to another employer.

Given that many UK business sectors are already struggling with a skills shortage, particularly in engineering, construction and IT, and that any business that wishes to thrive and grow relies very heavily on its employees feeling valued and engaged with their employer’s future progress, this would seem to be one time when it is in the interests of both to ensure that workers’ legal protection is robust and secure.

March sector focus on UK food production, imports and exports

UK food export and importTea, the UK’s favourite beverage, could become a luxury if analysis by HSBC of a no-deal Brexit is to be believed.

The analysis, published by Business Insider in January, puts the amount of food imported into the UK at 80% if ingredients for processing products are included. Tea, for example, may be processed in the UK but is not grown here.

The prospect of no easily-available cuppas should really concentrate the mind!

Joking aside, an examination of UK food imports and exports indicates just how closely-integrated the food and food processing supply chain really is, and how much relies on the EU.

An analysis of the food industry must cover trade in both ingredients and processed foods. It is complicated by the fact that some ingredients, such as beef, pork and lamb, are often produced in UK but exported for processing and then re-imported as finished products such as cuts of meat ready-packaged for sale or as ingredients in ready-meals. This is the result of us in UK having so few processing facilities.

A further complication for UK food producers/farmers is the shortage of labour, from overseas workers for picking and packing to HGV (Heavy Goods Vehicles) drivers for transport.

This all suggests the likelihood that the cost of food imported into the UK is likely to rise sharply.

What food and drink does the UK export and to where?

According to the most recent statistics from the FDF (Food and Drink Federation) the top ten UK exports by value, in order, for 2018 were:

  1. Whisky
  2. Chocolate
  3. Cheese
  4. Salmon
  5. Wine
  6. Gin
  7. Beef
  8. Beer
  9. Breakfast cereals
  10. Soft drinks

At the moment it calculates that some 75% of this trade is to countries within the EU and as such may mean that new trade agreements, tariffs and so on may have to be developed with both EU and non-EU countries. Some UK food products have EU Protected Food Name status.

Non-EU target markets are likely to include New Zealand, Canada and/or the USA, China and other Asian countries but again all will need trade agreements to be put in place.

ADAS, the UK’s largest independent provider of agricultural and environmental consultancy, rural development services and policy advice, has analysed some of the potential opportunities for the UK to pursue in developing food exporting outside the EU.

For beef and veal, it suggests China, rest of Asia and Africa for offal and the USA for premium cuts but lists among the UK’s weaknesses its limited market access, uncompetitive pricing and the lack of processing facilities.

It is a similar story with sheep products, with the additional factor of already-established competition from Australia and New Zealand. Pork exports could be targeted at South Korea, Vietnam, China and the rest of S Asia but this will take time to put in place.

For dairy products ADAS sees opportunities in countries where there is a growing and affluent middle class, such as China, the Middle East and North Africa.

The UK already has an established global trade for its cereals and oilseeds with Algeria, Tunisia and Japan and here, too there may be potential for further market development.

The AHDB, (Agriculture and Horticulture Development Board, Stoneleigh, Warwickshire), too, sees potential for expanding UK food exporting particularly in dairy products.

Its analysis says: “The main trade-related opportunities of Brexit for the UK dairy industry will focus on displacing imports or growing new export markets. If the UK manages to negotiate a trade deal with the EU allowing tariff-free access, then the likelihood is for business as usual with the EU.

“However, if not, any import tariffs imposed by the UK could provide an opportunity to substitute a number of imports with British milk. Experience from the EU suggests that tariffs may limit the scale of imports of commodity-type products, although speciality products will probably still reach the UK.

“Combined with increased supply chain investment, this could see the UK progress as an industry.”

While opportunities for export are identified in all the analyses, they are contingent on the ability to negotiate Free Trade or Low Tariff agreements with potential customers as well as fending off already-existing arrangements that have been established by the EU.

The other glaring UK deficiency is in the scarcity of in-country facilities for processing foods for export.

It also remains to be seen how UK farmers and growers will be affected by the loss of various agricultural subsidies that have protected EU farmers for many years.

Are we nearing a Minsky moment foretelling the next economic crash?

Minsky moment fuse litHyman Minsky died in relative obscurity in 1996 but economists have adopted his name as a description of particular moments in an economy when asset prices collapse after months of seeming stability.

The 2008 Global financial crash is now seen by economists such as Nobel Prize-winning economist Paul Krugman, as well as former central bankers Janet Yellan in the US and Mervyn King in the UK, as a Minsky Moment.

What is a Minsky moment?

In the 1970s Minsky outlined his economic theory, known as Stability is Destabilising, in stark contrast to the macro-economic theory that argues that the modern market economy is fundamentally stable.

In Minsky’s analysis banks, firms and other economic agents become complacent during periods of economic stability. As a result, they take greater risks in pursuit of profits.

A Minsky moment is a sudden, major collapse of asset values which generates a credit cycle or business cycle. The result is rapid instability as a consequence of long periods of steady prosperity and investment gains that built up risk through ever more leverage instead of improving the balance sheet.

Essentially it is an assumption of never ending growth funded by debt.

Arguably, this is exactly what happened in the run-up to the 2008 crash as banks and other lenders issued complex instruments such as Credit Default Swaps to conceal leverage and risky lending. The crisis crystallises when either interest rates rise or when replacement finance is so expensive that borrowers are unable to pay interest on their debts, never mind the debt itself or even some of the principal.

The Minsky Cycle

A Minsky cycle is a repetitive chain of Minsky moments, when a period of stability encourages risk taking, which leads to a period of instability when risks are realized as losses. The result is that participants move to risk-averse trading (aka de-leveraging), to restore stability, which eventually leads to complacency and so on so the whole cycle repeats.

So, is there a risk of an imminent Minsky moment?

Some investors have been warning of the likelihood of an imminent Minsky moment for the last couple of years.

Asset prices have been relatively high, stock markets have been buoyant and, crucially, central banks have kept interest rates artificially low for much longer than was anticipated after 2008 in order to prop up their economies and allow time for stability and growth.

It is worth noting that the US Federal Reserve late last year started to increase interest rates slightly and we should watch carefully what happens in other central banks.

The IMF, too, has been warning of the risks or another financial crisis as the global market has been slowing markedly.

While Minsky tended to concentrate his analysis on the economy of an individual state, another now-deceased contemporary of his, Susan Strange, who taught at the London School of Economics, supported his thinking but had a broader, global political perspective.

She argued that individual economies should not be seen in isolation but in fact are woven together across the world.  This introduces the idea of contagion, where financial crises flow across borders. She also introduced the influences of a rise in populism and growing inequalities between rich and poor into the analysis.

Arguably, this is a more accurate analysis of the consequences of the Minsky Moment that began in 2008.

All this looks uncomfortably like what seems to be happening in economies now, but it is hard to say for certain yet whether a Minsky Moment is imminent. We only ever find out after the event.

March Key Indicator – Investment in the UK

investment on solid foundationsInvestment is a tricky term to unravel largely because the investment objectives are key to any decision and predicting the future is so difficult, especially given that past performance is rarely a predictor of future returns. Despite the lack of certainty, much analysis is necessary.

Much has been made recently in the UK’s uncertain economic climate about the massive reduction in investment being made by UK businesses in their companies.

It is argued that with the future so uncertain, businesses are holding onto their cash reserves and delaying plans for growth and indeed towards the end of last year the BCC (British Chambers of Commerce) was warning that British businesses had paused investment in growth. However, this is also an excuse used by weak leaders and those who lack a vision.

But investing in the future and growth of your own business is only one level of investment.

At a higher level, investors can be pension funds, investment “vehicles” or funds run by investment companies, and Foreign Direct Investment (FDI) by businesses from one country into those in another.

A rise in investments in the stocks and shares of businesses in an economy is generally regarded as a positive thing.

So, at the moment, UK equities seem to be doing well in that Bloomberg, for example, has just reported that the UK’s top ten investors, in which it includes Invesco, Schroders, Aberdeen Standard and Legal & General, have increased their holdings of UK-listed shares by more than a third over the last three years. This is interpreted as showing a degree of confidence in the UK’s long-term future.

In January CityAM interviewed Shroders’ CEO Peter Harrison reporting that he expected 2019 to be a better year for investors.

Similarly, ONS (Office for National Statistics) data shows that overseas investment into the UK is at its highest level ever, with investment from India, the US and from Japan leading the field.

Sectors currently seen as attractive by equity investors are the financial services and, for both Angel and Venture Capital investment, the UK tech sector, particularly for those businesses developing innovative software, and in Fintech (financial technology).

The key to understanding investors and their behaviour, however, is to examine their expectations.

Much has been made of the short-termism of many investors and shareholders and its negative impact on businesses. In this scenario, investor pressure is for maximum profits or returns on their money over a short period. This pressure can change the behaviour of boards of directors and even influence the remuneration packages of CEOs so that those who deliver maximum profits in the shorter term are well rewarded.  It is questionable, however, whether this is in the longer-term interests of a business.

Generally speaking this type of expectation is most likely to come from pension fund-type investors, where fund managers themselves are under pressure to maximise profits for their members.

Arguably the most successful and reliable investment funds, however, are those that take a longer-term view and focus on the lifetime value and potential of a business.

Warren Buffet’s Berkshire Hathaway vehicle and Terry Smith Fundsmith fund are the top performers using this type of investment model.

Buffet’s “value investing” style focuses on business, management, financial measures, and value and the emphasis is on the long term. He is less interested in the market or the economy or investor sentiment, focusing instead on consistent operating history and favourable long-term prospects.

Terry Smith uses a similar approach as described in a Guardian article last year. Since its founding in 2010 it has made a gain of 309%. His fund has a low turnover of shares and his message is simple: “Buy good companies. Don’t overpay. Do nothing.”

Smith says he avoids certain sectors like insurance companies, real estate, chemicals, heavy industry, construction, utilities, resource extraction and airlines. He recently launched a new fund, called Smithson, focusing on in mid-size companies. Like Buffet’s, Smith’s focus is on the longer-term value in businesses and this is where he chooses to put his money and those of the investors who are members of his fund.

Clearly if a business can attract the interest of either Buffet or Smith in investing it can have some confidence in its stability and its future. Strangely their strategies are similar to those of well run private businesses, although this is perhaps less surprising given that their money is in their funds.