How do companies invest in uncertain times? 

Prof. Leibfried: Uncertainty itself is actually one the biggest problems for companies, although uncertainty is a characteristic feature of business activity. I find the inconsistencies in the nature and spread of the problems disconcerting. While some branches of the real economy are working very well and are barely affected by the crisis, macroeconomic developments are casting long shadows over the economy as a whole. All in all, we are having to live with a largely unpredictable situation at the moment.

Roger Neininger: That’s right. In addition, our economic environment is marked by growing distrust of politicians as well as certain business leaders. It is also clear that trust in banks has not yet been restored after the financial crisis. Moreover, the huge volatility of commodity prices and currencies and increasingly fast cycles are putting companies under real pressure.

Roger Neininger: It is absolutely vital that companies know about the development of individual markets. For instance, this means analyzing the political and economic situations as closely as possible. Assessing the legal and fiscal certainties correctly is crucial. Major investments are based on clear strategies, thorough due diligence and investment decisions approved in the context of corporate governance.

Prof. Leibfried: I wholeheartedly agree with that from a scientific viewpoint. Companies have to obtain as much data as possible from the markets and their environment. Analysis of the market situation has to be carried out with the utmost care, ignoring the short-term debate being whipped up by the media.

Prof. Leibfried: Europe is still a market with a stable framework and established structures. The main thing that sets the new markets in South America and Asia apart is the growing youth population and a middle class that will generate substantial demand. However, as long as Europe remains a source of technological progress and expertise, the old continent will still have good prospects.

Roger Neininger: In particular, I can still see the large multinationals continuing to invest in Europe on a large scale, because the existing structures need to be modernized. However, investments always need to be combined with the right expertise in order to make the most of them. Europe is still out in front here.

Prof. Leibfried: At the level of private individuals and one-man businesses, we have noticed a strong trend toward more legislation. Economic relations are becoming increasingly influenced by legal norms rather than social ones. At the level between companies and authorities, we are experiencing a rising tide of regulation and ultimately, top-level political relationships between countries are being characterized by a new surge of protectionism.

Roger Neininger: Particularly in the emerging countries, there are often high risks and inadequate legal certainty. That is why it is hugely important to draw on local knowledge regarding responsible, constructively critical conduct, sound judgment and personal commitment before making an investment decision. Future prospects and the assessment of future developments must also be taken into account. That takes time and a high level of specialist expertise.

Roger Neininger: Currency and interest rate volatility as well as counterparty risks need careful consideration. A key factor here is where and how a company finances itself and manages or at least hedges its expected cash flows – aiming for natural hedging, while ensuring the necessary optimum quality appropriate to the local situation, is an advisable approach. The golden rule of accounting, which states that long-term investments must also be financed by funds available to the company on a long-term basis, is just as true today as it ever was.

Prof. Leibfried: In times of increased volatility and uncertainty, my main recommendation to companies is to focus on flexibility, both in terms of the investments themselves and with regard to financing. The current situation has hit companies with a strong dependency on the euro-franc exchange rate especially hard. Only rigorous cost management will help here.

Roger Neininger: Investments must be based on a clearly formulated strategy and a predefined, necessary return on investment. Investments must be made within a clearly defined framework and their success must be measurable. Decision-makers should be able to rely on correctly calculated figures and make a reliable judgment on the profitability of their investments in a prompt and structured manner.

Prof. Leibfried: In particular, there must also be a willingness to review all past investment decisions openly and critically and disclose their outcomes. Otherwise, such disclosures are meaningless.

Roger Neininger: Ultimately, only responsible and financially sound companies can perform this important task. In particular, family-controlled companies and public corporations that do not simply pay lip service to corporate social responsibility are making a major contribution here. Transparency regarding specific measures and achievements in terms of honest reporting ultimately creates value not only for entrepreneurs, but also for our society as a whole. But one thing is clear: measures and activities geared toward sustainability and social responsibility must also be commercially viable and financially worthwhile for the companies.

Prof. Leibfried: I totally agree with that. However important idealism and environmental and social commitment may be, there is no ignoring the business imperative. Consequently, there is a risk that specific measures and ideas end up being nothing more than a marketing ploy. For instance, back in the 1970s there was much talk of social accounting and similar tools, which fell into oblivion long ago, at least in this form. The economic benefits of sustainable corporate governance certainly have a positive impact on costs and earnings, but we still find it hard to document this using the accounting tools available to us.

Interview: Simone Glarner, Marketing & Communications