Economic Climate for Small Business – Has Obama Misread the 3 Ms?

 

Sept. 8, 2010

Using the 3 Ms as criterion, it’s report card time for the “summer of recovery,” as predicted by President Obama last June. From the perspective of most small businesspeople, the three Ms can be defined as the mandate, moment and mood. Based on his strategies, has Mr. Obama misread his 3 Ms?

Clearly, after President Obama’s election nearly two years ago, the nation appears uncomfortable with his strategies for hope and change. There are worries about the economy and dissatisfaction with the nation’s leadership coupled with a huge lack of confidence – Americans see too little action – too late.

Consider President Obama’s recent Gallup Poll ratings:

• Job approval – 42 percent (only 39 percent among Independents)
• Economy – 38 percent approval rating
• Obama on Healthcare reform – 39 percent approval.
• Country – right direction – 32 percent say yes.

Why such bleak approval ratings? Well, when it comes to Main Street, the Obama Administration has a tin ear.

Bailouts, heavy spending, healthcare overhaul, and cap-and-trade legislation have been the misguided priorities for the Obama Administration. He has not been confused with President Lincoln. As a result, Mr. Obama has been off-target with assessing strengths, weaknesses, opportunities and threats. He has accomplished little regarding the economy and job creation, as the 9.6 percent unemployment rate is poised to climb higher.

His message is also off-base – really missing the target. The nation’s confidence is sinking. He needs to understand why President Roosevelt was widely respected during the depression years.

Admittedly, his proposed tax breaks are welcome – accelerated write-offs for investments in plants and equipment – and tax credits for research. Companies could deduct investment expense in one year instead of the current provision for three to 20 years. But they will not yield a quick fix for struggling businesses.

The tax breaks should have been proposed 20 months ago – businesses do not have an incentive to take risks, and they will not add to their payrolls. Even for a beleaguered construction industry, Mr. Obama’s proposed $50 billion spending for roads, railways and runways is seen as a political payoff to unions.

Government policy should be focused on alleviating uncertainty for employers – not creating chaos. For businesses to increase spending, it starts with confidence. So, they’re not likely to buy machinery or high-tech, which would create jobs.

Big companies can borrow at lower interest rates. Even though small businesses comprise the lion’s share of the nation’s economic engine for job creation, most small businesspeople feel as though government has declared war on them. Many have suffered severely and have lost their positive credit ratings – making it impossible for them to borrow at decent rates. That’s a shame.

Small Business Administration (SBA) figures show small companies represent 99.7 percent of all employers, and employ more than 50 percent of the private-sector workforce. The SBA says account for 44 percent of payrolls, and more than 50 percent of the nation’s non-farm gross domestic product. They comprise 97.3 percent of exporters, and are responsible for 13 times more patents per employee than big companies. But the patent-application process takes more than half a decade (see this column: “Is the U.S. in Danger of Becoming Second-Rate in High Tech?”)

Just like during the Bush Administration, the SBA in the Obama tenure has decimated government-contract opportunities for small businesses. Twenty-three percent of all federal government contracts must be allocated to small businesses. This year, the Obama Administration admitted it failed to achieve the goal, even though it claims to have given $96.8 billion in government contracts to small business. Or did it? No.

A study released in June by the American Small Business League (ASBL) concludes that a whopping 60 percent of the top 100 contracts resulted in welfare for big companies.

To name names: Boeing, British Aerospace, Dell, General Electric, Honeywell International, Lockheed Martin and Raytheon all received corporate welfare – government contracts intended for small entrepreneurs.

Small businesses are getting a raw deal in other ways. Consumers have been so hammered, they can’t buy goods and services – even if they want to do so. Financial reform did nothing to help consumers and small businesses long pillaged by predatory credit card companies. New cars and trucks continue to be parked at dealerships.

Because this isn’t a nurturing economic climate, there’s also been a decrease in self-employed businesspeople. Recent Labor Department figures show there are 8.68 million self-employed persons. That’s down 13 percent from four years ago, December 2006, when there were 9.98 million people working for themselves.

It’s small business that creates jobs in this era of corporate-bailout largesse. However, small businesses are being choked because they can’t get credit and they’re facing a slump in demand.

They’re also facing a health reform law that favors bigger companies. Other government-forced paperwork will increase. Plus, every company must produce a Form 1099 to each vendor when annual purchases total more than $600. The SBA says employers with 20 or less workers now have to spend 45 percent more of their hard-earned resources to stay in compliance with federal mandates. IRS audit hours for small firms are up 30 percent in just five years. You guessed it – audit hours for their big-company peers are down by a third over the same period.

Summer of recovery? No. Every economic report has delivered bad news. President Obama has misread his 3 Ms.

The bottom-line: Small businesses want a healthy economy. They want to hire workers when feasible. But they do not feel expansion of government, high taxes and new regulations will help them succeed.

Small-business success is our best hope. Public policy should reflect this reality. Mr. Obama should emulate President Lincoln in deciding policies, and Franklin Roosevelt for delivery of the right message to inspire confidence.

From the Coach’s Corner, from a more macro perspective, it’s also been alarming to watch American officials scold the Germans for not spending enough. But it’s Germany with the healthiest economy in Europe.

An article in Forbes explains it well: “The U.S. Killed The Summer Of Recovery – We did it by framing the wrong problem,” by scholar Thomas F. Cooley.

Trends in Human Resources Management – Wharton Study

 

Some intriguing revelations have to come to light concerning developments in human resources management, according to a Wharton study.

The study considered trends in the human resources management of Fortune 100 firms – in 1999 and again in 2009 – and it provides insights for the future. All the answers led to one conclusion. HR is being accorded higher regard as a profession.

The study: “Who gets the top job? Changes in the attributes of human resource heads and implications for the future.”

It was researched by Dr. Peter Cappelli, a Wharton management professor, and Yang Yang, a Wharton post-doctoral fellow.

As for who gets the top job, 27 percent of the HR managers were women before the decade began. Now, 42 percent of HR managers are women.

The average HR manager is 53 years old. That’s up from 50.

“Why is not completely clear,” said Dr. Cappelli. “It could be a sign that the area has been stagnant as opposed to others.”

Conventional wisdom is that HR managers are required to have a broad business background. That was especially true in 1999 during a period of high employment.

During the Great Recession with dwindling union membership rolls and high unemployment, HR executives tend to have more of a traditional HR background. But Dr. Cappelli indicates it’s expected “top leaders” have general-business acumen to understand the big picture facing their companies.

The data shows they’re hired as HR managers 39 percent of the time from other firms. That’s down from 41 percent in 1999.

However, it also indicates the managers were hired at lower levels and promoted in a short period of time to the top HR spots later.

Preferred Experience

Many had experience working in these companies: Citibank, Dell, Hallmark, Morgan Stanley, Pepsi and Verizon.

“When a new person takes over that top role, the change in his or her attributes is quite likely to say something about the change in the priorities the CEO has for human resources going forward. Looking at how the backgrounds of these top executives have been changing should tell us something very important about trends in how corporate leadership sees the HR function,” according to the researchers.

While HR managers in the Fortune 100 tend to have bachelor’s and master’s degrees, fewer have doctorates.

Nearly 50 percent had international experience – especially in top 60 – a 300 percent increase over 1999 levels.

Twenty percent in 2009 had communications and corporate affairs experience.

Accountability has taken on more importance.

“The adage, ‘You can’t manage what you don’t measure,’ reflects this move to get more serious about control systems, especially where the costs are high,” said Dr. Cappelli.

“While HR lacks the glamour within the business community of fields like strategy, its actions have a profound effect on the lives of employees,” the authors wrote. “Human resources is a crucial point of intersection between the broader society and business,” wrote the researchers.

The study showed just four of the HR managers remained lasted from 1999 to 2009.

The study was funded by PricewaterhouseCoopers.

From the Coach’s Corner, for more on the importance of HR management as a profession, please see this Biz Coach column:  If Mergers & Acquisitions Tempt You, Consult HR Pros.