Connect the Dots: No Promises

The mercury’s rising, birds are singing, flowers are blooming – yet it seems each hour of each day, the media smother us with details of a seemingly dysfunctional world, one marked less by hope and optimism and more by confusion, controversy and chaos.

Nationally, the first quarter of 2018 alone involved the Parkland, Florida, school shooting. Tales of sexual harassment and abuse in Hollywood and in Washington, D.C., bombarded us. Almost daily turmoil and turnover embroiled the White House staff, while special counsel Robert S. Mueller III continued to investigate potential Russian tampering in U.S. elections. Add to all of that the ongoing battle over immigration regulations, a missile scare in Hawaii, budding trade wars, a roller-coaster stock market and ongoing planetary environmental concerns.

With almost daily violence on our own area streets, of course, the local front scarcely remains immune to bad news, which also has included gubernatorial constroversies, the sale of Express Scripts, Bayer’s acquisition of Monsanto and St. Louis’ drop from the top 20 largest U.S. cities – all in all, enough to make one crawl back into bed and hide under the covers.

Of course, we can’t do that. Life goes on, and frustrated and depressed though we may be by current events, we must carry on.

The fact that so much has happened in so short a time supports the belief that we live in a world of no guarantees. At an event a few years ago, the late management and leadership guru Warren Bennis addressed the challenges people face in such a world. Bennis shared six points he once found on a company’s bulletin board, which speak to today’s U.S. corporate culture:

• We can’t promise you how long we’ll be in business.
• We can’t promise you that we won’t be bought by another company.
• We can’t promise that there will be room for promotion.
• We can’t promise that your job will exist until you reach retirement.
• We can’t promise that the money will be available for your pension.
• We can’t expect your undying loyalty and we are not sure we want it.

Bennis’ overarching point? In the current dynamic, corporations no longer make the kinds of promises they once did. So how do workers develop the psychological fortitude, leadership and managerial skills needed to navigate this perilous landscape?

Some may find Bennis’ perspective yet another sign of today’s societal decay. I myself find it refreshing and realistic, though. True, employees (especially millennials) may face a very complicated business environment of no promises. But recognizing no guarantees while retaining realistic expectations marks the first step in dealing with chaos and change. With change as the only constant, we can plan accordingly and remain open to new ideas and new directions. As the late, great Stephen Hawking told us, “Intelligence is the ability to adapt to change.”

Adapting to change in a chaotic world that offers no guarantees will require not only intelligence but also patience, persistence and creativity – qualities on which our society was built. And I’m confident such qualities remain our path to better days ahead.

I take joy in seeing young people expressing their anti-gun views openly, loudly and nationally. I marvel at the strength of the #MeToo movement and the courage of women to speak up for their rights. I marvel at the technological achievements our country consistently delivers, perhaps best symbolized by SpaceX CEO Elon Musk’s red Tesla rocketing into space.

Finally, I look forward to the warmth Mother Nature and our own good natures likely have in store for us. As local weather shows, there are no promises or guarantees – but there’s always hope.

Dr. Benjamin Ola. Akande is the senior advisor to the chancellor at Washington University in St. Louis and former president of Westminster College in Fulton, Missouri. He has a Ph.D. in economics and previously served as dean of the George Herbert Walker School of Business & Technology at Webster University.

Connect the Dots: The Joyride’s Finally Slowing

Appeared in the Ladue News by Benjamin Ola Akande, March 22, 2018

The resurgence of the stock market has much to do with confidence in it – confidence that continued to grow following Donald Trump’s victory in the U.S. presidential election in November 2016.

But truth be told, the strategy that laid the groundwork for this remarkable ride actually originated with former chairman of the Federal Reserve, Ben Bernanke, a scholar of the Great Depression who unleashed a dramatic assault to address the 2008 Great Recession.

That assault began with the Fed cutting short-term interest rates to historical lows of 0.15 percent in January 2009. The essence of the strategy involved keeping short-term interest rates as close to 0 percent as possible to enable the U.S. economy to recover. And so it was for the next six years. In addition, the Fed bought long-term bonds and mortgage-backed securities over a 10-year period, peaking at a value of $4.4 billion in January 2018.

Perhaps the strategy can be nicknamed “the Bernanke” because it involved a relatively new monetary position, specifically designed to entice investors to stop buying bonds and to start purchasing equities and investing in real estate. It worked – as household wealth increased, leading to more consumer spending – and it also paved the way for the economic recovery we all are enjoying today.

The stock market awoke as the value of equities owned by the average American increased upward of 45 percent between 2011 and 2013. The net worth for households increased by $10 trillion in just 2013, so imagine the consequential impact on the S&P 500, which increased by more than 200 percent between 2009 and November 2016. But then the “Trump bump” happened, with the stock market increasing an additional 100 percent, now totaling 300 percent in the aftermath of the election.

Yes, the market has benefited from a higher level of confidence perhaps attributable to the election and Trump’s presidency. However, the price/earnings (P/E) ratio just before the election already exceeded historical averages by 49 percent. And now the Fed is expected to curtail the availability of easy money that fueled these good times. Given this sensitive balancing act, I myself suspect the Fed will get the job done without plunging the economy into another recession.

Not everyone on Wall Street agrees, though, which explains why we saw the Dow Jones industrial average fall 1,597 points in a single day. This panic-type selling originated from a fear that the Fed, under the leadership of its new chairman, would reverse the long streak of tepid inflation and that low interest rates will abruptly end.

The panic quickly subsided, though, and the market’s losses have been halved, although daily volatility remains. Rising yields mean higher borrowing costs for companies, and that may push the Fed to raise interest rates more rapidly, which would adversely affect stock prices. Some economists contend the stock market rise resembles a mountain climber scaling a steep slope – at some point, the “mountain climber” slows and maybe even descends a bit to regroup and regain strength, before continuing to climb.

Of course, as important as the stock market remains as an indicator of how the economy is doing, it alone doesn’t indicate economic prosperity and continued growth. Consider, for instance, these factors:

• The U.S. gross domestic product has been expanding at an annual pace of more than 3 percent after inflation for three straight quarters.
• Average hourly earnings rose to $26.74 in January, a 2.9 percent increase over the past year.
• The labor market participation rate has been around 63 percent for the past four months.

Given those positive trends, I would advise long-term investors not to panic. Market corrections of 10 percent or more frequently occur. This isn’t the time to undo your entire investment strategy.

Dr. Benjamin Ola. Akande is the president of BOA Consulting and former president of Westminster College in Fulton, Missouri. He has a Ph.D. in economics and previously served as dean of the George Herbert Walker School of Business & Technology at Webster University.

Connecting the Dots: Uncertain New Year

Appeared in Ladue News on 1/25/2018

Industrialist J. Paul Getty, once identified as the richest living American, has been quoted as saying, “Without the element of uncertainty, the bringing off of even the greatest business triumph would be dull, routine and ultimately unsatisfying.”

If Getty still lived today, facing the uncertainty we expect in the financial markets in the coming months, I imagine he’d feel quite satisfied.

Fueling unpredictability in 2018, of course, are the recent passage of the federal 2017 tax cuts. Those cuts – the most sweeping update of the U.S. tax code in more than 30 years – clearly constitutes a fiscal stimulus. Its sponsors predict it will stimulate investment, encourage companies to bring back overseas funds and create thousands of new jobs. However, if that fails – instead, corporations may initially opt to use their tax savings only to buy back shares and increase dividends – then the legislation could add massive amounts to the federal debt, which might necessitate cutbacks in federal programs and lead to negative economic impact.

Businesses appear to be the big winners in the area of such cuts, with their rates dropping from 35 to 21 percent and the corporate alternative minimum tax having ben repealed. The budgetary cost of the cuts, amounting to almost 1 percent of gross domestic product, will be felt between now and 2022. There’s a lot at stake – and there’s also a lot of hope that this will work as envisioned.

Individuals may also benefit, at first, from the new tax brackets, which have been lowered to 10, 12, 22, 24, 32, 35 and 37 percent. The new arrangement also doubles the child tax credit to $2,000 and gives a $500 credit for nonminor child dependents.

But uncertainty exists here, too, as the law caps state and local tax deductions, and it essentially repeals the individual mandate of the Patient Protection and Affordable Care Act of 2010, colloquially known as Obamacare.

Questions abound. Will individuals spend their tax savings, further stimulating the economy? Will more taxpayers take the standard deduction rather than itemizing, which could impact charitable donations to the nonprofit sector? Will legislators ever find common ground on a comprehensive health care strategy that gives all of us certainty and affordability?

Adding to the uncertainty are short-term rate increases expected from the Federal Reserve. Since 2009, U.S. markets have been helped by a massive Fed intervention; interest rates have been pushed down to record lows, while asset purchases have depressed bond yields. The Fed has indicated it may raise rates three times in 2018, after three increases in 2017. Even if the Fed moves slowly, higher interest rates often lead to an end to credit cycles, as indebted companies and consumers default in greater numbers.

One other situation to watch in 2018 involves the increased scrutiny over privacy and control of our personal data. The FANG tech stocks – Facebook, Amazon, Netflix and Google (now Alphabet) – will continue to face growing pressures and restrictions such as those found in a new privacy law in Europe, the General Data Protection Regulation. The changing dynamics of net neutrality also pose uncertainty for consumers worldwide.

In sum, the U.S. economy has been undergoing what amounts to a sugar rush during the past several years. Economic history suggests that will end soon. Whether or not the tax cuts, Fed actions and other factors yet unknown will sustain the good times ranks as the defining uncertainty of 2018. Still, as author Stephen Covey tells us, “If there’s one thing that’s certain in business, it’s uncertainty.”

Connect the Dots: Breaches are Bad for Business

Posted: Thursday, February 19, 2015 12:00 pm

By Benjamin Akande

Early in February, Anthem, the nation’s second-largest health insurance provider, disclosed that hackers had compromised its cyber security system, possibly gaining access to the names, social security numbers, birthdays, addresses and employment data of as many as 80 million customers.

The Anthem announcement was yet another reminder of the global vulnerability of cyber security systems.

A few months earlier, retail giant Target reported that hackers had attacked its system. Target was just one of many companies battered by cyber attacks last year. The U.S. Secret Service reported that hackers hit the in-store cash register systems at several large companies, including Target, Supervalu and UPS Stores. The Department of Homeland Security followed up with an advisory warning that the attacks were particularly pervasive. The Department added that the hackers stole data of millions of credit and debit cards from U.S. consumers. The companies apparently were not aware of the thefts at the time.

Authorities say the hackers sell the payment information of millions of U.S. consumers overseas on the black market. In the majority of the instances, these companies — and the consumers — are not aware of these breaches.

Cyber attacks are not confined to corporate America. Several municipalities around the country, including Columbia, Missouri, as well as federal government agencies such as the Pentagon have been casualties of these attacks.

As for Anthem, many observers see the recent attack as a wake-up call for the health-care industry and for the corporate world.

But in this high-tech age, cyber security breaches are a potential Achilles heel for everyone—businesses, nonprofits and government agencies. In addition to posing a significant risk to the bottom line of businesses, they also present a huge global security risk. The problems with cybersecurity only are likely to get worse. Forbes predicts that 2015 will be a big year for cyber attacks — just like it was in 2014 and 2013.

Like many farsighted universities around the country, Webster University has been taking steps to make the world more secure from hackers.

In the past year, the Walker school has declared its intentions to be a leader in preparing the next generation of cyber warriors to prevent and engage via a new master’s degree in cybersecurity management. The degree prepares students for positions in the public and private sectors, and for running or protecting computer systems, information, networks, IT infrastructure and communication networks.

Like most of our degrees at the Walker school, the MS in cybersecurity management is market-relevant. It is designed to teach the students how to solve and prevent problems for their future employers. Students learn how to use their practical and theoretical knowledge of cybersecurity to analyze real-world problems.

Such skills are desperately needed in today’s world.

Vast multi-national criminal networks continue to make huge profits from information stolen from large corporations and their vendors. The world’s leading law enforcement agencies, such as the FBI, Scotland Yard, the U.S. Secret Service and Interpol, have taken great strides in trying to keep up with the criminals or stay ahead of them. But the criminals are becoming increasingly sophisticated and have invested considerable resources into staying ahead of law enforcement. Furthermore, they now have greater expertise and more access to purchasing tools online to subvert cybersecurity systems of large corporations.

The porousness of cybersecurity systems also poses a threat to national and global security. Hackers have targeted both sides of the Russia-Ukraine conflict and Israeli military operations in Gaza.

Helping find solutions to such critical challenges is critical to the mission of any university. It makes institutions of higher education relevant and enhances their credibility with the general public. In this new and increasingly uncertain century, universities that fail to seize these opportunities to demonstrate relevance are doomed to fail.

Benjamin Ola. Akande is a professor of economics and dean of the George Herbert Walker School of Business & Technology at Webster University.

Connect the Dots: Ones to Watch

Posted: Thursday, January 22, 2015 12:00 pm

By Benjamin Akande

St. Louis increasingly is being recognized as a Mecca for enterprising and innovative business owners. In recent months, major news outlets, including The Wall Street Journal, Forbes, TechCrunch and MSNBC have all hailed the Gateway City as the destination for startups.

Indeed, the number of companies opening shop or raising capital to get off the ground has almost doubled in the last two years, according to the St. Louis Regional Chamber of Commerce. This is due, in large part, to a supportive environment that offers plenty of access to mentoring, networking, Arch grants and new venture funds.

The Ewing Marion Kaufmann Foundation reports that Arch grants played a key role in creating a community of entrepreneurs. These entrepreneurs received small grants and also were connected with local support organizations. As of July 2014, the report notes that 20 recipients of these grants had created 104 jobs, generated more than $2.8 million in revenue, and raised more than $17 million in investment.

This is just a taste of many, many wonderful things to come this year and in the coming years in the commercial life of the St. Louis metropolitan area.

The following is a handful of budding companies that exemplify the prosperous years ahead for the St. Louis region and ought to be watched closely in 2015:

• This promises to be an exciting year for BacterioScan, a locally based company that offers microbiology diagnostic systems for rapidly detecting infection and antibiotic susceptibility and resistance. The company plans to roll out its first clinical application of rapid screening of urine specimens for bacterial urinary tract infection (UTI) during the second quarter of this year. This clinical, global market segment is booming, and is projected to exceed $10 billion by 2017.

Adoption of this new technology will reduce costs and delay in diagnosis, and is expected to reduce the unwarranted use of antibiotics in treatment of UTI. Leading research organizations such as the U.S. Centers for Disease Control, St. Jude’s Children’s Research Hospital, UCLA Medical School, and the U.S. Army Medical Institute have begun trials to use the company’s platform for rapid measurement of antimicrobial resistance and susceptibility. It is expected that this will provide valuable guidance in diagnosing bacterial infections and other related diseases. It also will help address the growing challenge of drug-resistant pathogens.

• Total Hockey & Lacrosse, a one-stop store and online retailer specializing in hockey and lacrosse sports markets, is raising capital in the private markets to propel its next round of rapid growth. In recent years, the St. Louis-based company has expanded to 24 stores in seven key markets, including Detroit, Chicago, Philadelphia, Washington, D.C., and Minneapolis. Annual revenues currently hover at about $60 million. With its new infusion of capital, Total Hockey plans to establish 85 stores in 20 key U.S. markets by the year 2020.

Like BacterioScan, Total Hockey & Lacrosse has been smart about developing its playbook for strategic growth. The future looks bright for this specialty retailer. Participation in lacrosse has risen steadily in recent years: Almost 750,000 young people played organized lacrosse in 2013, according to U.S. Lacrosse. And USA Hockey reports that a record number of people now play hockey across the country, increasing by 16 percent over a 10-year period.

• Last fall, CIC@4240, a company that provides flexible working space for startups and emerging businesses, opened its first location outside Massachusetts in St. Louis’ innovation district. CIC@4240 was attracted to the Gateway City for St. Louis' reputation as a destination for entrepreneurs. It appears the company’s instincts were spot on. Just weeks after the company opened its 32,000-square-foot building on Duncan Avenue, it had already had 20 tenants, including Washington University, Boeing Ventures Group and Husch Blackwell. Company officials are confident that all 70 spaces will be occupied within 12 to 18 months of opening.

• T-REX is another critical player in the St. Louis ecosystem. The co-working space and technology incubator, which provides startup entrepreneurs with affordable space and offers the community useful programming, now occupies five floors of The Lammert Building on Washington Avenue. T-REX currently has more than 100 tenants, a number that continues to rise steadily.

• Cultivation Capital is another critical element in the region providing significant funding support to financial services and technology startups. Building on a $20-million investment fund initiated in 2012, it plans to double that through a newly created fund targeting 20 additional startup companies. One of the most active seed venture capital firms in the Midwest, Cultivation Capital provides a significant resource in keeping St. Louis vibrant as the destination for startups.

The future looks bright for all of these companies –and for our region.

Benjamin Ola. Akande is a professor of economics and dean of the George Herbert Walker School of Business & Technology at Webster University.