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Ian R. Campbell
Works at Business Transition Counsel Inc.
Attended The University of Western Ontario - Richard Ivey School of Business
Lives in Toronto, Ontario, Canada
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Ian R. Campbell
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Brexit from 10,000 feet. Read “Is Brexit the Elephant in the Room?” at http://goo.gl/jwUEis
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Ian R. Campbell
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In this week’s issue: private equity success, economic growth uncertainty, U.S. jobs report - coal mine canary, business transition – external expertise, Emerging technologies & more curated related news. Subscribe @ http://goo.gl/s76gpm.
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Retirement savings shortfalls and consequences

A recent article titled Guess How Many Americans Over 55 Don’t Have Any Retirement Savings says about 30% of Americans over 55 years of age have no retirement savings, and that 26% have retirement savings balances of less than $50,000. Taken together, that is over half of Americans over 55 years of age. Presumably in both cases that is exclusive of the equity they have in their home and other physical assets if they own those things.

This lack of retirement assets is frequently reported on, and has been for some time. For example, see The Reality of the Retirement Crisis, Center for American Progress, January 2015 at https://goo.gl/YBRNl6.

This is far from a problem that is unique to the United States. For example, see Many Canadians entering retirement with inadequate savings, The Globe and Mail, February 2016 http://goo.gl/Y4X651. Similar articles deliver the same messaging for many other countries, including Australia, Germany and the United Kingdom.

But what is not reported or seemingly talked much about is what the consequences of this are likely to be not only for those retirees but for non-retirees now in their most productive earning years, those that have saved adequately for retirement, for the very wealthy, and for businesses. A partial list of those consequences might look like this:

1. a return to an environment where younger members of families take older family members into their homes and hence their day/day lives
2. reductions in consumer spending, and hence reduction in the rate of gross domestic product growth in developed countries
3. declines in business profitability as product and service margins are squeezed
4. increased direct and indirect taxes on, and subsidization by, “haves” in aid of “have-nots”
5. societal unrest as older people live longer, increasingly see their lifestyles deteriorate, and increasingly look to their governments for subsidies

Unfortunately there are only questions, and few if any good answers.

There is little doubt improved health care is extending lifespans in developed countries. There is also little doubt that in the past 50 years people have come more and more to “live for today, and beyond their means”. Finally, there is little doubt the “piper will have to be paid”.

These things are staring business owners and their advisors in the face. This means that business owners need to do everything they can to strengthen balance sheets, strategize to ensure business viability, and beginning planning immediately for business transition. This where business transition means either arm’s length sale or generational transition.

Read Guess How Many Americans Over 55 Don’t Have Any Retirement Savings at Fox Business - http://goo.gl/HeBhHh.

You've probably heard that most Americans aren't saving nearly as much as they should for retirement.
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Technological Change Circularity?

Michael Gorman is President of the International Society for Psychology of Science and Technology. He is Director of the Science, Technology & Society program in the Department of Engineering & Society at the University of Virginia.

Dr. Gorman concludes in his recent article Emerging technologies, education, and the income gap by saying that “as the co-evolution between technology and society accelerates, the value of education accelerates”.

That may be true for those whose financial capability, intellect, emotional make-up, energy level and drive to succeed are such that they can take advantage of opportunities opened by new technology.

But that seems less likely to be true for those of lesser capability. I believe this means technological advances have, are, and will continue to make our economic, business, and social environment ever more complex and Darwinian. And this has to be true for individuals in all countries, not just those who live in America.

In his article Dr. Gorman writes: “The question is how to create social systems that maximize the opportunity for those not at the very top of the economic spectrum to succeed”. The question Dr. Gorman does not ask is : “Is this possible in a world where economic success is dependent on genetic Darwinian attributes?”

I believe that second question to be the right question. And that the answer to that question turns on whether technological advances will create lower-level jobs sufficient to replace the higher-level jobs that it will eliminate. Some technology commentators believe that job substitution process is unlikely to continue. I suggest that is the question politicians and economists need to answer.

I also suggest this is a critical question that business owners and their advisors need to focus on as they strategize their businesses and plan for business transition. Importantly, business owners and advisors need to get up to 20,000 feet to look at this issue.

If I am right, technological change and its impact on country-specific societies will impact businesses – some positively but many negatively – both directly and indirectly. Hence, I don’t believe it is enough to assess potential technology advances based only on the direct impacts they may have on a given business.

Read “Emerging technologies, education, and the income gap” at the Washington Center for Equitable Growth” - http://goo.gl/VD9fFs.

What does history teach about job destruction and creation? Can the study of history help us understand how structural changes in the U.S. economy have affected growth and inequality in the past?
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A Business Technologist: Does Your Business Have One?

Technology advances are changing the way businesses do business at all levels. Whether analytic, service delivery, production - you name it. It is necessary for every business to keep as on top of these changes as they are happening and being forecast. This is because ongoing technological advances are going to have a big impact on the free cash flows and viability of many businesses. As well as on unemployment, wage rates, country-specific economies and the macro-economy.

For some time now I have been advocating that businesses as a minimum delegate an employee particularly interested in technology to prepare a regularly scheduled report on the state of technology advances within your industry. That will then give you a base for discussion with your Directors, executives and managers on technological advances relevant to your business.

In this article McKinsey rightly says success in keeping up with technological change in a business requires three things. The first is being able to identify technologies. The second? Understanding the implications of those technologies in the context of your business. The third? Deploying those technologies in a structured and effective way in your business. To that end McKinsey advocates delegating an employee to be the businesses' business technologist.

Business technologist is a term used to describe a person who specializes in advising businesses how to maximize productivity and free cash flow through new, improved and innovative technology related products and services. A business technologist focuses on (1) available technology, (2) coming technology advances, (3) technology strategy for a given business, and (4) technology integration and its timing in a given business.

I continue to believe we are seeing only the tip of the iceberg when it comes to technology advances. I also think comparatively few politicians, government officials, business owners, advisors to business owners, financial market makers, and financial market participants are as focused on the importance of technological advances as they should be. This where I believe there is a very high probability ongoing technological advances will change the business landscape for virtually all businesses. And this where I believe those changes will result from both direct (e.g. changed cost structures and employee bases) and indirect influences (e.g. increased government intervention and financial requirements).

I recommend this McKinsey article to you, particularly if you are a business owner or advisor to business owners. The article will not give you all the answers. It ought to give you a great deal of food for thought and questions that you need to address now, not later.

Read “Becoming a better business technologist” at McKinsey & Company - http://goo.gl/jJtyMK.

There’s no silver bullet, but success requires being able to identify technologies, understand their implications, and deploy them in an effective, structured way in your organization.
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The Yellen Index

BlackRock, said to be the world's largest asset manager, calculates a so-called Yellen Index. Dating back to 2003, the Index tracks a group of labor market economic indicators cited by Federal Reserve Chair Janet Yellen as being critical to Federal Reserve decisions.

This article sets out two charts. The first shows the 3 month average of the 10 economic indicators included in the Index. The second shows the 3 month annualized change in the 3 month average.

Viewed in combination, the two charts show labor market indicators in positive territory from 2003 - 2008, in negative territory from 2009 - 2014, and in positive territory from 2015 to date. But they show that since the end of 2015 the momentum of the index has been downward and in the last month or so entered negative territory.

Federal Reserve decision timing after 2008 is shown on the second chart. Absent very strong labor market indicators in coming months, if Federal Reserve decision making is consistent going forward it seems very unlikely the Federal Reserve will raise interest rates any time soon. That conclusion likely also finds support in the current environment of macro-economic and financial markets uncertainty.

Read “These 2 powerful charts show the problem the Fed faces”” at Business Insider - http://goo.gl/lDXJ3b.

The Federal Reserve (Fed) faces a big challenge...
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Ian R. Campbell
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Fed will still raise rates despite ‘disappointing’ US jobs figures, says Janet Yellen

Fed Chair Yellen’s June 6, 2016 Speech

Prior to Fed Chair Yellen’s June 6, 2016 speech

U.S. equity markets advanced Monday morning ahead of Fed Chair Janet Yellen’s 12:30 p.m. ET speech. This following a slight U.S. equities market increase on the previous trading day – Friday, June 3 – following the 8:30 a.m. ET release that morning of the U.S. May jobs report.

Reporting on U.S. equity markets activity up to the time Ms. Yellen began to speak was in part about immediacy in the face of high financial market valuations. These high market valuations having been bolstered by easy money policies and low interest rates after 2008. Macro-economic conditions, enthusiasms, and concerns ought to impact an efficient market. But seemingly the most important thing that matters on Wall Street (and Bay Street, and The City, and .....) is “how much fiat money can I make or lose in the next milli- or nano-second”.

Immediately after Fed Yellen’s June 6, 2016 speech

As I see things, yesterday Fed Chair Yellen, who until now for me has not appeared to be a “wildly obvious cheerleader” for the U.S. economy, just became one.

Over the course of approximately 45 minutes she regaled the financial markets and everyone else who would and will listen with a good news story of how the U.S. economy continues to recover, how she is optimistic U.S. economic recovery will continue going forward, how one economic statistic should not be relied on (being last Friday’s jobs report), how she expects the Federal Reserve’s 2% inflation target to be reached within 2 years, etc., etc.

Ms. Yellen took no declared position on whether the Fed would raise its interest rate next week, and was much less aggressive generally about Fed interest rate increases than she had been only 10 days prior. That for me means it would be an enormous surprise if the Fed raises its rate next week, or for that matter any time soon.

In the first hour of trading after Ms. Yellen began her speech the gold market was up about $5, and the DJIA was down (from the time she began her speech) by about 25 points (or about 20% of today’s gain). At 4:00 p.m. yesterday gold was still up about $5 on the day, and the DJIA had returned to where it had been just prior to Ms. Yellen’s speech.

At some level one has to feel sorry for Ms. Yellen, even though she presumably willingly accepted the Fed Chair position when former Chair Bernanke resigned. She can hardly stand up and say something along the lines of:

“We really don’t know what to think based on the 38,000 jobs reported three days ago. No one, including me, saw that coming. Moreover, we really aren’t very sure about any economic or financial market prediction at this point. I guess we will just have to wait and see what happens. In the meantime I am recommending to my colleagues next week we all go to the beach together for the summer. We know there are great white sharks in the water at the beach. But we won’t go into any water over one foot deep so as not to be eaten alive. Of course, it is possible that while we are looking toward the water for great white sharks, an alligator or five might catch us from behind.”

Yet in a funny sort of way that is pretty much what I heard Ms. Yellen spend 45 minutes yesterday saying in ‘Federal Reserve speak’. Obviously the financial markets, and apparently most others, didn’t hear what I heard.

Recall that about two weeks ago Ms. Yellen publicly stated that Federal Reserve officials did not see the 2008 financial crisis coming. It is difficult to believe current Federal Reserve officials, Ms. Yellen included, are likely to say they didn’t see a further financial crisis coming if indeed that is what transpires at some point going forward.

In the meantime, if you haven’t done so you might want to read “U.S. May Jobs Report: Black Swan or Aberration?” at http://goo.gl/AmHtzC. That article describes how the U.S. jobs report is generated. It also agrees with Ms. Yellen that “one swallow does not a summer make”. Stay tuned.

Read Fed will still raise rates despite ‘disappointing’ US jobs figures, says Janet Yellen at The Telegram - http://goo.gl/K0stp8.

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Ian R. Campbell
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Policy Makers: Ready for Downturn?

This short article focuses on how prepared, or perhaps better said ill-prepared, American policy makers are should the U.S. May jobs report prove to be "the canary in the coal mine".

The article also focuses on this being a U.S. presidential election year, and hence the probability - if not likelihood - of U.S. politicians postponing decisions until 2017. The article does not discuss polarized U.S. federal government decision-making, irrespective of the election or any other near-term event.

Economic downturn should not be thought about in a U.S. centric way. It should be considered in global way.

There is little doubt that economic growth is slowing in both developed and developing countries. There is also little doubt central banks have little remaining "dry powder" available to them, that governments broadly are over-levered, and that the macro-economy is becoming ever more complex.

This article says (1) policy inaction can make the U.S. economy more vulnerable, (2) economic downturns are rarely expected, and (3) "good economic management doesn't focus on today's success but rather on the possibility of tomorrow's failures".

It is easy to agree with the generalization stated in point 3. It is also easy to agree with point 1, but there is no reason that point should be restricted to the U.S.

Point 2 needs some work. The question needs to be asked "expected in what circumstances and by whom?" Currently there are many things that point to the likelihood of a global economic turn-down. Perhaps the vast majority of the world population will be surprised if we have a repeat of 2008 - albeit for different reasons. But a growing number of people won't be.

That politicians, central bankers and other policy makers are ill-prepared - or unable - to respond to a financial crisis will only exacerbate the problem if it happens. And it happening at some point seems more certain by the week.

Read “If the Economy Is Sinking, Policy Makers Are Far From Prepared” at The New York Times - http://goo.gl/NVcDWG.

It seems hard to think of a time in recent United States history when policy makers have had so little room to maneuver to help the economy.
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Federal Reserve Forecasting

On May 27 U.S. Federal Reserve Chair Janet Yellen was awarded the Harvard University Radcliffe Medal. The Radcliffe Medal is given each year to a person assessed to have had a transformative impact on society. One might argue that Harvard might have waited until the results of Ms. Yellen's transformative impact are better known. But there can be little doubt Ms. Yellen has had, and continues to have, a transformative impact on the U.S. and world economies.

Interestingly Ms. Yellen, in her address to those in attendance, said in reference to the 2008 financial crisis “we (at the Federal Reserve) saw trees, and the house-price bubble was a tree. But ….. we really didn’t see that (the 2008 financial crisis) coming”. One might think that to be quite a shocking admission. This where a number of people (New York University economist Nouriel Roubini being only one of those) predicted the 2008 financial crisis, if not its exact timing. And where this can hardly be assessed as a confidence builder in the Federal Reserve’s ability to forecast.

The other thing of note Ms. Yellen is reported as saying during her address was that a further Federal Reserve rate hike in coming months may be appropriate. This follows last week’s Fed announcement that a rate hike could come as early as mid-June. This on-going somewhat mixed messaging is reminiscent of 2015 Fed messaging over many months that preceeded a 0.25% interest rate increase in December 2015.

For me the current interest increase messaging sounds more like an attempt to put a damp rag on a smouldering financial markets fire. Where this is being done so as not to shock the financial markets if and when the Fed again raises its interest rate by a further nominal 0.25%.

Read “Yellen: We didn’t see the financial crisis coming” at Business Insider - http://goo.gl/OX3HBV.

The Federal Reserve did not see the financial...
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Read "Corporate Debt, Buy-backs and Valuation - Party On?" at http://goo.gl/VdDxNl.
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Executive and management compensation is an important topic that impacts both publicly traded and private companies. In family businesses compensation and benefit amounts often “are what they are”, where that phrase can mean either what the business owners need to support their lifestyle, or what the business can afford to pay. Further, in family businesses compensation and benefits perceptions can be the subject of disagreement and dispute.

Good corporate governance necessitates that more care around compensation and benefits amounts will be required in many family businesses, where this may be forced by economic and business conditions that may result for many businesses in decreasing free cash flow. Certainly, whether for this reason or others compensation and benefits are topics family businesses are likely to have to address more often going forward.

Learn about Meridian Compensation Partners, Chris Medland, and family business compensation at http://goo.gl/yhXG9Z.
Meridian Compensation Partners, Chris Medland background experience, and commentary on family business compensation.
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Readying a Business for Sale

Business owners, as part of their day/day and year/year business planning do not all think about planning for sale or generational transition as part of that process. They should. This is because even if you are not at the point of planning to sell or generationally transition concurrently planning for both those two types of transition is highly complimentary to planning your business for growth in viability and value.

This commentary directs you to two articles that discuss steps you and your advisors should consider if you are planning to sell your business. You will be able to access both articles by accessing the first one through this commentary.

The first of the two is titled "Positioning a Business for a Merger or Acquistion (Part 2)". The second is title ""Positioning a Business for a Merger or Acquistion (Part 3)". The first article discusses (1) Operations Assessment, (2) Business Model Analysis, (3) Review and Recast Financials, and (4) Prepare a Pro-Forma. The second article discusses (1) Create a Business Plan, (2) Prepare for Due Diligence, (3) Clean-up the Ownership, and (4) Create a Hard Asset List.

There is enough in these two articles that they are worth review by business owners and their advisors.

Read “Positioning a Business for a Merger or Acquistiion (Part 2)” - https://goo.gl/B2qXQi and “Positioning a Business for a Merger or Acquistiion (Part 3)” https://goo.gl/92Q5LV - both at Divestopedia.

In part two of this three-part article, we discussed the following critical steps that should be included in the positioning process: operations assessment, business model analysis, financials review, and preparation of a...
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Business Transition and Valuation Author and Consultant
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My advice has been sought in business valuation and/or transition matters by hundreds of Canadian companies, their shareholders and their advisers for 45 years and counting.
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  • Business Transition Counsel Inc.
    President, 1976 - present
    I provide "expert consultant" advice to companies, their shareholders and their advisers on both business transition and business valuation matters. I also speak to seminar and other groups on those two topics.
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Toronto, Ontario, Canada
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Business Transition and Valuation Author and Consultant
Introduction
In 1976 founded Toronto based Campbell Valuation Partners Limited, a business valuation consultancy that provides business valuation advisory advice, principally in Canada.

In mid-2005 concluded that there was going to be a serious U.S. economic downturn, and began to write an economic and resources blog.

From 2007 to April 2013 developed StockResearchPortal.com, a research and due diligence website focused on the Mining and Oil & Gas stocks. The website is currently off-line.

In 2012 created The Economic Straight Talk Newsletter, a subscription newsletter focused on the world economic and on resources. The www.EconomicStraightTalk.com website and Newsletter in combination provide readers with daily filtered economic and resources news from over 150 world news sources, and with contextual commentaries on what are viewed as particularly relevant news stories.

In 2014 authored 50 Hurdles: Business Transition Simplified, a book that focuses on family business transition differently than does most business transition (more commonly called succession) literature. Introduced www.BusinessTranstionSimplified.com to the internet, a website offers information relevant to family business owners and owners of non-family private companies, and the free Business Transition and Valuation Review newsletter.

Offers business valuation and transition planning consulting advice through Business Transition Counsel Inc.

Authored:

50 Hurdles: Business Transition Simplified, 2014, Transitus Publishing Inc., Toronto.

The Valuation of Business Interests, 2001, The Canadian Institute of Chartered Professional Accountants, Toronto

The Valuation and Pricing of Privately-Held Business Interests, 1990, The Canadian Institute of Chartered Professional Accountants, Toronto

The Principles and Practice of Business Valuation, 1975, Richard DeBoo Limited (now Thomson Reuters-Carswell), Toronto

Specialties:

Business Transition
Business Valuation
Business Transition and Business Valuation Commentary
Economic Research and Commentary
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I learned early on that stories of failure are perceived to be funnier than are stories of success.
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  • The University of Western Ontario - Richard Ivey School of Business
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