In a recent speech at West Point, General Electric CEO Jeff Immelt charged that American business has lost sight of what makes for a successful economy. The United States, he noted, has changed from "a technology-based, export-oriented powerhouse to a services-led, consumption-based economy." Businesses should be investing more in technology and innovation, he said. (Presumably not the kind of innovation that GE invested in when it bought a subprime mortgage lending outfit, WMC Mortgage, in 2004.)
What Immelt failed to mention is that businesses need capital to become innovation powerhouses again. Unfortunately, with few exceptions, lending for innovation isn't a top priority for providers of capital these days -- no matter that many have been scorched by structured-finance products.
In a survey on innovation from Accenture that polled vice presidents, directors, and managers at 640 large U.S. and U.K. companies, responses from executives at banks and capital-market firms stood out. More than two-thirds of those execs said their organizations prioritize short-term financial results over investing for the long term. Very few saw innovation playing an important role in efforts to increase operational efficiencies and reduce costs. And more so than executives in any other industry, they characterized their quest for innovation as searching for the next "silver bullet" rather than "a diverse pursuit of new opportunities."
This should worry CFOs. Such attitudes and goals don't fit with lending to technology-oriented, innovative companies that require long-term capital investment. If banks are focusing on short-term profits, they're not really interested in extending firms a five-year line of credit. And if bank executives don't think innovation has much to do with operational efficiencies, they're unlikely to put much energy and resources into corporate lending -- it already earns poor margins, after all. |
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