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SMALL BUSINESS IMPACT 2000
AUTHOR's NOTE: Here is my
business article. I found that I could write volumes on related subjects
(securities, investment, corporate finance) but wanted to stay focused on small
business and third party influence. Besides it's outside my expertise and it
gets dry and involved. I may do a part two but for now here is an overview of
their situation.
Not being a
business myself I can't speak for them, but being on the outside as a concerned
citizen looking in I do sympathize and understand their Y2K challenge. This
article is a general overview of their situation and how it may affect us all.
The burden placed on small business
and third party vendors is serious. Serious enough that based on current stats
the SEC (Securities Exchange Commission) fears a 56% failure rate. This
number will be lower same time next year but will still have serious impact to
the economy and add to the unemployment of that period and to that region.
Many businesses and industries rely on third party vendors to do business and
unless serious thought and effort is put into contingency planning, disruptions
are inevitable. For public business there is a lot at stake here.
How much do you disclose to the SEC when they request your MD&A (Mngt
Discussion and Analysis) and do you tailor it favorably to tip the scales toward
compliance readiness and keep your investors calm? Or do you detail
your current position and risk pressure to inform your share holders through
your annual report and investment advisors who by law walk a fine line between
truth and disclosure swaying needed investors one way or the other. I
personally know several investors who are not changing their investment
strategies one way or the other.
The 'Staff Legal Bulletins' revised
by Divisions of Corporation Finance & Investment Management was something to
keep an eye on, now it's the 'anti fraud provisions of the federal securities
laws' which apply to disclosure about the year 2000 issues. As serious as
it may sound it is a working guideline for disclosure. But the bottom line is
what is fare to the investors who need that view from management's eye's via
their MD&A to make reasonable decisions.
What does a company say today
regarding their assessment of known trends, demands, commitments, events and or
uncertainties going into 1999 which will have material impact? Then add to
that the serious head scratchier of figuring the endless unknowns into this
equation as they go in to the black hole of 2000. This is why the SEC highly
recommends businesses follow their guidelines. The one thing a business does not
want to do this early in the game is loose or scare off investors. It's
costing a small fortune for many businesses to become compliant or replace
equipment that can not be made compliant. The catch 22 here is if you
don't spend what ever it costs on 'maintenance' to fix your computer code you
risk isolation from the compliant business community and a total loss if your
systems crash at midnight 2000. If you do spend with ever it takes then
you risk material impact now and in 1999. There really is no choice in the
matter and as much as businesses of the world hate it, there is no pushing the
date back.
The thing that will change the arena
will be investors who become 'aware' and act accordingly. This awareness
will become more noticeable in 1999 and many say they will make what ever moves
necessary to secure, protect and rescue their investments. This time next
year the market and disclosure will get dicey. This in itself could affect
Wall Street which in turn could affect the banking industry both of which affect
us all. This time next year, depending on who is compliant and who is not
will be deciding factors for many. The banks themselves may have quite an
impact by turning down business loans due to noncompliance and this is well
ahead of the year 2000. For them, lending to a non compliant customer is
not sound business and will be highly discouraged by the industry.
To date, information on 30% return
of surveys, quarterly reports & MD&A's have been sketchy at best.
Most admit knowledge of Y2K and explain what it is and report progress towards
compliance. That is about as good as it gets right now. Not much for the
investor to go on but a business has to protect itself. Now what the SEC would
like for businesses with an obligation to disclose is as follows:
1) company's state of
readiness (with so many Y2K unknowns this is tough)
2) costs to address the company's Year 2000 issues (going up
monthly)
3) risks of the company's Year 2000 issues (again many
unknowns)
4) the company's contingency plans (yet another burden)
I think many businesses including
large corporations see this disclosure as damaging information and are holding
back to make as much progress as they can before this information can no longer
be held back and must be made public.
Now do you see a resource issue here
for small businesses? Large company's seem to have the capital and
personnel to create a Year 2000 analysis team, a systems inventory team, a very
expensive programming team to fix code, a testing team complete with a duplicate
system on which to test, a Year 2000 MD&A group and a team for the company's
contingency planning which is a feat in itself. As time goes on these resources
will become scarce and incredibly expensive to acquire if available at all.
They say by April 1999 all resources will be exhausted.
There are work arounds but as with
any business venture there are risks involved. Some companies have already found
out the hard way that sending your Y2K compliance obligations off-shore may
allow foreign programmers to program in back doors which breach your computer
security systems. The only reason there is available resources off-shore
is because so many other countries have other issues to deal with putting Y2K
further down on their priority list. Believe it or not some countries have
not even begun to fix their code.
Now as if all this wasn't enough, we
have the government telling us they are not changing the laws to protect
businesses from lawsuits resulting from third party obligation failures.
You either protect yourself with a good contingency plan or suffer the
consequences. This in itself may spell doom for some. For larger
company's this will mean major material impact which right now is not being
spelled out. The contingency plan must cover worst case scenario and many
of those scenarios are serious in nature. Lawsuits are inevitable.
This court systems will be backlogged for years to come on top of their current
strenuous load.
The world will divide come January
1, 2000. This division will dictate the way we do business, develop new
business and how we live our lives in the 21st century. Contingency
planning is as vital as fixing the Y2K bug!
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