distirbuted ledgers

Distributed Ledgers: Providing Security and Efficiency

Conventionally, accounting information is held centrally and revisions or additions are carried out privately by accounts professionals. But when you are operating across borders and in cyberspace, this kind of system can become a liability, providing cyber-criminals with opportunities and leading to inefficiency.

Distributed ledgers may well be an effective solution to these problems. They take the form of databases which “distributed”. That is, they exist across a network of nodes and are not held in one particular place. Importantly, when the database is changed, every node on the network is notified. So whatever transactions take place, they don’t escape scrutiny.

How do Distributed Ledgers Work, and Why Are They Useful?

distributed ledgers blockchainThe underlying technology in distributed ledgers is based upon the Blockchain, which in turn forms the basis of the cryptocurrency Bitcoin. As with Bitcoin, distributed ledgers combine transparency and security – valuable commodities for all companies.

When a change is made to one node on the distributed ledger, this change is immediately communicated to all other holders in a peer-to-peer network. This means that if a cyber-attacker decided to launch an attack on your transactions system, they would find it much harder to take it down.

Corrupting one dataset or file wouldn’t be sufficient, because all other nodes possess a full record of the network’s transactions. To succeed, cyber-attackers would have to take down every node at once – a tall order.

But security isn’t the only advantage of running distributed ledgers. It’s certainly a major consideration, but other factors are stimulating interest in the technology as well.

Many complex international businesses see distributed ledgers as a way to cut costs and raise the efficiency of their administrative bureaucracy. Just to take one projection, the investment bank Goldman Sachs believes that distributed ledgers could save global businesses $6 billion per year.

These savings would come by reducing the cost of every transaction. With responsibility for managing a firm’s ledger distributed, centralized oversight can be slimmed down, reducing the cost of doing business.

So there are at least two major benefits associated with distributed ledgers. As well as providing security in an increasingly risky business environment, they are seen by many as a route to increased efficiency.

If these projections materialize, or come close to materializing, this is a technology that companies, governments and even (or perhaps especially) charities cannot afford to ignore.

Understanding the Links Between Distributed Ledgers and Cryptocurrency

We mentioned above that distributed ledgers are based upon the Blockchain, which has also formed the basis for Bitcoin – easily the most famous cryptocurrency in the world, but what form does this link take in reality?

Firstly, let’s quickly define what we mean by the “Blockchain“. Basically, this is a database that is distributed across a peer-to-peer network. As the name suggests, the chain is made up of “blocks”, each of which has a specific time stamp. This allows members of the network to know who amended the chain and when.

distributed ledgers dataChanges to the chain are generally not possible on the initiative of a single user. Instead, they have to be accepted by all network nodes in some form. When that happens, the whole chain is transmitted to every node, and the process can begin again.

There’s a good reason why a functional distributed ledger would be based on something like Blockchain.

It’s all to do with trust. In a distributed network like this, every member can see when changes are made. Nobody can fiddle with the data without every member being notified.

Naturally, in some cases, there will be dissent about what constitutes the most accurate version of the ledger. However, distributed ledgers generally work around that problem by specifying in advance what proportion of members need to agree before the chain is approved.

When that capacity to generate trust is allied to efficiency and security against outside interference, it’s easy to see why the technology is causing a stir.

What are the Prospects for Distributed Ledgers Moving Forwards?

At the moment, distributed ledgers are an immature technology. Many of the benefits are hypothetical, rather than real. We don’t yet know how valuable the technology will be for banks, retailers, government departments and aid agencies.

Some doubts have been raised. For instance, trading platforms may not prove practical owing to the demands for data storage about millions of transactions and the speed at which such platforms are updated.

However, there are likely to be many suitable applications. These stretch from registering property claims in areas where property rights are unstable, to mapping solar panel installation strategies, clearing loans and negotiating intellectual property rights for music.

One thing is very real: the excitement about distributed data storage systems. Over the next few years, that hype will start bearing fruit, as distributed ledgers start to solve real world problems. How revolutionary they will be is yet to be seen.

Blockchain Technology

Exploring Technology’s Cutting Edge: Can Blockchain Work for You?

Blockchain TechnologyAs cybercrime and snooping become increasingly common, more and more consumers, business leaders, and private individuals are getting quite concerned about the safety of their sensitive information online. This is particularly relevant when it comes to financial transactions, which often happen in insecure and dangerously transparent digital forums. If you’re dissatisfied with your current online security options, it’s time to become familiar with blockchain technology. This relatively not-so-new technology is gaining major traction in the business world for the myriad possibilities it offers for online security and anonymity.

Blockchain Basics

What is blockchain? As with all complex technology, it’s difficult to give a quick, simple answer. Further complicating the linguistic distillation of the concept is the fact that this is a truly international technology that has been developed, altered, and defined by different people across the globe. Plus, translating complicated computing concepts into plain English can be quite difficult. Chances are that if you’ve heard of blockchain before and tried to read about it, you’ve walked away somewhat confused. Essentially, a blockchain is a database that’s used to create and store a series of chronological records relating to a specific item or event. The blockchain is often mentioned in the same breath as Bitcoin because it’s the technology used to track Bitcoin digital currency as it is spent, sold, or traded.

Bitcoin

The name “blockchain” is descriptive. These databases are a series of digital “blocks,” each of which is distinguished from the blocks ahead and behind in the chain through the use of timestamps. One great thing about this structure is that it’s nearly infinitely scalable, making it suitable for a variety of complex tasks. This recordkeeping system is also designed to be extremely secure and resistant to tampering, making it a top choice for a variety of different situations in which anonymity, protection, and integrity are at a premium.

Part of what makes blockchains so secure is that they can be decentralized, meaning they aren’t linked to a central authority or manager that’s responsible for overseeing the security of each record. This means that cybersecurity attacks in which millions of users’ data becomes compromised are highly unlikely with a blockchain. It also means that if one node in the network of databases stops operating, the entire system can continue operating. Blockchain applications that use this decentralized approach are known as decentralized applications or DApps.

Diving Deeper

Blockchain technology can trace its origins to the early ‘90s when developers worked on creating discrete records of cryptographically secured information they referred to as blocks. The goal was to create distinct data structures that could be kept private and secure through the use of encryption. The concept really took off when the digital currency Bitcoin was first under development. The anonymous cryptocurrency designer known as Satoshi Nakamoto needed a way of creating timestamped records to show the details of financial transactions. Thus, encrypted blocks were linked into a chain, and blockchain was born. Of course, this simple overview doesn’t even begin to scratch the surface of what blockchain technology is, how it works, and what it can do.

It can be helpful to compare and contrast blockchain with other digital technologies in order to understand its potential. One common analogy comes from journalist Sally Davies, whose comparison between blockchain/Bitcoin and the internet/email is frequently cited by those attempting to give a basic, beginner-friendly overview of the blockchain. Essentially, blockchain is to Bitcoin what the internet is to email. That is, just as the Internet can be used for much more than email, the blockchain technology that supports Bitcoin transactions has many potential applications beyond mere cryptocurrency exchanges. Limiting our Internet use to email only would be a mistaken waste of technological potential and, so the analogy goes, it would be a similar mistake to limit our use of blockchain technology to cryptocurrency transactions alone. Bitcoin is just one blockchain technology application out of potentially thousands.

In the context of this analogy, though, it’s important to note that there are some essential differences between blockchain and the Internet. One major difference is that the Internet is a communications network, while a blockchain is a database of information. On a very high level, the two technologies function in a theoretically similar way, but blockchain isn’t a replacement for the Internet as we know it. In fact, blockchain is more of a function of the Internet, like email, than a standalone communications network. At this point, you’ll need an Internet connection of some sort to access a blockchain.

Think of it this way: There’s only one “big I” Internet that the average person use, but there are multiple different blockchains. You can create intranets and extranets, but when you’re talking about “the internet,” you’re talking about the network that uses TCP/IP protocol that you can access with a connection through an Internet service provider (ISP) like Comcast, Charter, or CenturyLink. You can also have “a blockchain,” referring to any distributed database of a specific type, but when you’re talking about “the blockchain,” you’re talking about a specific company or application’s database. Blockchain technology in its current form is strongly tied to Bitcoin, but it’s not the only blockchain that exists.

The Ledger: Blockchain’s Public Face

Blockchain’s Public Face

So, as an encrypted, decentralized, tamper-resistant database, blockchain is a completely opaque, shadowy world, right? Well, not exactly. Privacy and data security are top priorities, but there’s a degree of transparency involved in the standard blockchain. Bitcoin is actually a great example of this; you can see when Bitcoin transactions happen in the blockchain wallet. You just can’t see specific information about who was involved with a transaction.

Tech experts often describe blockchain technology as a “decentralized ledger,” with “ledger” being the operative word in this situation. A ledger is a record, and that’s exactly what a blockchain is. Data integrity is central to the blockchain concept. Each of the blocks in a blockchain serves as a record for an event and to go back and alter those events is next to impossible. If you want to go back and alter part of an agreement, for example, you’d need to add a new record stating that the change was made rather than going into the original record of the agreement and changing the terms. These features make trustworthiness an element of operation in blockchain technology, which is a somewhat unusual feature for this kind of tech tool.

The idea that there’s a degree of integrity, trustworthiness and public transparency associated with the blockchain concept may come as a surprise to some. If you don’t know a lot about Bitcoin, you may be wary of the association of a technology with currency that was hyped as a way for criminals to get paid online. This isn’t a fair characterization. In short, blockchain and cryptocurrency are not the sole provenances of criminals.

Though it can’t be denied that the anonymous, decentralized nature of blockchain technology makes it alluring to black market types, Bitcoin trading, much of which is carried out with blockchain wallets, is becoming a legitimate financial market of sorts. As of this writing, Bitcoin price is has skyrocketed, indicating the minting of some major financial players. Plus, the public ledger doesn’t lie. As mentioned earlier, it’s difficult—if not impossible—to alter the record of a blockchain. The participants in the transaction may remain anonymous, but the transaction itself typically is not.

All of this points to some highly disruptive potential for blockchain technology in the financial sector. It’s important to remember that blockchain is not proprietary to Bitcoin and that means there are lots of other ways to use this technology for financial transactions. At this point, blockchain is still a relatively inside-baseball topic in tech, but you can count on that changing in the coming years. Blockchain may even represent the future of banking. Blockchain wallets are streamlined and secure in a way most modern banks are not, which could be broadly appealing to consumers if they’re introduced to the technology in the right way. Also of potential appeal to consumers is the fact that participants in a blockchain transaction have equal status with respect to information access. This would put the customer on the same informational footing as a financier when monetary transfers are being made.

Other Uses for Blockchain Technology

Transactional financial applications aren’t the only way blockchain is set to shake up the way we do business and access personal information. The blockchain wallet is certainly useful, but that’s just the tip of the iceberg. There are already some interesting applications for blockchain being put in practice right now. One blockchain-based Bitcoin alternative is the cryptocurrency competitor Ethereum, which took the technology a step further by allowing computer programming code to run from its databases. As a distributed public network, Ethereum is becoming a playground of sorts for developers who want to build DApps of all sorts, not just those relating to cryptocurrency. This is a highly promising development that shows how powerful a blockchain can be.

One highly vulnerable area that blockchain technology can improve is the storage and retrieval of medical records. As our personal health histories are digitized, many people simply take for granted that their doctors’ offices are doing the right thing and protecting personal healthcare information in a reliably secure manner. Unfortunately, though, this is often not the case. Hospitals are major targets for cybercriminals looking to perform massive medical identity theft hacks, and the implications of these attacks are frightening. Medical identity theft exposes its victims not only to the stress, hassle, and financial ruin of traditional identity theft but also to potential criminal charges. If the person who steals your medical identity uses it to try to scam dangerous prescriptions from doctors and breaks laws relating to insurance fraud using your name, you could be in serious trouble. All of the blockchain’s powerful encryption, privacy, and decentralization abilities can revolutionize the way we think about protecting, sharing, and housing records of our healthcare.

In essence, anything that involves recordkeeping can make use of blockchain technology. As consumers become more concerned with what’s in the products they use, companies committed to transparency can easily use blockchain to automate supply chain transparency and make each step in the manufacturing process available to their consumers. Blockchain may even have a role to play in the future of elections, providing the right balance between privacy, integrity, and transparency.

Smart Contracts and Modern Labor

One last example of blockchain’s potential to disrupt all aspects of our lives: Smart contracts. A smart contract is essentially a computerized agreement between two parties that makes the execution of that agreement dependent on specific conditions. For example, if a small business owner hires a graphic designer to create a logo for a rebranding effort that business owner and the designer could enter into a smart contract stipulating that $250 will be paid out upon the successful completion of the job. The business owner puts $250 into a blockchain wallet, which is then held by the blockchain application until the designer submits the logo and asks for funds to be released, which the business owner will do after agreeing that the job has been completed in a satisfactory manner. It’s quick, easy, secure, and possible without a middleman.

Business leaders in all fields should be particularly interested in the opportunities presented by smart contracts, a blockchain application that automates and digitizes contractual agreements for the sale or exchange of goods and services. One major reason is that smart contracts can easily cut out middlemen in the gig economy. Companies like Uber, Airbnb, Ebay, and even the Amazon seller marketplace may find that their contractors and merchants are fleeing in order to use peer-to-peer blockchain networks to conduct business directly with their own customers. Why pay a user fee when you can do business directly with a service provider?

Clearly, blockchain is a force to be reckoned with and it’s going to have a growing influence in all areas of business in the years to come. Stay on the lookout for news about blockchain, and as you make hiring decisions in tech positions, be mindful that those who are in the know about blockchain are likely to deliver value in the future.

The 4 Asian tigers economy growth

The four Asian Tigers, also known as the Asian Dragons, are the fast-growing economies of Singapore, Hong Kong, Taiwan and South Korea. The four Asian nations have consistently sustained high-growth economic rate since the 1960s, charged by rapid industrialization and exports, which facilitated these economies to be in line with the world’s wealthiest nations. In 2015 South Korea officially overtook Japan in GDP terms moving second place to China in terms of financial feasibility.

Emergence of the Four Tiger Governments

The world economy growth began to pick up during the early 1960’s after the World War II and the Korean War in the early 1950’s. Major leaps in air telecommunications and air travel coupled with probable world peace indicated that world countries were opening up their borders and thus the Four Tigers took advantage of this opening. The four countries had viable trade economies, established ports, high literacy levels and advanced infrastructure inherited from their colonial masters.

asian tiger singapore

Singapore is one of the smallest nations but has the highest GDP between the four asian tigers.

Owing to this development, the Asian Tigers took advantage of the situation since they were quite poor in the 1960s; these countries had plenty of inexpensive labor. Combined with educational restructuring, they were smart to leverage this amalgamation into a low-priced, yet industrious labor force. The Asian Dragons devoted to social equality in terms of land reforms, promotion of property rights and welfare of agricultural workers. In a little while, products and services from these nations were in high demand.
A booming stock exchange had already begun in 1891 in Hong Kong; thus it was reasonable when it drifted to financial services from the export market. Hotly followed by Singapore the two tiny nations are currently important global financial centers. During that interval South Korea and Taiwan were propelling the 1980’s -1990’s tech boom, nowadays Taipei and Seoul are leaders in cutting-edge technology and also home to the biggest names in electronics. These advancements happened so quickly hence the nickname ‘The Asian Miracle‘.

The economy growth of the Four Asian nations enabled them to sail through the local 1997 Asian Financial Crisis and also 2008 World Economic Crisis. At present these four nations significantly get enlisted in IMF’s global list of top 40 advanced economies.

Break Down of the Four Tigers

South Korea

During the 1960s, the gross domestic product (GDP) per capita of South Korea was akin with the poorest nations in Africa and Asia. However, in the following four decades, South Korea began shifting from an agricultural economy growth by embracing robotics, software development and electronics. This policy was successful, and as verified by the World Bank, the country’s GDP grew steadily at 10% annually in the year 1962 to 1995 to become an Asian economic powerhouse.

Taiwan

asian tigers smallest nation taiwan

Taiwan is home to the biggest electronic brands.

The proximity of Taiwan to China has provided a leeway for economic growth. Taiwan has prospered in the last forty years regardless of the litigious association with China, and its per capita income exceeds $45,000. Despite not being a United Nations member due to China’s pressure it is still a noteworthy exporter with a GDP of over $ 1.1 trillion, establishing the 23.4 million people nation as an Asian economic giant. Taiwan might not be the richest ‘tiger’; however, it has possibly undergone the most remarkable growth.

Hong Kong

Hong Kong’s economic growth began taking off during the 1950’s, therefore, becoming the first of the of the East Asian countries. Encouraging tax incentives and inexpensive labor allured many large and mid-sized companies to invest in Hong Kong, and the 1970′ and 80’s was a phase of construction, with public housing, skyscrapers and rail user trains being financed by the new-found riches. Hong Kong’s GDP between 1961 to 1997 grew by 180 times making the country one of the richest in the world. A supportive regime, lack of public debt and stringent regulations showcases that the country is placed well for continual growth notwithstanding a less impressive rate.

Singapore

Akin to Hong Kong, Singapore’s booming economy growth is entrenched in the world of business. Initially esteemed for its tactical position in South East Asia and impressive docks, it was effortlessly able to get the most out of on its repute as a trade center. Today, Singapore is now among the world’s leading money exchange centers, and the nation prides itself in exceptionally diverse expat society which pinpoints of the high volumes of overseas investment obtained over the years. Nowadays, Singapore has the highest GDP in all the Four Tigers.

Lessons learnt from the economy growth of the four Asian Tigers

It is debatable that the Four Asian Tigers benefited from being positioned at the correct places and time, World War II had come to an end, imperialism was drawing to a close, and proliferation needed at least one economically strong Asian business center.

On the other hand, without anyone knowing, the ‘miracle’ intensification of these four countries was principally attributed to excellent governance. Each one of the four nations has placed firm directives and anti-corruption measures, while conventional economic arrangements have permitted each country to stay away from public debt and increase large reserves of savings and capital. These actions preordained that, when predicament hit, they only had a minimal effect, and recovered immediately as soon as the markets did well again.

asian tiger hongkong

Hongkong is considered to be the first of the “four Asian Tigers”.

Also, the benefaction of China was a hugely significant factor in four nations. China has gone through an outstanding economic revolution over the past five decades, and the Four East Asian Tigers have been able to take advantage from this via the Chinese investment while being ambitious to make paths of their own.

It is apparent that the economy growth of a nation relies on its economic guidelines and the facilitation of an export-leaning trade. The Four Asian governments benefited from these strategies and institution of free trade hence is no shocker that the four countries now have the urbanized state status.

The Asian economic crisis of 1997 had an effect on all the Four Asian Tigers. The worst hit was South Korea who relied on external loans as it affected its currency when it fell to as low as 50%. Losses in South Korea, Hong Kong and Singapore were as low as 60% in terms of dollars. The four nations however recovered from this calamity more quickly than usual.

In 2013, the joint economy of the Four East Asian Tigers added up to 3.81% of the global economy with a totality Gross Domestic Product (GDP) of 2,366 billion US dollars. Together, their combined economy is close to the GDP of United Kingdom’s 4.07% of the global economy.

The rapid economic escalation of the four Asian nations has often been nicknamed as the “Asian miracle”. The basis of this Asian miracle was the institution of a certain macroeconomic setting. Each country among the four coped with the three variables of the financial system in budget deficits, exchange rates and external debt to various levels of accomplishment. The Four Asian Tiger’s financial plan arrears were kept to near to the ground limits in that it could not interfere with the macro economy. External debts were also not in existence excluding South Korea whose high borrowing levels were canceled by elevated exportation.

The four Asian nations are currently well placed in the global economic rankings, and on condition that they remain on persisting on what they have always endeavored to there is every reason to consider that they will continue to be economically stable for a long time.

Smart Contract Technology and the Future

Smart Contract technology has come a long way over the years. However, many people remain unaware of this technology or have heard of it, yet fail to understand what it can accomplish through the use of computers. What are smart contracts? How do they benefit individuals and organizations? What is the future of this technology? These are only three of the many questions one may have when they hear the term Smart Contract, and there are numerous others.

What Are Smart Contracts?

Wouldn’t it be nice to eliminate the middleman when conducting a wide variety of transactions? Smart Contract technology allows users to do exactly this. With this type of contract, assets can be exchanged with no need for a middleman, and the transaction is completely transparent and conflict free. They are similar to other legal agreements in that they establish the rules and penalties relating to the arrangement, but they also enforce these obligations.

How does this differ from a traditional agreement? Smart Contract technology allows the terms of the agreement to be written into computer code, and the code and agreements are maintained in a distributed, decentralized blockchain network. Originally created for bitcoin, the technology is now used for a variety of other purposes. Any transaction a person wishes to complete without the help of the legal system, some type of external enforcement mechanism or central authority, may be carried out with the help of this technological advance.

Case Studies

smart contract

Smart Contracts are able to strenghten the communication inside a company.

The Depository Trust and Clearing Corporation opted in 2017 to make use of Smart Contract technology to process in excess of $1.5 quadrillion in securities. Doing so helped to save the organization money by reducing communication problems and improving workflow. Independent processing discrepancies were eliminated, thus minimizing the risk of expensive lawsuits and delays in settlements.

In the past, financial institutions invested a great deal of time and manpower in handling customer accounts. Smart Contract technology helps to reduce the burden by taking on certain tasks, such as transferring payments to other financial institutions when they arrive at a bank and logging any change of ownership. Barclays Corporate Bank is now making use of this technology to carry out these processes and saves time and money by doing so.

The Future Of Smart Contract Technology

Individuals will find this technology being employed more frequently as individuals and organizations learn more about the benefits of using it. Experts predict it will take on routine tasks, such as risk assessments and real-time auditing, for credit companies, certified public accountants, and merchant acquirers, among others. Lawyers benefit from Smart Contract technology and will be able to make use of templates to produce contracts as opposed to writing them. Healthcare, the automotive industry, and real estate are other industries that may be impacted by smart contracts. It’s only a matter of seeing how far the technology can go and in what time frame.

The cost savings an organization can achieve by making use of the technology will benefit other industries too. No third party is needed in this situation, thus the risk of manipulation is eliminated. Documents are encrypted on a ledger shared by all parties in the transaction, which ensures no contracts are lost and less time is spent manually processing documents. Furthermore, human error becomes less of an issue as the contracts are all automated.

Smart Contract is a term every individual should know thanks to the anticipated expansion of this technology in the future. A person may find the way they conduct business changes as a result of this technology, for example. Although the process behind the creation of these smart contracts may confuse many, the benefits are easily seen. Individuals need to keep this in mind and embrace these changes. The technology is not going away any time in the foreseeable future and may never do so.

how to protect your company against shady investors

How to Prevent a Shady Investor From Damaging Your Business

The vast majority of organizations require investors to obtain the capital needed to start a new business or expand an existing one. While a specific investor may have the best interests of the company in mind, that’s not always the case. There have been numerous instances where an individual Investor has undermined the company for personal gain rather than contributing to the organization’s growth and long-term success. Before entering into any relationship with an investor, it pays to consider whether that individual is a good fit for the organization seeking funds.

Why Are Shady Investors Dangerous for Your Business?

Virtually every business exploring new funding sources has long-term goals that may, at times, impact bottom line figures in the near future. Investors should be well aware of the company’s short- and long-term objectives when investing capital. That means they’re willing to forgo significant immediate gains in favor of larger long-term profits. A Shady Investor, on the other hand, will generally act as though they understand the plan but change their attitude significantly once their money has been accepted.

The less-than-optimal Investor will then attempt to alter the strategies employed by the company to enjoy a greater profit sooner. If they have a contractual ability to impact the organization’s business plan, that can quickly lead to problems with company personnel as well as other investors. The net result can, and often is, a failure to achieve the necessary results sought by the company. The question then becomes, what steps can an organization take to protect themselves from a Dangerous Investor?

Safeguard Your Company’s Future

shady investor protectionThe concept of Due Diligence has been around for a long time, but today’s organizations are quickly finding the actual process is evolving. An Investor may be sought out by the organization or may take the initiative and approach a business. Before getting involved with any potential Investor, an organization is always encouraged to look carefully at the potential investor to prevent issues from developing.

  • Investors must understand and accept the company’s culture. An investor who doesn’t is likely to create strife from day one, which is certainly counterproductive. That means company representatives must review the organization’s structure and business strategies with a potential funder prior to accepting their capital. If the fit between the potential Investor and the organization appears appropriate, that’s one less thing to worry about.
  • Don’t neglect to explore the potential funder’s past history as part of the due diligence. While an investor may appear to be a good fit, the individual may not, in reality, have the company’s best interests at heart. Generally, it’s relatively easy to discover how the investor has handled any previous similar relationships. If there is a history of the individual demanding a company change their strategy in the past, there is a strong likelihood it could happen again. It’s best to avoid investors with this type of history or a history that’s not transparent.
  • Avoid diluting a company’s control. As a rule, no single outside investor should be able to acquire over 25 percent of the company in exchange for their investment. In the event the control is diluted too much, the potential for a takeover is simply too great. Even when a relationship with an Investor starts out on a stable footing, things can change. To avoid issues, make sure the existing company owners always retain control.

Of course, there are other due diligence strategies to follow and, as noted, they are evolving rapidly. All companies are routinely encouraged by experts to examine their current practices and take advantage of opportunities to improve those practices.

Investor input can be beneficial for companies, but that input must be limited. That suggests it’s always important to understand exactly who is investing and what their long-term objectives are. If an investor’s objectives actually align with the organization’s, the relationship will benefit both.

Acqui-Hiring – that facts behind a new trend

Why a Growing Number of Firms are Being “Acqui-hired”

The competition for the best talent around has never been fiercer. Particularly in the IT industry, there simply aren’t enough top candidates to go around, so large corporations are increasingly turning to more inventive methods of recruitment. One such method is so-called acqui-hiring, which involves the acquisition of company in order to secure the personnel within it.

This relatively new phenomenon is all the rage in Silicon Valley, where the very best individuals are scooped up before they’ve even graduated from college. The money spent on these acquisitions is recouped through the value the organization’s employees bring with them. However, while this rather sneaky way of recruiting top talent delivers results for some of the world’s largest corporations, it is not without its pitfalls.

What is an acqui-hire?

Acqui-Hiring - Big Brands search for the best talents

Acqui-Hiring – Big Brands search for the best talents

An acquihire is the relatively new term used to describe the purchase of a company in order to acquire the employees within it. In many cases, the company being bought is already experiencing financial difficulties, and selling out to a larger rival is seen as the only viable way out. As a result, there are some incredible bargains to be found.

Some purchases don’t involve a full merger. Instead, a deal is struck to release the employees and prevent any future action involving IP. The amount offered is often expressed on a “per head” basis, which gives a value to each employee based on their experience, qualifications and suitability for the new role. Upon execution of the agreement, it is not unusual for the acquired company to shut down.

Companies are going down this recruitment route in order to cut costs and prevent possible legal action relating to non-compete clauses, IP infringements and breach of contract.

Assessing the soft points of a merger is crucial

A robust due diligence process will uncover all of the hard facts about a potential merger. Buying companies can assess the financial case for the purchase based on key data and analysis. However, this process does not involve assessing whether or not the company being bought is a cultural match. Will the people being inherited as part of the deal be suited to their new working environment? Will making the switch lead to a loss of productivity and focus?

Many acquisitions in the past have been less than completely successful because the acquirer has been too focused on results and data — to the expense of assessing the employees as people. What will be the repercussions of forcing a group of employees into another company? Will the acquirer’s existing employees feel threatened and demoralised as a result? All of these human factors must be considered carefully during the due diligence process, otherwise the merger could cause as many problems as it solves.

Examples of high-profile acqui-hires

Acqui-Hiring involves a lot of work for the HR department

Acqui-Hiring involves a lot of work for the HR department

Most of the biggest acqui-hires in recent history have taken place in the tech sector. For instance, Facebook acquired Drop.io and Hot Potato in New York, simply to get their hands on the companies’ founders. When Google bosses were developing a social media service to rival Facebook and Twitter, they didn’t headhunt the best man for the job; instead, they bought Milk, and set the entire workforce the objective of developing Google+.

These companies, like so many other acqui-hired firms, were struggling to raise capital at the time. The entrepreneurs who started these relatively small start-ups were given the opportunity to tell people that they were bought out by the likes of Facebook and Google, which obviously looks great on a resume.

Google and Facebook in particular face a dilemma when they try to tempt the brightest talent. These tech behemoths need to offer huge sums to prise away people from their existing jobs. But this can cause animosity among existing employees if they’re being paid far less for doing a similar job. Instead, employees who have been acqui-hired can be given joining bonuses, which is a way around the problem. In addition, bonuses can be treated as capital gains, which is a far more tax-friendly way of being remunerated.

Advice for companies thinking of acquihiring

Before going ahead with the acquisition of company in order to acquire the services of key employees, there are a number of issues to consider first.

  • Seek legal advice to prevent board members from potential claims.
  • Assess whether or not there will be post-merger liabilities, and work out a plan to minimise or eliminate them.
  • Take steps to ensure obligations to creditors are satisfied.
  • Work out how the new employees will be compensated in a way that keeps existing employees happy and the tax authorities at bay.
  • Pursue a stringent due diligence process to ensure you and your stockholders are getting value for money.
  • Consider the cost of terminating existing employees to make way for new arrivals.

On paper, acquihiring can make perfect business sense. However, there is a human element to this type of transaction — a fact that too many businesses have forgotten over the years. The factual case for the acquisition might be watertight, but it could end in disaster if there isn’t a cultural case for the deal.

This blog post about Acqui-Hiring is also available in German.

how to prevent economic espionage

How to Prevent Economic Espionage

It’s a known fact that market saturation leads to steep competition in a wide variety of fields. In some ways, this can be beneficial to both companies and employees, who are pushed to work harder in order to keep up. Unfortunately, though, not all companies or employees rely exclusively on their own work ethics to get ahead. As a result, Economic Espionage has become more commonplace than ever.

Common Targets

There is some information about any company that can be gathered legally via monitoring of public channels and analyzing trends. Acts of industrial espionage go far beyond collecting this kind of basic information, usually targeting confidential and protected data. Some frequent targets include client information, including financial information; marketing information; financial information; and trade secrets. Although a company’s reputation, and its client base, can be damaged by information leaks of any kind, trade secrets, including information about products still in development, constitute the most highly-targeted type of information.

External vs Internal Acts of Espionage

There are several ways that Economic Espionage can be performed. The first is through external channels, including the use of malware, known security vulnerabilities, and espionage software. These types of external acts of espionage are most frequently performed by hackers, often employed by foreign governments. They occur infrequently, but they can have some dramatic results.

Internal acts of espionage garner less attention from the news, but not because they are less damaging. Simply put, they go under-reported primarily thanks to their frequency. Internal espionage is typically performed on behalf of other companies. It involves planting a “mole.” A mole is a corporate spy who applies for a job and pretends to work for one company, while simultaneously and secretly gathering information for its competitor. Some operate by offering money to other employees with higher access privileges, while others blackmail their targets. Unfortunately for those being targeted, it is much harder to detect acts of internal espionage than it is external attacks by hackers using malicious software.

Sometimes company employees even become unwitting accomplices, particularly in cases of external espionage. Often gaining access to sensitive information is as simple as convincing an unwitting employee to click on a seemingly innocent link, causing him or her to unknowingly download malware. Employee education is critical when it comes to preventing attacks.

Prevention against economic espionageSolutions for Prevention

Not all acts of espionage can be planned for or protected against, but that doesn’t mean it isn’t worth taking a few simple steps to ensure that the company’s information is protected.

Conduct a Risk Assessment

The first thing for any company to do when planning a prevention strategy is to conduct a risk assessment. This can be done by evaluating any trade secrets or protected client data the company many have access to and attempting to assess its worth. This can include comparing insider trade secrets regarding products that have not yet been released with existing products already on the market. It’s also a good idea to identify what client data is most important and to try to determine who might want it.

Improve Security

Once a risk assessment has been completed, a new security policy should be adopted that takes any potential vulnerabilities into account. This may involve establishing rules regarding password sharing or even preventing employees from using private devices in the workplace. It’s important that the new policy be formalized in writing and consistently enforced.

Employee Training

As noted above, even the best-intentioned employees can fall prey to external and internal espionage. It’s a good idea to educate any employees about potential threats and to ensure that they understand the importance of any security policies in place. They will be more likely to follow guidelines regarding the use of personal electronics and other seemingly innocent, yet dangerous, workplace practices.

Secure Infrastructure

Corporate firewalls and anti-virus software should form a company’s first line of defense against hackers, but they should not be its only defense. It’s also important to isolate valuable data and to protect border routers via the establishment of screen subnets. These simple steps can go a long way toward protecting against hackers.

Pullestueck - Post Merger Integration

5 Mistakes to Avoid During the Post Merger Integration Process

Acquiring other companies for geographic and product expansion or merging with equal competitors are the most common strategies to increase corporate growth. However, the majority of M&A (merger and acquisitions) do not succeed. Public and private investors typically point to flawed due diligence and poor strategies, but another element is often overlooked: an absence of standardized post merger integration processes. Solid planning is essential to M&A success, especially for startups that are making acquisitions for the first time. Here, company owners can learn how to avoid the most common mistakes in the M&A process.

Setting Unrealistic Expectations During the Due Diligence Phase

Despite the dangers of unattainable goals, many companies still set them only to be disappointed when they’re not met. When a company fails to meet its objectives, employees become demotivated, executives are displeased, and the firm loses its credibility. However, some executives would rather micromanage staff than revise their expectations. By setting sensible goals, company owners can maintain momentum throughout the post merger integration process.

Lacking the Resources to Manage the Integration

Before the deal is closed, both companies should plan for integration, which presents multiple challenges in the IT, financial, sales, overhead, and cultural departments. If the companies’ personnel cannot quickly adapt to their new responsibilities and work toward a common goal, the post merger integration process will not be successful. Planning should start as early as possible, and a project management and leadership team can provide valuable guidance to both companies throughout the merger and acquisition process.

Failure to Retain Top Talent

For most mergers and acquisitions, the importance of the deal lies within the people involved. Retaining knowledge of both companies’ operations, customers, markets, and technology are crucial to the success of an integration. Executives from both companies should decide who to retain during the post merger integration process, and they should consider retention bonuses a necessary expense. Perhaps more importantly, executives should schedule regular meetings with key employees to keep updated and build a rapport.

Not Communicating Openly About Corporate Intentions and Behaviors

Communication for successful Post Merger IntegrationThe time after M&A is one of challenges and changes for both sides. Despite popular opinion, an acquisition isn’t always mutually beneficial. To calm anxious workers, executives often make unrealistic promises they cannot deliver. Setting employees up for disappointment is a sure way to lose top talent and, when that happens, all other aspects of the merger process become more difficult. It’s important to be honest from the beginning because, while there may be tough times ahead, staff can count on executives’ honesty, reliability, and candor.

Delaying Difficult Decisions

Most don’t like to discuss it, but cuts are a primary driver of the rationale behind M&A. Teams and projects are re-evaluated and modified, facilities are consolidated and, in some cases, certain employees’ jobs become redundant. While it may be unpleasant, delaying such decisions can increase costs and distract people from the other tasks at hand. Cuts should be decided on during the initial phase of the integration process when there’s another activity going on. When things become more settled, it’s harder to let people go. However, most departing executives are likely to be willing to help facilitate a smooth transition and part on favorable terms.

Integrating companies after M&A is equal parts art and science. There are many ways to finesse acquisitions, combine corporate cultures, and motivate staff—and not all of these methods can be documented. During mergers and acquisitions, there are certain steps to take and many problems to avoid. By staying away from the mistakes and issues listed here, company owners can ensure a smooth merger, high staff morale, and continued profitability.

The Sarbanes Oxley Act and Its Lasting Impact on Businesses

Speak to individuals in the securities field, and many will state the Sarbanes Oxley Act remains the most significant legislative act to hit their industry since the New Deal was crafted. Often referred to as SOX, the Corporate and Auditing Accountability and Responsibility Act, Sarbox, or the Public Accounting Reform and Investor Protection Act, this legislation was enacted in 2002. It was named after the two individuals who sponsored it—United States Representative Michael Oxley and Senator Paul Sarbanes. What exactly is this act and why is it of importance?

The Sarbanes Oxley Act

Accounting and corporate scandals hit the United States in the late 1990s and early 2000s. This includes scandals such as those which affected WorldCom, Enron, Adelphia, and Tyco International. Scandals of this type led to the loss of billions of dollars for investors due to the collapse of share prices in the affected companies. As a result, confidence in the American securities market declined, and Senator Sarbanes and Representative Oxley decided action needed to be taken, thus the Sarbanes Oxley Act was established.

The Goals Of This Act And Why It Was Brought Into Legislation

Die Senatoren Paul Sarbanes und Michael Oxley (2002)

The senators Paul Sarbanes und Michael Oxley (2002) Picture: Wikimedia

The Sarbanes Oxley Act was designed to curb the excesses of corporations while restoring investors’ confidence in the market. It would do so by improving the reliability and accuracy of required corporate disclosures while addressing accounting fraud and its accompanying issues. With these changes, fraud would be easier to detect. Accounting, auditing, and internal control standards were enhanced through this legislation, and the act also boosted the awareness and accountability of board of directors members and company executives.

The Main Contents Of The Act

The Sarbanes Oxley Act is divided into eleven sections.

  1. Public Company Accounting Oversight Board (PCAOB)
  2. Auditor Independence
  3. Corporate Responsibility
  4. Enhanced Financial Disclosures
  5. Analyst Conflicts of Interest
  6. Commission Resource and Authority
  7. Studies and Reports
  8. Corporate and Criminal Fraud Accountability
  9. White-Collar Crime Penalty Enhancements
  10. Corporate Tax Returns
  11. Corporate Fraud Accountability

Each section is further divided into subsections. For example, the Auditor Independence Section works to limit conflicts of interest by creating stands for external auditor independence. The Commission Resources and Authority, in contrast, works to restore investor confidence in the securities industry.

The Consequences For American Companies

US-Präsident Bush vor der Unterzeichnung des SOX mit Senator Paul Sarbanes im Jahe 2002

US President Bush before signing the SOX with Senator Paul Sarbanes in the year 2002

Businesses expressed a great deal of concern when the Sarbanes Oxley Act was first introduced. The major concern involved the independent audit requirement. Small businesses, especially, felt this requirement would be too costly. The standards were modified in 2007, a change that helped companies save a significant amount of money that could then be passed on to investors or held in the organization. The Dodd-Frank Act, introduced in 2010, permanently removed this requirement for any company with a market cap of less than $75 million.

However, the Sarbanes Oxley Act placed a burden on American companies including added hidden costs on international commerce and business, and many costs are substantial. Furthermore, it has created new conflicts among jurisdictions. For example, America remains a dominant player in securities markets around the world. As a result of this legislation, auditing firms in other countries that audit both foreign and American issuers are now required to register with the Public Company Accounting Oversight Board. This has led to an unexpected set of issues.

The Lasting Impact Of The Sarbanes Oxley Act

Many unintended consequences have been seen as a result of the Sarbanes Oxley Act. First and foremost, companies that may have opted to go public in the past are now remaining private to avoid being bound by the provisions of the act. Furthermore, the law may lead to problems internationally, as it could bring about cultural conflicts, and there are certain issues that may arise as a result of foreign laws and the requirements of the act. This includes those involving privacy legislation enacted by the European Union. Companies continue to find the need to ensure they remain in compliance with the act while protecting and safeguarding those working in international locations.

The Sarbanes Oxley Act helps to ensure ethics within a company, serving as a disciplinary standard that applies to all publicly traded companies. The key to navigating the regulations of the Act, however, require flexibility, and this will need to be taken into account in the future. Just as certain requirements were removed for companies with a market cap of less than $75 million, legislators must ensure they make exceptions when needed.

Costs and benefits need to be regularly evaluated, but this can be difficult to accomplish. Random implementation may be of help or making use of an opt-in/opt-out approach. With these methods, lawmakers may better determine how a regulation is impacting organizations of all sizes and types. Additionally, companies need to provide input to lawmakers, as they have a stake in this process. Everyone must be involved to ensure the Sarbanes Oxley Act is providing the necessary protections without harming those doing business in this country.

Strategic Due Diligence

A Guide to Strategic Due Diligence

While due diligence may not be the most exciting topic, being able to evaluate and understand a potential partner, buyer, or acquisition is important to all growing companies. The three primary categories of due diligence are legal, financial, and strategic. Although they have traditionally been distinct, an effective due diligence program combines elements of all three areas. In this guide, readers can learn about how legal and financial due diligence relate to strategic due diligence and how a data room can help organizations securely share important information during the due diligence process.

Legal Due Diligence

In the legal due diligence process, the goal is to examine the legal foundation of the transaction. For instance, a buyer may want to ensure the acquisition holds IP rights that are crucial to the company’s future success. Other areas to be explored include those listed in the section below.

  • Legal structure
  • Loans
  • Contracts
  • Property
  • Employment
  • Upcoming litigation

Legal due diligence and strategic due diligence are closely related because, if there’s little legal basis on which to perform the transaction, the buying company must change its assumptions about the target company.

Financial Due Diligence

During the process of financial due diligence, the buyer focuses on checking the financial information offered by the target company as a means of assessing its underlying performance. The process covers the following areas.

  • Earnings
  • Assets
  • Cash flow
  • Liabilities
  • Management
  • Debt

Again, strategic and financial due diligence are intertwined. If a target company’s assets, debts, earnings, cash flow, and liabilities aren’t what the buyer expects, that company may have to adjust its business plan to align more closely with current market conditions.

Strategizing Due Diligence

Strategizing Due Diligence

In Strategic Due Diligence, the buying company evaluates the market in which the target company exists. For instance, the buyer may interview the other company’s current customers, assess its competitors, and perform a full analysis of the assumptions behind the target company’s current business plan. All due diligence, including the strategic variety, is done to determine whether the business plan can hold up to the market’s realities.

Factors to Consider During Due Diligence

There are two main factors to consider during the strategic due diligence phase of a merger or acquisition. The first step is to determine the commercial viability of the deal, and it involves validating the target company’s financials and potential areas of compatibility. Companies can do this by assessing the target company’s position within the market and by evaluating how it may change with time. Whether the buyer is out of the market or a direct competitor, this analysis is important. However, for competitive buyers, the commercial viability issue can be more complex as it involves a calculation of the combined entity’s competitive position.

As to the second factor, the buyer must determine whether the combined management team can achieve the deal’s targeted value and whether the timeline is realistic. For in-market M&A, it is important that all associated risks in terms of competitive response and culture issues are weighed and managed. If a greater market share is the main value driver of the transaction, leaders should ensure the target company’s executives can meet customers’ needs while evading competitors who will try to win over clients and customers during the transition phase. Although compatibility testing is important during in-market mergers, financial buyers are equally well served by an in-depth analysis that provides a greater understanding of value drivers within the target company.

Using a Virtual Data Room During the Due Diligence Process

Virtual data rooms—also known as VDRs—are online repositories or warehouses where information is distributed and securely stored. This storage and sharing method is primarily designed for mergers and acquisitions and strategic due diligence as well as other applications involving the use of sensitive information. In the context of due diligence, a data room retains all information that is critical to the merger and acquisition process. Data and information related to divisions, units, and companies being bought or sold are stored in the VDR.

All parties participating in the merger or acquisition are allowed to access the information while uninvolved parties are kept out. In the recent past, traditional methods entailed using a physical storage facility—sometimes referred to as a PDR or physical data room—to store documents and information for future distribution. As time has passed and technology has evolved, many companies have transitioned from PDRs to online storage, and the virtual data room has taken center stage.

While it may look easy on television, the merger and acquisition process can be complex. Every business is unique, and all mergers have different circumstances. Anticipating and handling these developments is crucial for ensuring the acquisition is appropriate for both companies. Buyers should continually adapt their strategies and continue to work with experts who can offer solid insights into the firm’s weak areas.