It is inevitable that Government support will draw to a close post-pandemic, and companies will need to face up to a future where the prospect of making a full recovery and returning to growth can no longer rely on this support crutch.
Creating a greater sense of equity in business – at values-based and financial levels – could be critical in accelerating sustainable growth, providing scope for investments in the future that could positively impact broader ESG efforts and supercharge digital transformation – a crucial objective for almost every business after COVID-19.
Tax advantages for equity investments
Similar to my thinking around upgraded mezzanine programs for business owners, it remains vital that stimulus is provided to ensure a continued flow of funding for companies.
The huge debt burdens and overleveraged positions that we see in the market come as a consequence of financing programs putting debt first before equity and keeping capital investments buoyant during these uncertain economic times will provide a way forward. Rewarding private investors for their bravery now may be a strategy to employ.
In previous crises, tax advantages have been offered by governments to prompt and direct investment flow. Should governments be considering now how they could provide similar benefits to private investors in this way?
For example, fresh capital brought into companies during the pandemic could be exempt from capital gains taxes, subject to commitments to keep this capital in such investments for a defined period of time. Provided the parameters are clear and broad enough to not exclude businesses that might otherwise fall outside this defined “magic circle”, this approach could significantly aid economic recovery.
Extended programs for employees
Companies are indebted to their employees in so many ways, after a year or more of pivoting working practices to juggle home and working lives and continue to deliver for their employer. Many have also patiently sat on the sidelines in furlough awaiting the call to return to work.
Consider how businesses could allow employees to benefit from a post-pandemic recovery by radically expanding their own equity participation programs, which would also reduce the company’s cost base.
The current requirement to pay taxes and social security on stocks given to employees in lieu of bonuses on the day of awarding them currently makes these programs very unattractive in a number of countries.
Developing a more harmonized tax approach in collaboration with governments would increase the attraction for employees to choose this approach as an alternative to bonus payments.
Beyond the immediate cash management benefits for companies, related positives could include the cultural boost this approach could deliver from employee investments. Would an approach of this kind enhance buy-in regarding the delivery of company objectives, where success would bring greater financial rewards related to stock performance?
Wouldn’t governments around the world rather work with business to stabilize for the long term, rather than see companies fail and bring equity options of any kind to an abrupt end?
You can find all of my “equity” options for consideration and discussion here.