We are continuing on this month’s theme on stuff I learned at the Investment News Women’s Advisor Summit. Maybe these sound like, “well, duh!” to you. Or you may be thinking that as a personal finance professional I should know all this stuff anyway. The fact is, I don’t know everything, and I learn new things from my clients, other advisors, and classes all the time.
Here’s what I learned.
A major theme of the conference had to do with investing responsibly and corporate governance. The Responsibly part can mean lots of things – not harming the environment, equal pay between genders, diversity from board members and down through the firm, or investing FOR something (clean water, solar energy, health care). Under the governance umbrella, the topic of a Zombie Firm came up and I decided to learn more.
First, what is a Zombie Firm? The technical definition varies but generally we think of a company that has been in business for a while, may be publicly traded, but is still unprofitable. Unprofitable to the tune of being unable to pay its outstanding bond interest (don’t even think about principal) from firm profits.
What are some examples of Zombie Firms?
Lyft, Pinterest, Uber, Beyond Meat and Tesla, just to name a few. Currently in the US over 13% of companies are zombies.
Why? Many economists cite ultra-low interest rates for a long period of time. This has allowed unhealthy companies keep themselves afloat for longer on cheap credit. In an environment where interest rates are rising, these companies might be forced into bankruptcy, thus cleaning out the economy for better run, profitable companies to rise up in place of the old, unprofitable one.*