Technology is a fundamental driver in corporate earnings. The ability to achieve efficiencies, increase productivity and compete globally is generally based upon competitive technology assets. Therefore, in our opinion, worldwide Year 2000 disruptions in technology will slow production and the delivery of services and information.

If you look back a couple of years ago, most everyone working on Year 2000 issues forecasted that systems remediation would be complete on Dec. 31, 1998. It was assumed that completion by this date would allow the entire year of 1999 for systemwide testing.

For technical purposes, the need to finish on this date held other importance. For instance, most information systems look ahead 12 months, and if not corrected by Dec. 31, 1998, errors could possibly occur. Since most computer systems are interfaced to other systems, those errors could begin to spread to other applications. This, in turn, could begin to compromise system integrity and reliance upon critical testing procedures.

From an investor's point of view, however, we need to monitor which companies actually have successfully forecasted and arrived at this milestone. If companies have not met their initial planning dates from earlier forecasts, their non-remediation must serve as an example of a Year 2000 program which is late and could cause some financial pain in the future. Thorough due diligence on enterprisewide system remediation is just one of the many critical steps toward understanding future financial performance.

At The Millennium Investment Corporation, we focus on the global financial implications of the Year 2000. From a financial perspective, our due diligence indicates Year 2000 is a worldwide challenge with tremendous economic implications which will cause earnings to be significantly lower in the coming years.

Also, in our view, this will lead to a global economic recession that we have been forecasting since Dec. 10, 1997. At that time, our research made things quite clear. There is not enough time to fix everything, and in particular, there is a shortage of skilled resources available. This is especially the case for embedded system remediation, which goes to the heart of our productivity capacity.

Further, we believe there is a great disconnect in progress. Investors and others have taken for granted the importance of technology and just assumed it will be fixed quickly and easily. Nothing is further from the truth. Due diligence is required to understand the process of remediation and the tedious steps required to reach compliance.

The last few years, our own due diligence brought us into contact with production personnel, Year 2000 program managers and solutions providers. They have taught us that Year 2000 projects are getting larger, more costly and increasing in scope. It took 40 years to build global information, production control and infrastructure systems. We cannot reasonably expect to correct everything in just a few short years.

From our perspective, technology is one of the most important assets of an organization in contributing to earnings. Further, technology dependencies touch public and private infrastructure and foreign trade — all significant segments of the global economy which contribute to earnings.

Therefore, those companies which adopt Year 2000 enterprisewide compliance strategies and implement contingency planning will be in a better position to mitigate the effects from technology failures internally and from external infrastructure dependencies.

Investors should consider the milestone of Dec. 31, 1998, when reviewing investments for Year 2000 compliance. Remember, if the information and embedded system issues are not resolved internally within a corporation, there will most likely be some economic consequence to earnings. The astute investor will dig for the information and make some determinations.

With the increased disclosure rules of the Securities and Exchange Commission, investors ought to study more closely the statements made in filings with the Commission. These documents (for both equity and fixed income instruments) are generally only read by professionals but should be mandatory reading for all investors.

Dennis G. Grabow is the CEO of The Millennium Investment Corporation in Chicago. He can be reached at [email protected]