25 June 2012

That was week ending 22nd June 2012

Carr crash

The story that attracted a great deal of the attention last week was Jimmy Carr’s tax avoidance scheme. Left to itself this story would not have had made so much of a stir.  However the Prime Minister chose to single out Carr, calling his perfectly legal tax avoidance scheme “morally wrong”.

Trust me - I'm in business

I don’t intend to add anything more to the debate on this but it connected in my mind to the results from an Ipsos Mori poll published last week. This indicated that fewer than one in twenty British people think “business” is a reason to be proud of the country. The connection is that a number of prominent UK businesses (i.e. Vodaphone) and business people (i.e. Lord Ashcroft, Philip Green etc.) don’t appear to pay the taxes the rest of us think they should be paying.
At a time when UK government and business are banging on about the need to “rebalance” our economy from public to private sector it is of some concern that most of us don’t appear to think much of  business or business people. The Ipsos Mori poll is just the latest indication of a widespread mistrust of business and of business people in general.
Now you might think a general mistrust of business is hardly surprising given the effect of the credit crunch and subsequent recession on people’s lives. However the Edelman Trust Barometer which assesses levels of trust in business across the world shows that the British public are becoming more distrustful of business. This is in contrast to the global trend which shows trust in business rising overall.
Ultimately business will pay a price if customers, employees and the wider population perceive business as some form of parasite rather than as a valued member of the society in which it operates. In particular politicians become tempted or even compelled by public pressure to intervene. This invariably results in higher costs, disruption and unintended consequences. For example the government announced its proposals last week to separate investment banking and retail banking. This will make life more difficult and costly for the banking sector but taxpayers just cannot trust the banks not to screw up again.

Trust matters

"Trust” does matter and what's more it works. The Edelman research shows that people are far more likely to believe good news about a company they trust and far more likely to disbelieve good news about a company they distrust. The implications for the long term sustainability and success of any enterprise are both obvious and significant and last week saw a particularly outstanding example of this.
In 2007 Stefano Pessina took Alliance Boots private with a £11.1bn leveraged buyout, the largest ever in Europe. The deal was done at the top of the market and could easily have to come to grief as many others have in the subsequent financial crisis and recession. Boots was and is one of the most trusted brands in UK retail. Pessina did not muck about with what he could clearly see was working and in particular made sure that any changes he did make enhanced the trust factor. Profits have shot up by 88% since the buyout. Last week they announced an agreement to sell a 45% stake to Walgreens the largest pharmacy chain in the US, representing a 2.7 times return for the investors in the buyout and huge new opportunities for the company.

Building Trust

So how do you build, maintain and enhance trust to drive levels of business performance and success to these standards? Based on experience and research I believe it’s about always “doing the right thing” by shareholders, employees, customers, suppliers and society. No business, including Alliance Boots is perfect in every respect on this but those business that stand out as highly trusted do seem to constantly strive to do “the right thing”. When my wife was in Boots recently she had forgotten to bring a money off voucher with her, but without hesitation the assistant gave her the discount anyway. A small but significant sign of how this business tries to think and behave.
However there is one other factor that in my view is crucial. You must do the right thing but you must do it ”really well”. Attempting to do the right thing but not doing it well invariably results in compromise, short cuts, short term thinking and before you know it you are not doing any of the right things. What this means is that doing the right thing may be simple as a concept but it definitely is not easy to do.

Carr repair

Back to Jimmy Carr, did he do the “right thing” by apologising and cancelling his tax avoidance arrangements? Well he was certainly at risk of losing the “trust” of his fans and with a high risk of damage to his reputation and his livelihood.  He also did the apologising rather well at his first live show after the story broke and it looks like he has pulled things back for himself.

And finally

I had a small chuckle to myself about the downgrades for some UK banks announced by the “Big Three” credit rating agencies last week. RBS criticised the decision by Moodys to downgrade its credit rating, saying the agency was “backward looking”. I am sure the response from many small business owners would be “now you know what it feels like”! Oh yes and then came the IT failure.

So that was some of the week before this week. We hope you found some of the above thought provoking and useful for you and your business. We trust you had a good weekend and hope you have a great week this week.

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