1 July 2012

That was week ending 29th June 2012

After the Diamond Jubilee comes the Diamond Dilemma.

I am indebted to Bill Good for inspiring the above subheading.  Bill is a long standing business friend and when I bumped into him at a CBI event we both agreed that the Barclay’s Libor manipulation scandal had to go into “the Week before this Week” this week; even if everyone else is writing and commenting on it.
Those of you who read last week’s article will remember I put forward the concept of “doing the right thing really well” as the only way for businesses to build the “trust” with all stakeholders that is essential for long term success and sustainability.  Well the Barclay’s story is a spectacular example of “doing the wrong thing”.  Not wrong as opposed to incorrect (which it was and probably illegal) but wrong as opposed to morally right. When I wrote last week’s article I had no idea this story would break this week. It really has been my fastest “I told you so” experience and contains some essential lessons for all business people.
Not only did Barclays “do the wrong thing” they did it very well apparently, at least from Barclay’s point of view. However it has all come crashing down around them and the consequences for the business with people queuing up to sue them could be serious and even fatal ultimately. It will certainly trigger more regulation and supervision for the banks which is not really in ours or the banks’ best interest in the long run. However such is the state of society’s mistrust of banks that it will be politically unavoidable.
The big question by the weekend was can Bob Diamond survive as Barclay’s CEO or should he survive? Apart from the Libor scandal itself, there is the little matter of the share price falling 42pc over the last 3 months! Plenty of others have covered the arguments on should he go or should he stay, but for me there is one factor that is crucial and that is “trust”. Diamond appears to have great difficulty seeing himself as others see him and seems to have failed to understand that few of us are now prepared to believe a word he says. Now this may be unfair but unless he can put this right he will remain too much part of the problem to be able to fix it and take Barclay’s forward. Personally I don’t see how he can put this right and he has to go

And lo, just when they thought things couldn’t get worse – they did!

On Friday the FSA announced it had uncovered “serious failings” in the way Britain’s four biggest lenders sold interest rate hedging derivatives to small businesses. Up until the Libor scandal emerged I thought this was going to be the all time prime example of what happens when a business “does the wrong thing”. Even so this “mis-selling” (or fraud if you or I had done it) could cost the banks up to £6bn or more in compensation.
Is anyone not getting the lesson on why “doing the right thing” is and always has been the way to go?


Just in case you haven’t (Mr. Diamond!) lets look at the latest developments in the Glencore, Xstrata merger story. All along this has looked like a good idea for the directors and employee shareholders but maybe not so good if you are just a shareholder.  As part of the deal Xstrata’s CE Mick Davis was due to receive a £29m retention package, i.e. just for staying on.  After criticism performance criteria were introduced so the retention awards will only fully vest if a further $300m of incremental savings are achieved from the merger within 2 years.
This does mean that Mr. Davis now has to do something rather than nothing for his £29m. However I am not at all sure that a narrow focus on short term cost savings linked to personal self-interest will turn out to be in the long-term interest of the business and its shareholders. It appears that one “wrong thing” can lead to another.
Furthermore the retention package sparked questions on the terms of the merger itself and last week Qatari Holdings announced it wanted more Glencore shares for those it holds in Xstrata. Consequently there is now a considerable risk that the merger could fail. If it does then it may be that the trigger for this could be down to “doing the wrong thing”, i.e. offering the CE £29m just to stay on.

Happy Feet

Encouraging news last week from British manufacturing. In this year’s HSBC Business Thinking competition the winner and three of the five runners up were businesses who manufacture their products predominantly or exclusively in the UK.
Even more encouraging was a feature in the Telegraph on Hotter Shoes. Founded in 1959 Hotter has always manufactured the majority of its shoes in its Skelmersdale factory near Liverpool. I first came across this company about 7 years ago and confess to being astonished that it was still possible to be a volume shoe manufacturer in the UK (£57M p.a.) and make profits (consistently in the high teens percentage).
There is a lot of talk now about a resurgence in UK manufacturing and of “repatriation” of manufacturing from overseas. Well Hotter never went away. How did they do it? In 1980 they were in as much trouble as many other shoe manufacturers as the industry collapsed. Hotter decided to pull out of supplying multiple retailers, widen its range of shoe products and sell through independent retailers and direct to the public through its own retail stores, mail order and of course now online. In other words they completely changed their business model and it worked.
There is a lot of evidence of “doing the right thing really well” at Hotter. For example their call centre is in the factory where the shoes are made. Staff don't have call scripts because they know that every conversation with each customer is unique. They're really well trained and have great product knowledge - they can give customers the advice they need to make sure Hotter delivers its promise of "Happy Feet".
If it can enable a UK based shoe manufacturer to become highly successful then "doing the right thing really well" can achieve just about anything.

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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