Two Weeks ending 30th May 2014

No time for an article last week so looking back on the last 2 weeks in this week’s TWb4TW.  Here are some quick thoughts on:

UKIP if you want – and a lot of people did.

UKIP’s success in both local and EU elections was even bigger than many commentators had predicted.  It appears that the electorate is fed up with smart talking politicians in sharp suits so they voted for Nigel Farage.  Of course he is a smart talking politician who wears a sharp suit but he also drinks pints.  This seems to have persuaded people that he is “just like us” which of course he is not.  However he has picked on two big issues that many people believe really affect them, immigration and the EU.  His argument is very simple.  We can’t do anything meaningful about controlling immigration whilst we are required to follow EU rules and regulations.  So leave the EU and hey presto we can reduce immigration.

Immigration is a topic where opinion is driven above all by emotion, with fear being predominant.  Many people feel deeply uncomfortable about a “multi-cultural” Britain which they perceive has been imposed on them.  Add a widespread feeling of resentment towards the EU and the UKIP offer of a simplistic solution to make the fear go away appeals to a lot of people.  This is why so many think Farage is “just like us”.  Many voters have decided they can trust him even though he has done nothing really to win that trust.  It’s just that the others have done everything to lose it.

For me this is a reminder that “how people feel” can be a significant driver of people’s opinions and actions.  This something that has been ignored by the “we know what’s good for you” politicians and bureaucrats and many voters have demonstrated they have had enough.  For us in business it is a reminder that we don’t always know best with our customers, employees, shareholders etc. and maybe we should look and listen more carefully and perhaps with a little more humility.

Is the EU doomed?

The result in the UK was reflected across Europe where anti EU parties on both the left and right gained seats.  The exception was Italy which was about the only country where a pro EU party won the most seats in their EU parliamentary election.  As usual Italian politics are impossible to explain, so I won’t try.

Whilst the message to the politicians in the EU establishment is that voters want change the question that has to be asked is not what should change, but is the EU actually capable of changing in any meaningful way.  I have an awful feeling that the whole thing has now got so big and complex that is beyond human capability to bring about the change that is needed in an orderly way.  This means that either Europe continues into gradual but terminal decline or, because change will come whatever, the wheels fall off and it will get very messy.  For me this is the one compelling argument that says being out of it might just be a good place to be.

India shows what can be done.

The election in India, where the BJP party led by Narendha Modi won a landslide overall majority is interesting not just for the result but for how the election was conducted.  The 551m votes cast were counted by 1.8m electronic voting machines.  Turnout from 815m eligible voters was over 66% with the use of the new technology virtually eliminating electoral fraud.  This in turn has improved trust in the process and consequently in the election result.  For once the losers are not running around shouting “fix”.

We on the other hand are still putting crosses in boxes on a piece of paper, then folding it and putting it in a box.  Whilst the world’s biggest democracy is demonstrating that it is possible to use new technology to run elections, we still use the same old ways and wonder why we can’t get electoral fraud under control in places like Tower Hamlets and parts of Birmingham.  No one who should be taking responsibility for this appears the least bit bothered.  It is this sort of thing that destroys trust in the electoral system and why people turn to parties like UKIP.

Exclusive inclusive event

Prince Charles, BoE Governor Mark Carney, IMF MD Christine Lagarde and Bill Clinton were keynote speakers at the “Inclusive Capitalism” conference last week, attended by 200 specially invited business leaders.  The theme of the conference was economic inclusion and the integrity of the global financial system.  This all sounds like worthy stuff and Prince Charles managed to slip in quite a bit on climate change.  However it doesn’t sound like a very “inclusive” event to me.  You couldn’t buy a ticket so if you weren’t invited you couldn’t come.  The Inclusive Capitalism strap line is “building value, renewing trust”.  Holding a highly “exclusive” conference doesn’t sound like a good way to start doing this.   Whilst this may be well intentioned until these “exclusive” people start to see themselves as the rest of us see them, they are not going to make much of a difference, because we won’t trust them.

Win/lose

Halfords is the latest company to put the screws on its suppliers by demanding a contribution to its investment in new and refurbished stores equivalent to 10% of suppliers’ sales to Halfords over the last year.  Their (rather thin) argument is that the suppliers will benefit from increased sales from the investment in stores and should therefore contribute to it.

First of all this demonstrates an astonishing lack of understanding about their suppliers businesses.  Most of them will be doing well to making a profit before tax of 10% of sales so the contribution is the equivalent of handing over all their profit on their business with Halfords.

Far too many big companies are trying this on and in almost all cases the demands are retrospective on already agreed contracts.  It is not clever, though the companies that do this must think it is, because the proposition is always win/lose which destroys trust so almost always results in everybody losing in the long run.  It is possible to create a proposition of this kind that works on a win/win basis and that could potentially benefit all parties.  However because this requires more effort and the benefits are longer term, too many companies that should know better can’t be bothered and go for the short term hit.

Co-op “committeed” to values

On the subject of good intentions the Co-op Bank announced that Laura Carstenson a former partner in law firm Slaughter & May had joined their board and would be Chairman of their new “values committee”.  The Co-op successfully promoted itself for years as the “ethical bank” which did give it an edge and made it one of the most trusted brands in retail banking.  However the latest Which? Money Savings Satisfaction Survey published in April showed that the Co-op bank’s rating had dropped by 14% to 49%, below the average of 52%.

The bank’s recent high profile troubles have clearly diminished the level of trust it previously enjoyed.  So something needs to be done, but I am not sure a “values committee” is the answer.  Is this committee just a symbol of good intentions or is it actually being charged with achieving specific goals, such as restoring customer satisfaction ratings for its savings products?  Time will tell but given the Co-op Bank’s recent track record of failure to live up to good intentions, I am not confident.

Last one out turn the lights off

Centrica is now short of a finance director and a managing Director for British Gas and will lose its Chief executive when the current CE Sam Laidlaw leaves later this year.  There has been some comment in the business press that given the stick that Centrica top management gets from the media, government and just about everyone else it is not surprising that its top people find jobs in other lower profile companies attractive.

However there was an interesting comment from Martin Brough an analyst at Deutsche Bank.  He is calling for a change in strategy to focus on the core British Gas energy supply business in the UK and away from oil and gas exploration and production in Norway and the US.  At first sight this appears an odd proposal as Centrica have focused on these areas precisely to counter difficulties in its British Gas business where it is under unprecedented political pressure over profits and prices.  Mr. Brough argues that a “reinvigorated” British gas could “engage more effectively with the British public on energy issues than the political parties and could focus on selling home energy products”.  A “trusted and growing” British Gas could be worth 100p more per share claims Mr. Brough.

I do not know if Mr. Brough would be proved right or wrong about this, but there’s that “T” word again, “trust”.  Something that can take years to build but can be lost in no time at all, as the Co-op has discovered, but which mainstream politicians in the UK and the EU have yet to recognise.  The thing about trust is that it is not about good intentions, however worthy, it is about delivering on those good intentions.  To deliver you have actually have to have the capability, so be careful what you promise (Mr. Farage) you might actually be called upon to deliver it.

So that was some of the two weeks 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.