That was week ending 14th December 2012

This is the last TWb4TW until after the Christmas and New Year break. I started writing these articles in April and can hardly believe it is now nearly the end of the year and I am still writing them. I have been encouraged by the kind responses from you the people that read them and I thank you for those.

This week I thought it appropriate to produce my Christmas wish list, wishes for myself and others.  Here goes.

Cable not able

Last week Vince Cable took yet another swipe at big global companies that don’t pay enough or any UK tax. For Mr. Cable it is still the moral high ground that matters so no mention of our unfit for any purpose tax system. If the companies concerned are obeying the law then it is clearly the law that needs changing if it is not producing the result the country needs and that is the job of government.

Whilst Mr. Cable has done some good work at BIS underneath he is fundamentally anti business, or if isn’t he certainly sounds like it. I once heard him speak and claim that he was experienced in business because he had spent time as an economist at Shell. Anyone who knows anything about what economists do in organisations like Shell will know this doesn’t count as business experience.

So my Christmas wish for Mr. Cable is that he should get another job.  Minister for Overseas Development might suit his moralising better or perhaps being made to run an SME for a year might give him some “real” business experience.

It’s the economy stupid

Talking of experience my Christmas wish for George Osborne is that he too should find an opportunity to get some real experience. He is an example of yet another politician who is no doubt very intelligent but has done nothing but politics almost since he left primary school. This was demonstrated in the Autumn Statement and its aftermath where he was clearly more interested in scoring political points over Ed Balls than coming up with radical policies that would really get the economy moving. You can usually leave Ed Balls to score political points over himself, so why not get on with the job we pay you for, George because it really is the economy that matters and you are not stupid.

Does one more make a difference?

After the announcement that Canadian Mark Carney is to succeed Sir Mervyn King as Governor of the Bank of England last week we heard that Hector Sants was to join Barclays as head of compliance. Sants was previously Chief Executive at the FSA.

Now you can’t blame all the FSA’s failings on Sants. However he did step up to Chief Executive in time to rubber stamp RBS’ acquisition of ABN AMRO and he did publish just a 12 line press release on the FSA’s investigation into RBS, rather than publish the full report.

I understand that Barclays already have around 1800 compliance officers. So whilst Carney’s appointment does represent a new direction at the BoE you have to ask what real difference appointing a regulator to head up compliance will really make at Barclays.  My Christmas wish for Mr. Sants is good luck, but I have a feeling he will end up between a rock and a hard place with this one.

Train the trainers

The investigation into what went wrong at the DfT over the West Coast Mainline fiasco continues but with growing signs of avoidance tactics from anyone in the DfT who could possibly be blamed. My Christmas wish is that anyone at senior level in the DfT should be given a train set for Christmas and  required to assemble it in to a working model of the West Coast line in 30 minutes or be shown the door. Simple and effective.

HP used to work

I own an HP printer which I bought in the days when you could truly say buy HP because you just plug it in, turn it on and it works. What’s more my printer still does work, even though HP has had about 5 CEOs since I bought it. My Christmas wish for HP is that they should make me an offer for my old printer, with a suitable Autonomy sized premium and I would be delighted to sell it back to them. Then they could examine it and discover what it was that they used be really good at.

Oh no it's Silvio

You could not make it up; Silvio Berlusconi is running for Prime Minister of Italy again. This proves the view of a previous British ambassador to Italy who said “it is not difficult to govern the Italians, it is simply unnecessary”. Sr B’s first public pronouncement was to state “who cares about how much interest we pay to people who invest in our debt obligations compared to Germany”. This will be music to many Italian’s ears but maybe this time not enough of them will buy the message. So I wish Silvio Berlusconi everything he deserves.

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. TWb4TW will be back in the New Year so have a great Christmas and New Year holiday.

That was week ending 2nd November 2012

My purpose in starting this series of weekly (well mostly weekly) articles is to take a different perspective on some of the news stories from the previous week to see what lessons might be learnt. However I am beginning to find that many of these lessons keep coming round again. So here is a quick canter through some of last week’s news stories with my take on the lessons they contain.

Barclays to slash pay – senior employees at Barclays are to have their pay cut by up to 50%, with the bank happy to take the risk that some will leave rather than accept this. This is one of the key outcomes of Project Mango, a three part review into the future of the former Barclays Capital. So it appears that reality does catch with everyone eventually and the longer you ignore it the bigger kick in the backside it gives you. The mystery that remains is why big corporates continue to give major projects such silly names.

BT Sports Channel – perhaps to its surprise BT came away with two of the seven Premier League broadcasting rights packages plus the rights to Premier League Rugby from next year. The idea behind this move is that it will enable BT to compete with Sky in offering bundled telephony, broadband and TV services. However it is unclear how BT will earn a return on the near £1bn of its shareholders money that it has spent so far when it doesn’t even have a sports channel yet.  The major impact so far is that BT’s entry into the bidding process forced Sky to pay 40% more than in previous Premier League auctions. Perhaps the lesson is be careful what you bid for, because you most likely will end up with some of it, having paid a lot more than you expected.

PPI miss-selling hits banks profits – one clue as to why Barclays and the other banks feel confident they can reduce the pay of their senior people without any mass exits is the scale of the financial headwinds facing all banks. In addition to PPI compensation, the consequences for interest rate swap miss-selling, HSBC’s money laundering and Libor rate manipulation have yet to be fully quantified. PPI compensation alone could top £12bn and be the biggest miss-selling scandal of all time. PPI miss-selling wasn’t just wide-spread; it had become a way of life. If it made money for the bank and for you, it was alright. The lesson is that these days HOW you make your money is just as important as how much you make. Dubious practices that society deems unacceptable will find you out and cost you dear.

Official, West Coast bid fiasco was a fiasco - a preliminary report on the investigation into this sorry saga has confirmed that the DfT’s part in the fiasco is every bit as bad as we thought. Officials in the department knew that they had neither the resources nor the expertise to manage the bid process effectively but they went ahead anyway. They even accepted the “risk of a challenge” from Virgin Rail Group. This wasn’t a risk; it was a cast iron certainty!

Given that rail is a key part of this country’s infrastructure and the DfT has a key role to play the least the government could do was to ensure it was up to its job. Right now it is the equivalent of sending a village football team with just seven players out to play Manchester United. The lesson for those of us in business is that we must demand that government massively improves its own competence and capability before it starts telling us how to run our businesses.

Hitachi buys in to UK nuclear – this Japanese white samurai came riding out of the sunset to buy up RWE and E.ON’s nuclear business in the UK. This is good news because before this the only nuclear game left in town was the Centrica/EDF joint venture. Hitachi has a record of building reactors on time and on budget which would make a welcome change if they could do this in the UK.

However major obstacles remain before this investment will become a reality, notably getting Hitachi’s Advanced Boiling Water Reactor licensed for use in the UK. This could take four years. Once again a key role is played by government, not just in the licensing process but in settling the price to be paid for electricity generated from the new plants. Get this wrong on the scale of the West Coast rail bid and we are in serious trouble.

The lesson is that when you have pulled a rabbit out of the hat, don’t then starve it to death.

Royal Mail delivers Parcels! – another bit of potentially good news was the announcement by Royal Mail that it is to invest £75m into a four year expansion programme that will fuel a decisive shift away from delivering letters to servicing online retailers instead.

Many of us can be forgiven for thinking about time too! To be fair Royal Mail has had a stack of legacy problems to deal with before they could get to a position where they have a chance of making this investment a success. Successive government indecision and general messing about with Royal Mail hasn’t helped. However the lesson is that when it’s obvious what you need to do, best get on and do it. You will be surprised by how often doing the bleeding obvious doesn’t get done.

And finally – I have a feeling in my water that overall things are starting to get better. This is not to do with last quarter’s growth figure, but just a general feeling in spite of all sorts of potential further difficulties that there are more signs pointing up rather than down. Two big events this week may turn out to be significant, namely the result (if we get one this week) of the US Presidential election and the change of government in China. In one millions of American voters will decide the result, in the other a few thousand people turn up in Beijing and put their hands up when they are told to. I am not sure which I find the scarier!

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.

That was week ending 3rd August 2012

A lesson from the Olympics

The Olympics just cannot be ignored this week; the greatest show on earth really is the greatest show on earth. The challenge is what to write that hasn’t been or will be written.

The event from last week that got me thinking was the expulsion of the Chinese, Indonesian and South Korean badminton players for trying to lose in an attempt to manipulate the draw for the knock out stage. The Chinese and South Koreans were actually playing each other. When both teams are trying to lose just who actually did win is an interesting question.

Also last week we learnt of further eye watering provisions from RBS and HSBC for mis-selling PPI and interest rate swaps. This is on top of the fine for HSBC for money laundering. Barclays and Lloyds have already increased their provisions and many experts predict that even these will prove to be insufficient. The Libor scandal has further to run as well.

So what do banks and expelled badminton players have in common?

I suggest it is about winning. Not what you win but HOW you win.  Regrettably the culture within the banking sector transformed over time into one where it became all about the banks winning and it did not matter how that was achieved. The bonus culture reinforced this by enabling a small number of people to win disproportionately to nearly everyone else.

Winning in sport is on the face of it a clearer proposition. Most of us accept that top sports people must really want to win and this means they must beat their competitors, who by definition, lose. However what we also expect is that there will actually be a real contest, because sport, especially at top level, is massively devalued without it.

This is where the badminton players crossed the line. They abused the core value of sporting competition to enhance their own chances of winning. The spectators spotted this and quickly expressed their disapproval, soon followed by the umpire and then the Olympic authorities.

However there are no actual rules in badminton that expressly prohibit players from trying to lose. What the Olympic authorities enforced was the “spirit” of competition which is about HOW you win. I fear that just introducing more rules and regulations on our banking sector is not going to be the answer to restoring the “spirit” of fair dealing and sound business practice that we really need.

Sharp shooting

Congratulations to Peter Wilson, our gold medallist in the shooting double trap. However at one point it looked doubtful that he could even continue with his sport, never mind actually compete in the Olympics.

Following the lack of shooting medals in 2008 Games his funding from Sport England was withdrawn. With some real “out of the box” thinking Wilson approached Ahmad Mohammed Hasher Al Maktoum, a member of the ruling family of Dubai and the 2004 Olympics gold medallist in the double trap. He did not ask for nor did he receive financial support from Maktoum but he did persuade him to become his coach. With his coaching secured Wilson then managed to raise enough funding himself to get into the British team for the Olympics and then to become the first British shooting medal winner since the 2000 Games.
This was an outstanding example of “where there’s a will there’s a way”. Get really clear about what you want to achieve and that you really want it and then tackle the problems and challenges that must be overcome to make it happen. In particular be ready to think differently about what the solution might be. It would have been so easy for Peter Wilson to see his Sport England funding as the only route to a place in the Olympics and to give up when this was no longer available. There is always a way, we just have to find it.

Falling off.

Congratulations also to our men’s gymnastic team for winning a bronze medal, our first medal in this event for 100 years. At one point they were awarded silver before a protest from the Japanese team secured an extra 0.5 points for the pommel horse gymnast, which gave them the silver.
Now here is a bit of rant from me about this. I watched this part of the contest and whilst I am no expert that Japanese bloke “fell off” the pommel horse at the end of his routine, he did not “dismount”. The fact that his falling off coincided with his dismount does not change my view on this. The Japanese maintained he should be awarded some points for his dismount as he had landed on his feet. Well you would expect a top athlete to land on their feet in most situations. I have seen jockeys “dismounting” at Beechers Brook in the Grand National in a similar fashion to this Japanese gymnast.
A case of applying the letter of the rules rather than the spirit in my view. However given the avalanche of medals that British athletes have collected so far, I guess I don’t have that much to complain about.

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.

That was week ending 6th July 2012

Too big to ...?

There is a perverse streak in me that means when everyone is talking or writing about a particular story I feel compelled to write about something else. This makes it difficult for me this week because last week the Barclay's story dominated the airwaves and column inches to the exclusion of almost anything else.

However it reminded me of the “too big to fail” problem we have with all our banks. The government has said it will introduce reforms so that in future a failing bank can be wound up without the need for taxpayer support. Not much sign so far of anything actually being done about this.

This made me to think more about the “too big” thing and about organisations that become “too big to work”.  There is emerging evidence of disconnects between different levels of management in Barclays creating a situation where the manipulation of Libor by traders was perceived by them as the thing to do. Those disconnects are a symptom of an organisation that has become “too big to work”.

By definition becoming big means a business has grown and growth we are told is a “good thing”. However you can have too much of a good thing. Growth that is the outcome of sound values and continuously building organisational competence and capability is sustainable and delivers value. Growth that is achieved through temporary market advantage, merger, acquisition, financial engineering etc., but without sound values and which outstrips growth in organisational competence and capability usually ends in tears. You may think you need to be big “in order to compete in a global market”, but if you are just not good enough then just being big doesn’t do it. Which brings me to …

Aviva

Apart from spending zillions rebranding with a name that means absolutely nothing at all, Aviva is a classic example of becoming too big to work. Ask any independent financial advisor and they will tell you they are complete nightmare to try to work with. A sure sign of a business that has become “too big to work” is when, like Aviva they come up with one new strategy after another. Each time they convince themselves that this next one is going to work. These strategies always have fancy strap lines like “one Aviva, twice the value”. Under former Aviva CE Andrew Moss this became “one Aviva half the value”, as the share price fell by 60pc.

New Chairman John Macfarlane pronounced last week that the business was a mess and he was going to clear up the mess (though he didn’t use the M-word). Central to his strategy is making the business smaller by selling or winding down 16 of its 58 businesses. However demonstrating that Aviva has not lost its preference for fanciful sound bites the man leading the restructuring, David McMillan, will become “director of group transformation”. In my experience anyone accepting such a title is either very brave or very foolish, possibly both. But, we shall see.

Whose side are they on?

I end this week with a story from one of our clients, a £5m t/o construction services business. In spite of being in a very tough market they have continued to grow and create jobs. However they have to carefully manage their cashflow to support their working capital requirements. Their bank has been supportive but not generous in this respect.

So when the opportunity came to receive a grant from the Regional Growth Fund to help them fund the deposit for some capital investment they were considering they decided to apply. A grant would make it possible for them to make the investment earlier than would otherwise be prudent and create a few more jobs in the process.

In spite of being informed they were exactly the type of company this was designed for our client’s grant application has been refused. The reason given is that the underwriters have calculated that our client can service the borrowing at the funding level required and does not need the 10% deposit support. In other words because the bank felt they could make the repayments there was no grant available.
If they had demonstrated an inability to service the debt payments then they would have qualified for the grant. This means that you have to be a bad risk before you qualify for support. Our client now has to reapply for higher funding up to a level (which they don’t need) at which the risk calculation confirms they can’t service the debt without the 10% funding.
This is just nuts and shows how the people administering these schemes have no idea at all how businesses, especially small businesses, perceive and manage their risks. Lack of confidence is cited as the reason why so many businesses are not investing. A scheme like this can help business mitigate risk and therefore encourage them to invest sooner rather than later. In my client’s case it would have meant that they reduced the risk of having to dip into their cashflow which they need to service their working capital requirements.
Mr Cable this is a serious disincentive for businesses like our clients to apply for so called assistance like the RGF. At this rate the management time they will spend on this is likely to outstrip the value of any grant. No wonder small businesses wonder just whose side the bizarrely named Department of Business, Innovation & Skills is actually on!

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?

Xstrata-ordinary!

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.

That was week ending 27th April 2012

Well that was a week wasn’t it!  What with the Murdochs at the Leveson Inquiry, a technical double dip recession and the collapse of the Dutch government, it was a week in which business, the economy and politics became inextricably and messily entangled. It’s hard to know where to start, but here goes.

Flat Earth Society

The previous week I sat down with a group of East Midlands’ business people and the regional agent for the Bank of England. “Our best quarter ever” and “optimistic about 2012” were just some of the positive views expressed, significantly more positive than the Bank of England man had expected.

Then we learn that the economy contracted by 0.2% and we are technically in double dip recession. Would this have come as a surprise to those people at that meeting? Well probably not, because what they also all agreed on was that there are and will continue to be winners and losers out there. Therefore the net overall improvement, if any improvement at all, will be small.
So whether the economy is 0.2% up or down makes little real difference. The economy continues broadly flat with nothing significant in prospect to change that any time soon. We have been telling our clients for some time that they should develop their strategy on this basis, but that does not mean that they cannot grow. What it does mean is that without growth in the wider economy they have to win market share and that often requires a different business model, strategy and attitude.

The group at the meeting agreed and that the key difference between the winners and losers was “attitude”. Those who believe the earth (and the economy) is flat are afraid to venture far and try anything new. Those who believe the earth is round know there are opportunities out there, even if they can’t see them yet over the horizon and are prepared to venture out after them.

Yes but …

We do need to get the economy as a whole to grow and a roughly equal balance of winners and losers is not going to do what’s needed. We think there are three key challenges to overcome, where government has a key role to play.

First there are two types of small business with potential to grow, the relatively new business with innovative products and services and the established business that fought its way through recession, often at considerable cost to profits and balance sheet but is now able to grow again. However the financing requirements for both types of business are all about the future, whilst conventional lenders’ criteria are based on past performance and current balance sheets.

These two perspectives are fundamentally incompatible so it should be no surprise that banks are not providing sufficient finance to fuel growth for smaller businesses. “The banks are not lending, there’s no demand” arguments are getting us nowhere and we need new radical thinking with government providing the catalyst.

The second challenge is how to unlock the mountains of cash currently being hoarded by many businesses, both big and small.  This is about “risk” or at least the perception of risk. Psychologically business people need to feel the prospect of reward from investment to be significantly greater than the risk. Right now many can see the risks but not the reward. But just look at the effect the changes to the “patent box” tax regime had on investment intentions at GSK and others. This approach should be used across the business tax spectrum, especially where it would encourage employment.

Third, government should switch on more spending on infrastructure related projects and the OECD now appear to agree. This may need more radical thinking on transferring spending from other areas plus, as the OECD suggest, some easing of the time frame for deficit reduction. Not easy as the transfer would likely come from areas such as welfare and local services. However the boost to the economy and employment would be significant in a relatively short period of time.

If effective strategies were implemented to overcome these three challenges we believe we would see the economy growing within 12 months. Anybody got any better ideas?

Shareholders are revolting

The story on Barclays CEO Bob Diamond’s pay package continued. Nearly a third voted against the remuneration report or abstained. Chairman Marcus Agius appears to think it is all about communication. "Evidently we have not done a good enough job in articulating our case: on some matters we should have communicated earlier and more clearly". However just how you tell shareholders " we are paying ourselves three times a much as your total dividends" without making them think enough is enough is beyond us.

It is too early to say if finally the big institutional shareholders are really going to hold their directors’ feet to the fire and insist reward must reflect performance. However for all the politicians’ huffing and puffing and the sheer exasperation of the rest of us the resolution of over the top reward for mostly mediocre performance was only ever going to come from shareholder pressure. If Barclay’s directors have to buckle maybe this will be the catalyst for change.

Thought for the week

We are grateful to Sally Anderson of Sally Anderson Executive Support Services for this quote from Rosa Parks. On first read it seems a bit “motherpie and applehood” but then it grows on you.  See what you think.

“Stand for something or you will fall for anything.  Today’s mighty oak is yesterday’s nut that held its ground”.

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.