That was week ending 10th August 2012

Lessons from the Olympics 2 – the ethical dimension.

The second week of the Olympics saw more British success. We had a slight moment of panic midweek when we went almost 24 hours without a medal, but the winning conveyor belt restarted and more gold, silver and bronze went to British athletes.

The other success that continued was the almost universal praise for staff at the Olympics venues, especially for the volunteers, armed forces and police. “So friendly, helpful, smiling, brilliant” were just a few of the almost embarrassingly un-British like adjectives that visitors and spectators used to describe their experience of the welcome and service they received. This got me thinking about “employee engagement”.

Personally I don’t like the term but it won’t be long before the HR/training/consultancy world spots the potential for promoting the connection between the Olympics and employee motivation and engagement. However the volunteers were not “employees”, at least they were not getting paid and the armed services and police were only there because they had been sent there. So there had to be something more than just “engagement” to generate such brilliant attitudes and commitment. The Olympics is an inspiring undertaking and therefore a significant motivator for anyone involved to do their best to deliver. But there is a further factor that makes all the difference.

In 2002 Tomas Gonzalez and Manuel Guillen published a research paper on the “Leadership Ethical Dimension” in relation to the implementation of Total Quality Management (TQM). From their research they argued that whilst TQM can be presented and perceived as a “good thing” this is insufficient to maintain the engagement of people without this “ethical dimension” being demonstrated by the leaders of the enterprise.

Gonzalez and Guillen described this as “the right decisions and actions combined with good intentions accompanied by moral correctness of behaviours”. They went on to state that “when doubts arise referring to the honesty or the goodness of the leader’s behaviour, the moral trust, based on the ethical dimension, is shattered”.

Overall in my view the leadership of LOCOG got this pretty much right. In particular I think Lord Coe has played a blinder in this respect. He has been consistent in his approach that this is about delivering a great Olympic Games for London, Britain and for all the people involved. He has been visible in all the venues not just watching the events but walking about talking to staff and volunteers, thanking them for their efforts and reinforcing the message they were all engaged in something that was really worth doing. This achievement and maintenance of “moral trust” is all the more remarkable given the less than” moral correctness of behaviours” that pervades in the IOC itself and some of its associated organisations.

“Ethics” is a big issue for business right now which the business world is slowly waking up to and realising is going to be major factor in their ability to successfully sustain their businesses into the future. Gonzalez’ and Guillen’s research shows that it starts and ends with the leaders. It also shows why the bonus culture, whereby a few received rewards out of all proportion to results achieved is now unsustainable. It just cannot be perceived and justified as “good intentions accompanied by moral correctness of behaviours”.

So the next time you want to “engage” your employees think hard about what they think about what you want them to engage in and why.

Now you see it, now you don’t.

On Friday evening my wife and I went for a curry with my brother and sister-in-law. We had a very good meal and an enjoyable evening which was made even better by a magician called Magic Amit. He performed some very clever conjuring tricks at our table and in spite of four pairs of eyes watching his every move we could not spot how he did them. The quickness of the hand really did deceive the eye.

It reminded me of the story about Knight Capital a US market maker which lost $400m in a few days caused by a computer error. This loss was three times Knight’s profit for the whole of last year. Although the firm has been rescued by several other Wall Street firms it will, for all intent and purposes cease to exist. This has raised concerns that America’s financial markets have become too dependant on computers for trading with too much emphasis on the speed at which trades are executed.

So why do these market makers want their trades to be executed faster and faster? Could it be that the faster they go the more the rest of us, including regulators find it impossible to see what is really going on? We think it is time this was all slowed down, giving time for good judgement and honest dealing to be applied rather than leaving it all to computers. A couple of years ago Tony Ericson, one of my business partners wrote an article on this. Tony is an engineer and he pointed out that as an engineering “system” goes faster, unless some damping is introduced it will ultimately shake itself to pieces. This is what happened to the financial markets in the credit crunch and on a smaller scale what happened to Knight Capital. Tony’s simple solution was to ban anyone selling any asset they do not own. Because this would be difficult to define and police he came up with the even simpler solution that there should be a 24 hour delay from time of purchase of any asset before you could resell it.

Probably too simple for all the clever people in the financial sector but this simple “damping” would very likely have saved Knight Capital. I am sure that Magic Amit’s secret to his conjuring tricks is also “simple” so maybe we should try simple for a change.

Prudential KISS

Talking of simple last week saw some impressive figures from Prudential. Since 2007 when the credit crunch hit the Pru’s was worth £17bn and it is now £20,5bn. In contrast Aviva’s worth has halved over the same period.

But it could have been very different. A few years ago the Pru’s Chief Exec Tidjane Thiam proposed a $35bn bid for AIA along with a rights issue of $21bn to pay for it. Whilst the bid was a bold, game changing and audacious idea Thiam failed to take his shareholders with him and the deal collapsed with costs of £450m. It cost the Pru’s Chairman his job and very nearly did the same for Thiam. However he was given another chance and appears to have learned from it. Under his leadership the Pru has stuck to what it does well and now does it even better, including rapidly growing its business in Asia, which was what the AIA deal was all about. So “keep it simple stupid” or KISS has once again proved its worth.

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.

Thatt was week ending 27th July 2012

The good news is that there will be good news

As the Olympics approached an irresistible tide of optimism began to take hold on the British media. Sports pages were filled with rank upon rank of British athletes with the potential to win medals. If they all fulfil the media’s expectations then no other nation is going to get a look in!

Optimism prevails in spite of poor GDP figures which showed that we remain “mired” in a double dip recession, with the economy shrinking by a whole 0.7pc in June. Given how wet it was the economy wasn’t the only thing to shrink in June. For example I am certain the Queen is smaller now that before the jubilee celebrations. However in economic terms it means a boom in umbrella sales does not make up for no one being in the mood to buy summer frocks.

Such is the mood of optimism however that most people including the ONS think that things are better than these figures show and anecdotal evidence from our own clients and contacts supports this view. There is so much good news about that the Daily Telegraph is actually launching an initiative to focus on the positive news from the business world under the slogan Good News Britain.  Here are just a few of those good news stories from last week.

Manufacturing – what us!

A few weeks ago BMW announced new investment for Mini production and its engine plant at Hams Hall.  Last week Jaguar Landrover announced investment in new Jaguar models that will create over 1,100 jobs at its Castle Bromwich plant.  Hitachi will build a new train factory in the Northeast creating 730 jobs. At this rate we may have to grudgingly admit that we do still make things in Britain.

Making money.

Rolls Royce (our leading high value manufacturer) drove sales and profits up by 7pc in its first half. They are expanding capacity with a new turbine casting plant in Rotherham. BSKYB announced profits up 17pc and that it would be returning £500m to shareholders. Unilever shares went to an all time high when it beat City expectations on sales and profit increases.

Long term at long last

Apart from being good news one other characteristic of these success stories is that they are all the result of long-term vision, strategy, planning and execution. It is interesting that they should all come out in the week that the economist Professor John Kay published his report on short-termism in UK equity markets.

One of his recommendations is to put an end to mandatory quarterly reporting. In 2010 Unilever stopped reporting full financial results quarterly, only reporting on sales performance. In spite of protests from people in the City who get paid to comment on quarterly results this move has clearly done no harm to Unilever itself. This may be something to do with management having more time to concentrate on managing the business rather than managing the city.

A key proposal in Prof Kay’s report is that bonuses should only be paid in shares and that executives should be prevented from cashing in their holdings until at least they have retired from the business. Given that currently the average tenure of a FTSE100 CEO is 5 years the experts in what cannot be done will be all over this one.

However John Rose, who retired as Chief Exec of Rolls Royce last year, spent 27 years with the company and 15 years as its Chief Executive. Last week I highlighted the career of Sir Ian Wood who has retired as Chairman of Wood Group after 48 years with the company, building it into a global leader. These two business leaders did very well for themselves but also built a sustainable legacy into the business for others to take forward. Prof Kay’s proposals on bonuses would ensure that we have more leaders like John Rose and Ian Wood running British business.

Back to unreality

In spite of all this good cheer the end game for the Eurozone appeared to gather pace with inspectors from the EU arriving in Athens to see how the Greeks are getting on with their austerity programme. Markets around the world sagged as they know what the answer to this question is but would rather not hear it. Then on Thursday Mario Draghi the ECB President said he “would do whatever it takes” to save the Euro, adding “believe me it will be enough”. The inference appeared to be that if you did not believe him then he would see you out in the car park with your jacket off. The markets decided they would rather believe him and bounced back in response.

Well you can’t get much more short-term than that!

I know central bankers are supposed to be able to move markets with their utterances but this latest episode has taken unreality into new territory in my view. It is fortunate that we have companies like Rolls, Unilever and the Wood Group. Their long term vision and leadership will take them through whatever happens in the Eurozone and they will still be around long after Super Mario is forgotten.

Regional No Growth Fund

A couple of weeks back I wrote about a client that had been turned down for a grant for the Regional Growth Fund on the grounds that they were too good a risk. The Institute of Chartered Accountants (ICAEW) last week produced an assessment of this scheme, describing it as being undermined by a catalogue of errors, lost documents, bureaucracy and misunderstandings. ICAEW cites a lack of understanding amongst officials at BIS which is a cost to taxpayers and to growth. In other words they don’t know what they are doing. It is not much compensation for our client to discover that the most likely reason their grant application was refused was due to incompetence at BIS.

More reasons to be cheerful

But the good news does not go away as, apart from one miserable old git of a Tory MP, Danny Boyle’s Olympic opening ceremony was judged to be a triumph by most that watched it. You might quibble with some of the content (but why would you want to?) but the execution was flawless. Furthermore visitors to Olympics and competitors are using words like “so well organised” and “everyone is so helpful and friendly”. If we are not careful we will have to admit that we can now run big successful public events AND make things in Britain.

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 8th June 2012

After a week off to celebrate the Queen’s diamond jubilee, which whilst a bit damp was one of the best parties anytime, anywhere we look at some of the non-jubilee stories from last week.  This week our theme is “why would anybody think that was a good idea”?

£80 million plus to save £8 million

The Royal Mint issued new 5p and 10p coins in February. They’re 0.2mm thicker than before and made of cheaper steel coated in nickel. The Treasury claimed switching to steel in the new coins would save the Royal Mint £8million a year.

However one council has already had to spend £7,200 widening the slots in 24 meters in its car parks to accommodate the new coins at a cost of £300 per machine. The estimated cost to councils and private car park operators is a massive £80million over the next two years. The bill for modifying ticketing and vending machines and the like could be similar.

So why would anybody think that was a good idea? The Royal Mint thinks its purpose is to produce and issue coins and bank notes. But what are these coins and notes used for? They are used for financial transactions. Coins are used for small financial contractions often involving some form of “slot” machines.
Because the Mint does not understand that its actual purpose is to provide the means by which citizens can make financial transactions it can come up with a money saving scheme that makes it impossible to carry out a significant proportion of those transactions. We are speculating here but we would not be surprised to discover that senior managers and civil servants at the Royal Mint and Treasury will receive significant bonuses in recognition of the “savings” they have delivered.

Spanish practices

The Eurozone crisis continues to dominate the economic and political debate with the prospect of a bailout for Spain the main focus. One of the triggers for this has been the request from the Spanish bank Bankia for £15bn of state aid.

What you may not be aware of is that Bankia was formed from the merger of seven regional lending banks and, wait for it, was floated on Spain’s stock exchange in July 2011. Now who in July 2011 would think that buying shares in a Spanish bank formed from a merger of regional lending banks was a good idea? Those that did have so far lost 70% of their investment with the rest disappearing fast.

Spain’s Attorney General has now ordered the country’s anti-corruption unit to investigate and they may or may not uncover illegal practices. However we think that the massive potential short term rewards that senior management and their advisors can earn from floatations like this push the greed factor into the driving seat. It is the only rational explanation for why investors can be persuaded to throw common sense and sound judgement out of the window.  This is not just a “Spanish practice” it goes on everywhere and it needs investigating everywhere.

Good news and “I don’t believe it”!

The biggest story for me last week was the arrival of our fifth granddaughter Freya Marie. That was the good news. The not so good news was when Mum told us that all the mothers who like her had stayed in the maternity unit overnight had to queue up to collect their own breakfast!

Why would anybody think that was a good idea! Who on earth came up with the money saving idea of a self service breakfast for mothers who have just given birth and spent a virtually sleepless night on a maternity ward? It has to be a man and what’s more a man who is only thinking about catering and saving money and no connection with providing care for new born babies and their mothers. Given the proliferation of “efficiency savings” bonus schemes throughout the public sector we would not be at all surprised if this wasn’t a factor as well.

Harvey Wet Nicks

First prize in what was clearly becoming a “why would anybody think that was a good idea” competition goes to Harvey Nichols. They sent out a mail shot showing a woman with her clothes soaked around the groin next to the slogan “The Harvey Nichols sale … Try to contain your excitement”.

Now why a top fashion store would think that associating human waste with their clothing ranges would boost sales is beyond me.  The individual golden prat award goes to their spokesperson who explained that the images were “a visual representation of a well-known phrase” which depicted the expression in “playful, inoffensive manner, which was in keeping with the tongue-in-cheek spirit with which we intended our campaign to be taken”. Where do these people spend their time?  Was there a bonus in it somewhere? It wouldn’t surprise me!

Unite … can’t be right?

The Unite union is threatening to call a strike of London Transport workers if employers do not agree to pay a bonus of up to £500 to their employees who work during the Olympics. Whilst I can see why Unite would think “this was a good idea”, at first sight the claim does seem unreasonable. After all if you are driving a bus you are driving a bus. Apart from more passengers than normal what’s different about driving it during the Olympics?
However the spraying around of bonuses for almost anyone connected with the Olympics has obviously caught Unite's attention, starting with the Olympic Delivery Agency. Here the directors will be paid a bonus "if they deliver the Olympic facilities in time for the Olympic Games in 2012". Quite why ODA directors need a bonus to remind them that the Olympic facilities are needed this summer and not February 2013 is a mystery. However the principle is in line with driving a bus during the Olympics so you can see where Unite got the idea from.


So thought for last week is: "If you are thinking of giving someone a bonus to encourage them to do what you want them to do, don't be surprised if that's exactly what they go and do"!

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.