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.

Week ending 28th September 2012

I am now returned from a very relaxing holiday in Mallorca where I managed to remain oblivious to anything that was happening in the world outside of the small area of my hotel pool and nearest beach. Ignorance is indeed bliss and I can thoroughly recommend it.

Party Time

On my return I find we have entered the political party conferences season. People we only ever seem to see or hear from at this time year seize their moment to tell us what they think will be good for the rest of us. The fact that they can actually say some of these things in public without embarrassment is a demonstration of the almost infinite human capacity for self-delusion. But hey that’s what politics is all about!

However I have to give credit to Nick Clegg for going against this political norm in his closing speech to the Lib Dem conference. “If we fail to deal with our debts and tackle the weaknesses in our economy our country will pay a heavy political price. But the human cost would be higher still. Not only would we fall behind internationally, we would leave a trail of victims at home too”. This to my mind is going further than any other politician to date in demonstrating real leadership and being prepared to tell it like it is to both his party and the voters.

However this moment of real leadership did not last long, because when it comes to what we should actually do about it the best he can come up with is the idea of a mansion tax. He is positioning the Lib Dems as the party of “fairness”. So anything that sounds like “fairness”, even if it is of no practical use in dealing with the problems of the economy is going to get his backing. That’s politics Mr. Clegg not leadership and many voters can tell the difference.

Banking on the State

Another highlight of the Lib Dem conference was Vince Cable’s announcement of a £1bn state backed Business Bank. I would bet that when they first took office no member of the coalition government, Tory or Lib Dem, would ever have thought that they would find themselves setting up a state bank. However the government has finally had to accept that there is a failure in the market for finance for small business that is not going to be addressed by the big banks.

Whilst I accept the need the whole idea of a bank run by the government makes me nervous. Danny Alexander, Chief Secretary to the Treasury has promised that the bank will be “fast tracked” into existence. However what he means by this is the legislation required to bring it into existence. I accept he might know how to do that, but I am not at all sure that he or any other politician knows how to run a business bank. We need to know a lot more about how it is actually going to work before we can have any confidence that it will.

Oh BUMi!

Not a good week for Nat Rothschild whose stake in Bumi Resources lost another 25pc having lost 33pc the previous week. Bumi is an Indonesian mining and natural resources business that Rothschild bought in to using a cash shell for which he raised £707m with a London listing in 2010. By changing the name of his cash shell to Bumi, Rothschild achieved a London Stock Exchange listing for the Indonesian Company.

Bumi’s main shareholder is the Indonesian Bakrie family and it is now apparent that their corporate governance fell short to say the least. Missing funds, “development assets” that are nothing of the sort and compensation liabilities are just a few of the problems that have come to light in a document sent to the board by a whistleblower.

Regular readers of these articles might expect me to launch into a scathing criticism of Nat Rothschild. It certainly appears that the words “due diligence” didn’t feature in support of his boasts that investors would make “two or three times their money”. However Rothschild is what he is, a merchant adventurer and they don’t do things like due diligence. If you get involved with this type of business person you might make a lot of money or you might lose the lot. He has lost his own money as well as other people’s in this venture. But the city knows Rothschild and they know what he is like, so why was the London listing allowed? Could it be that the chunky fees involved have once again enabled greed to triumph over common sense?

Nothing is forever

Another company with bad news last week was model train maker Hornby. A combination of disappointing sales of Olympic merchandise and disruptions in delivery of products from a Chinese supplier, will wipe out any profit for this year. Hornby shares fell by a third.

For Chief Exec Frank Martin, following disappointing Christmas sales and poor final results announced in June, this could be the third strike that signals out. However it is the Chinese supply situation I find most interesting.

When Hornby switched all their manufacturing to China they appeared to have solved their cost problems and acquired the ability to produce product with the level of detail that customers wanted. The company went from strength to strength on the back of this strategy. However its Chinese supplier has passed from one owner to another and is now struggling to cope with the problem of rising costs.

The Chinese owners’ response has been to close factories thus reducing supply of Hornby products. So even if they can generate increased demand Hornby won’t be able to meet it. A strategy is that in effect saved the business is now causing serious problems. So the first lesson is that nothing is forever. You cannot stand still, however well it all seems to be going. You have to go on changing and innovating in your business constantly. The second lesson is that forever can be a very short time these days.

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!