That was week ending 22nd June 2012

Carr crash

The story that attracted a great deal of the attention last week was Jimmy Carr’s tax avoidance scheme. Left to itself this story would not have had made so much of a stir.  However the Prime Minister chose to single out Carr, calling his perfectly legal tax avoidance scheme “morally wrong”.

Trust me - I'm in business

I don’t intend to add anything more to the debate on this but it connected in my mind to the results from an Ipsos Mori poll published last week. This indicated that fewer than one in twenty British people think “business” is a reason to be proud of the country. The connection is that a number of prominent UK businesses (i.e. Vodaphone) and business people (i.e. Lord Ashcroft, Philip Green etc.) don’t appear to pay the taxes the rest of us think they should be paying.

At a time when UK government and business are banging on about the need to “rebalance” our economy from public to private sector it is of some concern that most of us don’t appear to think much of  business or business people. The Ipsos Mori poll is just the latest indication of a widespread mistrust of business and of business people in general.

Now you might think a general mistrust of business is hardly surprising given the effect of the credit crunch and subsequent recession on people’s lives. However the Edelman Trust Barometer which assesses levels of trust in business across the world shows that the British public are becoming more distrustful of business. This is in contrast to the global trend which shows trust in business rising overall.

Ultimately business will pay a price if customers, employees and the wider population perceive business as some form of parasite rather than as a valued member of the society in which it operates. In particular politicians become tempted or even compelled by public pressure to intervene. This invariably results in higher costs, disruption and unintended consequences. For example the government announced its proposals last week to separate investment banking and retail banking. This will make life more difficult and costly for the banking sector but taxpayers just cannot trust the banks not to screw up again.

Trust matters

"Trust” does matter and what's more it works. The Edelman research shows that people are far more likely to believe good news about a company they trust and far more likely to disbelieve good news about a company they distrust. The implications for the long term sustainability and success of any enterprise are both obvious and significant and last week saw a particularly outstanding example of this.

In 2007 Stefano Pessina took Alliance Boots private with a £11.1bn leveraged buyout, the largest ever in Europe. The deal was done at the top of the market and could easily have to come to grief as many others have in the subsequent financial crisis and recession. Boots was and is one of the most trusted brands in UK retail. Pessina did not muck about with what he could clearly see was working and in particular made sure that any changes he did make enhanced the trust factor. Profits have shot up by 88% since the buyout. Last week they announced an agreement to sell a 45% stake to Walgreens the largest pharmacy chain in the US, representing a 2.7 times return for the investors in the buyout and huge new opportunities for the company.

Building Trust

So how do you build, maintain and enhance trust to drive levels of business performance and success to these standards? Based on experience and research I believe it’s about always “doing the right thing” by shareholders, employees, customers, suppliers and society. No business, including Alliance Boots is perfect in every respect on this but those business that stand out as highly trusted do seem to constantly strive to do “the right thing”. When my wife was in Boots recently she had forgotten to bring a money off voucher with her, but without hesitation the assistant gave her the discount anyway. A small but significant sign of how this business tries to think and behave.

However there is one other factor that in my view is crucial. You must do the right thing but you must do it ”really well”. Attempting to do the right thing but not doing it well invariably results in compromise, short cuts, short term thinking and before you know it you are not doing any of the right things. What this means is that doing the right thing may be simple as a concept but it definitely is not easy to do.

Carr repair

Back to Jimmy Carr, did he do the “right thing” by apologising and cancelling his tax avoidance arrangements? Well he was certainly at risk of losing the “trust” of his fans and with a high risk of damage to his reputation and his livelihood.  He also did the apologising rather well at his first live show after the story broke and it looks like he has pulled things back for himself.

And finally

I had a small chuckle to myself about the downgrades for some UK banks announced by the “Big Three” credit rating agencies last week. RBS criticised the decision by Moodys to downgrade its credit rating, saying the agency was “backward looking”. I am sure the response from many small business owners would be “now you know what it feels like”! Oh yes and then came the IT failure.


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 15th June 2012

Looking back on the week before this week there is one question that seems to run through many of the news stories and that is “what is going to happen”?

Eurozone debt crisis

We would all like to know what is going to happen with this one. Or rather we all want to know what someone (anyone) is going to do about it.  So let’s have a go at working out what is going on.
First we have Ireland, Portugal and Greece who receive bailouts of various sizes and implemented a range of austerity measures to put their public finances in order. Then Greece says it likes the money but not the austerity so holds a series of inconclusive elections in the hope this will achieve a different result. What this different result might be is not clear even to the Greeks so it’s no good asking them what is going to happen.
In the meantime the bailouts for Portugal and Ireland appeared to be working. Then suddenly they might not be working and then again they might be. So the Irish and Portuguese are confused as well.

Spain absolutely definitely did not need a bailout but wouldn’t mind a bit of help to sort its banks out. This “bit of help” turns into a €100bn loan with no new austerity strings attached according the Spanish Prime Minister. For a very brief moment it seemed as if the Eurozone had at last actually come up with a solution for one country at least.  However all this did was to move the problem off the Spanish banks’ balance sheets and on to the Spanish government, demonstrating once again that filling a black hole with thin air leaves you with … a black hole. So the Spanish still do not know what is going to happen, even with the €100bn!
Then we have Italy who can’t even understand why they might have a problem at all and finally France. They elected a socialist government mainly to punish previous President Sarkozy for agreeing to austerity measures which were not first thought of by the French. The French belief is that there is no crisis in France and even if there was then only French solutions can be contemplated. Last week these included lowering the retirement age from 62 to 60 “in the interests of social justice” and making it much more difficult and costly for businesses to shed employees. Quite how this is part of a solution is something only the French can understand so not helpful for the rest of us.
And then we come to Germany whose Chancellor Angela Merkel has the answer which is that everyone else should become more like the Germans. What she has overlooked is that one, everyone else is starting from a different place and two, its never going to happen!
All of which means that looking to the Eurozone to provide the answer to “what is going to happen” will get us and them nowhere.

Meanwhile … back in the UK

Our government’s approach is that it is much more important to hold an inquiry into press standards and relationships with politicians than to address the needs of the economy. Indeed politicians from all sides seem to support this, as last week we even had Alex Salmond and Ed Milliband in front of Leveson.  The PM spent 5 hours there which, with all the rehearsal time he would have had to put in must have pretty much wiped his week out.

It does connect to the question “what is going to happen”?  In the case of Leveson the questions are can anyone remember what the point was of setting up this enquiry and has anyone any idea of what will happen at the end of it all, if we ever get there? Or will it just go on and on until every man, woman and child in the land has been questioned?

However in the middle of the week George Osborne (who I think has not so far appeared before the Leveson Inquiry) popped up to announce £145bn of cheap money for the banks. Wow that’s a big number, eat your heart out Espana! If George had this amount stashed away somewhere you would think he might have mentioned it before now. I mean it’s not the sort sum you would find down the back of a sofa.

Initially headlined as a boost to growth it quickly became apparent that it was actually pre-emptive action to help the UK economy deal with whatever fall out from whatever eventually happens in the Eurozone whenever that may be. Whilst this might seem a sensible and even bold step to take when it comes to the debt crisis you can think of a number, any number and it will still not be enough. However it is at least a signal from the UK government that something is going to happen and maybe soon.

So …..?

So that is all we have. Something is going to happen and it might happen soon. Nobody knows what will actually happen so it’s pointless worrying about what is going to happen until something does.

Is there anything the rest of us can do? The evidence is that there will be little or no growth in the UK or the world economy overall for the foreseeable future. What I believe we must do is to ensure we are “moving our businesses forward”, deliberately and effectively. This means defining what “moving forward” would mean for any particular business. This is not the same as the simplistic concept of business growth, or though that might well be an outcome of “moving forward”.

So have a think about what “moving your business forward” would look like for your business and why this could be the best way to cope with “what is going to happen”.

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.

That was week ending 25th May 2012

I had intended that this week’s look at last week would focus on the more humorous side of business, the economy and politics.  However there have not been many stories to chuckle about.  Even those that contained some vaguely amusing aspects left me not knowing whether to laugh or cry.  So here are a few of last week’s stories that illustrate some interesting aspects of human behaviour.

Regan of the SFO

This is an extraordinary story.  The Serious Fraud Office’s pursuit of the Tchenguiz brothers is more like an episode of the Sweeny than a serious investigation. Last year the brothers were arrested in a dawn raid on their properties (screeching tyres and “go, go, go" no doubt). Whatever the SFO hoped to find clearly they didn’t as neither of the brothers have been charged and both continue to deny any wrongdoing.

Not finding evidence never seemed to bother the Sweeney and it doesn’t seem to bother the SFO either. They continue to pursue the case and are now threatening a high profile investigation lasting 5 to 10 years (which we would pay for) if the brothers don’t agree to a financial settlement. Not even being accused by a high court judge of “sheer incompetence” has deterred the SFO from blundering on. I don’t know whether the Tchenguiz brothers are laughing or crying but I do have this mental picture of senior SFO investigators snarling “shut it” at anyone who suggests they don’t have a case.

En garde c’est Lagarde

IMF director Christine Lagarde endorsed the coalition’s austerity policy as the right course for the UK. However she also warned that further measures were needed to get the economy growing again. So a sort of “has done well, but now must do better” school report from the economics mistress.

She also used a new term to describe austerity measures, “fiscal consolidation”. Amazingly no politician has picked up on this so far. It is difficult to get people to vote for austerity as we all know what that means. Or if we didn’t we do now. “Fiscal consolidation” on the other hand might just sound sufficiently nothing really to do with the rest of us to sneak under the radar.

Talking of politicians, the shadow chancellor Ed Balls leapt up to claim that Ms Lagarde was right because she was agreeing with him. In her statement “when trying to imagine what the situation would be like today of no such fiscal consolidation programme had been decided, I shiver” she was clearly talking about him, but not necessarily agreeing with him. When challenged in interview, Balls responded that where she did not agree with his views she was wrong. Right and wrong at the same time it seems.

Yell no more

I had thought that the most extreme example of pointless rebranding had been the renaming of Norwich Union, one of the most well established and trusted brand names in the financial services industry. This became subsumed into Aviva, which sounds like a cross between a bus company and a 1970’s Vauxhall.

However Yell have hilariously gone way beyond this and announced last week that the new name for the business will be, wait for it ….. “hibu”. Heavily in debt and making huge losses this is the best they can come up with. Mike Pocock, Chief Executive said that the company needed a new name because it was “viewed as a dinosaur”. Was he suggesting that if Tyrannosaurus Rex had changed its name this would have saved it from extinction? Another step down the road to extinction for Yell, sorry “HIBU”.

HP and Autonomy

HP announced 25,000 jobs cuts. It was going to be 24,999 but they decided to include Mike Lynch, CEO of Autonomy that HP had paid $10.3bn to acquire just seven months ago. “Licence revenue was disappointing, sales execution was a challenge and big deals were taking longer to close”, said HP’s finance director, Kathie Lesjak.

However long before the sale to HP UK stock market analysts were critical of Autonomy and advising investors to sell. Mike Lynch claimed these critics did not understand complex software businesses like his. Apart from one, the critics could not quite put their finger on what made them uncomfortable about Autonomy. The one who did was Marc Geall and he had actually worked for Autonomy for 2 years, before joining Deutche Bank in June 2010. Here are some extracts from a note Geall issued in October 2010.

“The management structure, control and systems at Autonomy are more representative of a start-up than a major global player … Autonomy's sales force are "hunters not farmers" …the investment in the business has lagged revenues ... [which] could affect customer satisfaction towards the product and value it delivers."

Most of the other analysts applied conventional analysis criteria to Autonomy. These were easily batted away by Lynch, who believed they did not really apply to his business. By contrast Geall comments on aspects of the core characteristics of Autonomy's organisational culture, how it thinks and behaves and how these could impact on future performance. You can read the full article we published in 2010 by clicking here.

Much is being made of the bureaucratic HP culture stifling the entrepreneurial spirit in Autonomy, with some justification. However what Geall’s analysis showed was that Autonomy’s culture which was once its strength was becoming its weakness and this has now manifested itself under HP’s ownership after just seven months.

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 18th may 2012

Eurozone crunch

Greece and the Eurozone occupied so much of the business, economic and political headlines last week. As no one can possibly know what is going to happen this has allowed many learned and not so learned people to speculate on what might happen, so we feel entitled to join in.

Greece may or may not default and leave the euro. Either way this is not going to be Greece’s decision, much as some of their politicians might like to think so. Even pretending they haven’t got a government so there is no one to talk to for another month will now make little difference to the outcome. The election of François Hollande may or may not result in renegotiation of the fiscal pact. As it is entirely unclear who, apart from Germany has actually agreed with the existing pact this may or may not make much difference.

So basically no one will know what is going to happen till it happens. We advise businesses to prepare for a sharp post Lehman style tightening of credit. So if you are negotiating a facility with your bank right now it would be good idea to conclude those discussions now.  However there are two factors that don’t seem to feature yet in all this.

The first is that the banking system has a whole still has huge hidden liabilities, that they and the politicians have not owned up to yet. It may even be difficult to indentify exactly what some of these are. Either way this situation is a major drag on growth as it perpetuates the tightness of credit markets. One perverse benefit of a final crunch in the Eurozone is that it could finally force governments and central banks to turn on the money hoses and get to grips with fixing this problem. At least they would know where the fires actually were.

The second factor which is hardly mentioned in the austerity vs. growth debate is competitiveness. Unless the developed economies can regain their competitiveness to world class standards not only will fixing the debt problem be more difficult and prolonged but the decline will continue.

Which brings us to a bit of good news for the UK.

Three cheers for Ellesmere Port.

GM has confirmed new investment for Vauxhall's Ellesmere Port plant, including the creation of up to 700 new jobs. This also confirms that Ellesmere will be part of GM Europe’s future. The plant closures that GM needs to balance supply with demand will take place elsewhere.
Divisions of major international businesses have to compete just as hard internally for investment as they do externally to win sales and customers. Several commentators have pointed out that the Ellesmere project is a text book example of an “industrial growth strategy” in action and we agree. Make it clear that the sector is a key part of the UK’ economic future, back the key players in that sector, including the supply chain and the development of the skills required and you give confidence to the investors that you are serious.
This set the framework for unions and employers at Ellesmere Port to deliver what GM needed, including flexible working and a two year pay freeze and hey presto, you get the investment and the job security that goes with it.
UK Governments have been reluctant to be seen to be “picking winners”. This is mainly due to the disastrous track record of attempting this in the 1950s 60s and 70s. Ellesemere Port is one of the most productive automotive plants in the world. So this is about “backing winners” especially those who are already winners. Perhaps the government should try the same approach to other sectors, such as aviation where right now you would hardly have the confidence to land a plane in the UK much less run an airline service from here.

Facebook IPO – no surprises

Facebook’s IPO went much as predicted on Friday, resulting in a business that started just 10 years ago and making $1bn profit being valued at $100bn. What did not go as predicted was the expectation that the shares would pretty quickly trade at a premium.  Apart from a brief flurry by the end of trading they were back to the IPO price. This had the effect of lowering stock prices of other internet companies such as Groupon because the markets had expected a Facebook premium would benefit their share price.
It’s still pretty impressive but we have to say we are not impressed. Facebooks’s founder, CEO and still the majority shareholder says that making money doesn’t really interest him. Now he has a lot of other people’s money in the business is this really the right attitude to have?

One comment we noted was that “Facebook is a pretty new business and it is too much to expect brands and Facebook to have totally resolved what the new business model is”. Well at a valuation of 100 times annual pre tax profit we would have expected them to be pretty clear on this by now. GM seems to have made its mind up as they pulled their advertising off Facebook on the Tuesday before the IPO.

We are not saying that Facebook is not a good business now, or that it may not have potential to be a great business. However it is not there yet nor has it demonstrated its capability to be a great business so it is not worth $100bn. We see our old friends fear and greed at work here. The fear of missing out on the “next big thing” seems to be greater amongst the investment community than the fear of losing the money it has to bet on this company outperforming almost anything that has come before it.

But we shall see.


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 11th May 2012

Queen speaks – government creaks

It is difficult to find much inspiration in this year’s Queen’s Speech. It contained only one piece of proposed legislation – overhaul of employment tribunals – that had anything to do with encouraging economic growth. Yet just the day before the PM and Deputy PM had declared that economic growth was the coalition’s first priority. We keep hearing this ambitious talk about growth from this government but this is not matched by ambitious action for growth.

The deficit reduction policy and programme has been clear and decisive and consequently has been supported by UK business and the financial markets. By contrast economic growth policy is muddled, piece meal at best and there is a growing suspicion that the government does not actually know what to do. There are also signs that concern about the UK economy in financial markets is shifting from the deficit to lack of growth. Waiting to see what happens and a reluctance to take risks is the way many businesses are thinking and government is feeding this rather than taking action to change it.

The budget did deliver some welcome measures.  However if economic growth is the first priority then what does taxing grannies and putting VAT on takeaway pasties have to do with it?  We are all in favour of “tax simplification” but the right now only simplification measures that are directly connected to economic growth should be considered.

As we have said before we would like to see three things – more spending on infrastructure – a significant reduction in employers national insurance for firms that take on more people – more generous tax relief on capital investment. On the latter the government argues that reductions in corporation tax have made up for the reduction in tax relief on investment. We would argue that right now that is putting too much of the incentive at the wrong end.

These three measures or something like them would be seen as bold and decisive action to boost the economy. This would show that the government is as serious about economic growth as it is about deficit reduction and it knows how to make it happen.

Deficit – what is that really all about?

Last week saw another day of strikes and protest by public sector workers. Feelings are clearly running high which is understandable given that much of the fallout from reducing government expenditure will affect public sector workers.

However there is a bigger challenge to come and that challenge is the reform of public services themselves. British Industry in the 1970’s was over manned, badly managed, in thrall to the unions and just hopelessly uncompetitive on just about any measure you cared to use. Our public sector looks very like this now. For example Steve Hilton, David Cameron’s director of implementation who is leaving to take up a university post in America has told the Prime Minister that the Civil Service could function effectively with just 10 per cent of the current staff.

It would be easy to dismiss this opinion as the scale of change it implies is almost unbelievable. However it is a similar scale of change to that which was needed to make British businesses competitive again and the process is still going on.  Current public sector cuts are simply reducing expenditure. The job of reforming our public sector to deliver affordable public services has hardly begun.

JP Morgan – fear and greed in action

In our last article we wrote about those two powerful human emotions, fear and greed and the need to understand how they influenced the behaviour that led to the financial crisis. Now JP Morgan has given us a classic demonstration of how these emotions led to a $2bn trading loss.

The Chief Investment Office (CIO) was supposed to be hedging or de- risking the bank’s exposure to credit. Then the greed kicked in and they began to push the trades further towards proprietary trading. This produced what looked like really attractive returns, doing great things for bank profits and for individuals’ reward packages. Then the fear kicked in. No one wanted to lose those profits and rewards so they kept the game going even though the bank’s senior executives were warned that the CIO was “an accident waiting to happen”.

Another characteristic of these disasters is that at least one of the key players has been given a silly nickname.  A senior trader at the CIO collected two of these. Bruno Iksil was known as the “London whale” and “Lord Voldemort”. This really is a sign of that both the individual and the organisation he works for have lost all touch with reality.

Holywell springs eternal

Finally a great David & Goliath story. Two years ago CocaCola closed down Malvern Water and refused to sell the Malvern brand to any other buyers. Now tiny (just 6 employees) Holywell Spring Water have registered the trademark Holywell Malvern Spring Water and they have got away with it. Holywell spring in Malvern Wells was deemed to be the original source of Malvern water so EU trademark law allows Holywell to use the Malvern branding on its products.

Ironically the company tried for two years to buy the Malvern trade name from CocaCola, but were refused. CocaCola just don’t seem to be able to get this bottled water business right do they?

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 4th May 2012

Mervyn swervin’

In his BBC lecture last week Mervyn King, Governor of the Bank of England inferred that he had seen the banking crisis coming but had been unable to convince the government to take action.  “In hindsight … we should have shouted from the rooftops … we should have tried harder”.

I have seen Mervyn King speak and he comes across as logical and capable with considerable brain power throbbing away under that urbane and calm exterior. However when you reflect on what he says not all of it hangs together quite as neatly as it first sounds.

In particular, given that the BoE is to have a central role in regulation of the financial sector in future, he continues to duck the issue of an inquiry into the part played by the BoE itself in the financial crisis. Mervyn King has neatly side stepped any suggestions of this mainly on the grounds that the bank had no direct role in regulating the financial sector at the time.

For us this is just another indication that we have not really got to the core of what went wrong to cause the global financial crisis and subsequent recession.  Various proposed changes such as BoE becoming the key regulator and separation of retail from investment banking sound as though they might work. However they seem rather more “knee jerk” than based on thorough analysis and assessment of cause and effect. In particular we don’t think the “people factor” has been examined thoroughly.

The flaw in the machine

There is a widely held but flawed belief that organisations can be operated like machines. Operate them according to the manual, pull the right levers and they will produce the results you expect. However there is one highly unreliable and unpredictable component in these machines – people. People have emotions so they do not always behave or respond as you expect.

Two of the most powerful of human emotions are fear and greed and it has long been acknowledged that these are powerful drivers of financial markets. They don’t just influence the bankers, investors and so on; they also influence politicians and governments. Politicians were more than happy to let the credit dance go on because they believed voters would give them the credit for choosing the music.

We believe a more thorough study of the behaviours, both within BoE and elsewhere is needed before a really robust solution for preventing or at least containing future financial crises can be devised.

Shareholders – even more revolting

After a third of Barclay’s shareholders refused to support the company’s remuneration report, 59% of Aviva shareholders voted against theirs, in spite of last minute concessions over directors’ pay. At Immarsat 61% of shareholders refused to back its report. Now Sly Bailey, CE of Trinity Mirror Group will step down at the end of the year. Ms Bailey has received around £14m in the nine years she has been in the job whilst Trinity’s share price dropped over 90% in the same period.

It is beginning to look as though shareholders big and small are starting to demand better performance from their directors. Perhaps now is the time for Vince Cable to nip smartly through the gap that is opening up and touch down with some legislation for binding shareholder votes on directors’ pay. Or even better if companies get ahead of the game and do this themselves.

Effective government.

The coalition government managed to go a whole week without tripping over its own feet. However that’s mostly politics. We are more concerned about government’s inability to deliver effectively for UK citizens. Here are just a few examples.

HMRC sent out thousands of letters fining taxpayers for not submitting tax returns who did not need to submit tax returns. It was also reported that HMRC's response time to phone calls has increased to an average of 4 mins compared 1.5 min in 2010. In our experience anyone who gets through to HMRC in 4 minutes is on such a winning streak they should make serious investments in lottery tickets. The odds of winning are better than getting through to HMRC in 4 mins. As for the person who got through in 1.5 mins in 2010, well we'd like to meet them!

UK Border Force seems to think that the only way to prevent illegal or unwelcome visitors to the UK is to make life miserable for all travellers. We were told last week of a hospital paying £200 for a computer cable that you can buy almost anywhere for £29 and being charged £800 for moving 2 computers.  There are now 33 different schemes for helping unemployed teenagers. Soon there will be enough schemes to employ all the unemployed teenagers to help each other, job done!

It seems that just “doing something”, rather than delivering effective outcomes is seen as the primary purpose for their existence by too many government departments and agencies. Ministers talk about “efficiency” (and “efficiency savings” whatever those are). We would like to hear them using and understanding “effective”.

Got no satisfaction

Yet another study from CIPD, showing that whilst 80% of managers thought their staff were satisfied or very satisfied with them as a manager only 58% of their staff returned the compliment. CIPD, as you would expect puts this down to inadequate management training.

The word “satisfied” caught our attention. Our message to managers is never be satisfied with “satisfied”, “OK”, “not bad” and so on. Seek out dissatisfied; find out what could be better and what would be really, really good if it could be made to happen. This is the way to find those golden nuggets of opportunities to improve that will pay off for you, your staff and your business.

Any sympathy for ...?

Mark Zuckerberg founder of Facebook who will sell part of his shareholding when the company goes public and collect $1bn in the process. However it is reported he will have to pay most of this in tax. So he may be an internet genius but don't ask him for tax advice.

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.