Monday, 21 July 2014

GLIMPSES AWAIT ATTENTION



Legacy for new government in 2015?  Back in 2010, UK’s chancellor of the exchequer set out plans for ‘fiscal consolidation’.  Only around 55% will have been completed before the general election, leaving another £62 billion of spending cuts and/or increases in taxation.  Neither of the two main political parties has given electors an indication of how it will deal with this issue.  Both the Coalition and Labour appear to assume that highly paid people and property-owners are reliable sources of income.  The top 1% of earners pay 25-30% of all income tax. Will this curve break?  In 1990/91, a middle group made an average of £908 in net contribution to the chancellor.  In 2012/13 it was minus £3,999.  There is general agreement for change in public services, with concentration on prevention rather than cure.  This means devolving power from Whitehall and reviving the civic activities of personal responsibilities and reciprocity.  The natural conservatism and opposition of institutions brings major difficulties.  Will they get in the way?

Boards and directors.  ‘Most board packs are heavily weighted towards backward-looking financials and information.   But you wouldn’t drive a car looking only in the rear view mirror.’  That was the observation by Jennifer Sundberg, founder of Board Intelligence.  She adds, ‘The board has two roles:  steering and supervision.  The trouble is that the supervisory part often fills the available time and then some’.  The board of directors has its roots in the emergence of limited liability companies in the mid-1800s, a highly controversial notion.  There was concern that the ability to ‘walk away’ from debts would lead to a collapse in public probity.  Backers demanded more influence and independent representation in return for risking their capital.  Sounds familiar!?  When things go wrong these days, it is rarely the case that the board made a bad decision.  The seeds of disaster are in discussions that did not happen.  The agenda and priorities are a pivotal task of a chairman.

Crack the principle.  Many managers do not realise that if they concede/secure a principle, everything else on that issue is up for grabs.  Your scribe recalls that the American Automobile Workers made a claim to employers of one dollar a year for those employees who had forty years’ service.  It was given.  The union then returned, ‘Now you have accepted responsibility for your employees during retirement, you will agree that they cannot live on a dollar a year, won’t you?’  Geddit?

And now to speed.  Competitive edge is talked about everywhere.  There are few mentions of speed. Businesses must ‘travel light’ and cover ground more quickly.  They have to erase operational boundaries, so that work flows seamlessly and swiftly.  There is an imperative to dump excess baggage, abandon bureaucratic practices and reduce the time it takes to get things done.  We live in an impatient world, with fierce opposition and fleeting opportunities.  But organisations cannot be fast if their employees go slowly.Acceleration in all activities brings advantages, even if it means living with some loose ends. Effective managers in this context emphasise action.  Quality remains crucial, but must come promptly.  Sacrificing speed is a serious error.  Relying solely on incremental step-by-step improvements is a big mistake.

An important source!  The avoidance of taxes is the only intellectual pursuit that carries any reward.’  John Maynard Keynes

It’s where you sit.  ‘If it’s them, we feel we should know about it – that’s transparency.  But if it’s us, we feel we should have the right to stop them finding out about it – that’s privacy.’  David Aaronovitch in The Times

Friday, 11 July 2014

TROUBLE FOR BIG GOVERNMENT


Feeling good about the economy.  Economic growth has recovered better than predictions.  Output is almost back to the level before 2008.  Employment is increasing. Inflation seems to be under control and wages are beginning to rise.  Shops say they are busier and people feel better about their prospects.  However, a big problem remains. Matthew Lynn points out in MoneyWeek that the government’s finances are still in a ‘shocking state’.  In April, our masters borrowed in excess of £11 billion for the month, £2 billion more than a year earlier.  This is contrary to expectations and promises.  Tax receipts were 6.8% lower than 2013.  The Office for Budget Responsibility said this was a one-off factor caused by citizens shifting income into the new tax year to take advantage of the top rate coming down from 50% to 45%.  One suspects this is not a full explanation. Since 2008, there are 330,000 extra self-employed people compared to 201,000 fewer employees.  They can shift income from one year to another, depending on when they invoice customers.  They can turn themselves into companies, or take any range of steps to reduce tax.  In summary, the self-employed are a moving target for the collector of taxes.  Employees are in clusters and easier prey.

On the run from regulators.  The Economist says big banks are retreating quickly from markets, countries and types of businesses which might attract the disapproval of regulators in America.  There have been several prosecutions for lapses connected to sanctions, the financing of terrorism and laundering of money.  Stricter standards include the need to know banks’ customers and to have information on customers’ clients.  The main casualties of these removals of risks is ‘correspondent banking’.  This is when a customer of a bank in one country sends money to someone overseas.  The cost has soared of remittances to Africa, Iranian students cannot open an account in the UK and charities are having difficulties in transferring funds to places such as Syria.  If poor nations are unable to have access to international finance, this is likely to worsen the circumstances that fuel the disruption and crime the rules were designed to prevent.

Any need for ladders?
1  Create each job to suit the individual.  Do not force people to adapt to rigid job descriptions.
2   Be a coach, not a command and control general.
3  Realise that many employees seek to be independent of a company’s structures in  pursuing their careers.  Show them how to take charge of their own occupational destinies.
4 Encourage people to solve problems and make decisions by consultation and collaboration, not by passing paper up and down for approval elsewhere.  Unclog and shorten channels of communication and responsibility.
5  Promote the idea of advancement by taking additional responsibilities, doing a different job and gaining visibility.
6  Create cross-functional groups to give broader experience.

Sounds correct.  ‘What makes most of us who we are is not our minds and not our bodies and not what happens to us.  But how we respond to what happens to us.’ Joshua Prager

Ouch!  ‘Consensus: the process of abandoning all beliefs, principles, values and policies, in search of something in which no one believes.’  Margaret Thatcher

Friday, 27 June 2014

A LOOK UNDER SOME CARPETS



Big hints.  The signals are clear.  Mark Carney, governor of the Bank of England, has dropped big hints that interest rates will rise sometime in autumn.  This would be the first such move for seven years. Commentators of various persuasions and skills have told us each day that rates will go up soon.  Growth is on the way up.  Unemployment is falling quickly.  House prices outside the South East are on an upward trend.  New jobs and additional businesses are being created.  The deficit is coming down.  Trading confidence is higher.  It seems sensible to move rates back to their ‘normal’ levels.  After all, the present low interest rate was intended as a response to an ‘emergency’.  Where is that crisis right now?  The City’s traders have enhanced the pound’s value and lenders have nudged-up their interest rates.  Some scope to cut them when the economy turns down again is a good idea.

There will be surprises that could upset this applecart.  These might include:  (i) falling prices as a result of the eurozone getting into a deflationary spiral;  (ii) a collapse in the stockmarket;  (iii) a breakup of the coalition government;  and/or (iv) a regional war elsewhere.  Our central bank is engaged in a new version of ‘forward guidance’.  The last one did not last long.  In reality, Mr Carney has no more idea than the rest of us what the world will look like in October.  Bear in mind how quickly our economic world went wrong in 2008. Managers are wise to be cautious.

An overnight sensation in 2014.   The first volume of Karl Marx’s ‘Das Capital’ was published in 1867. One thousand copies were sold in the next five years.  It was not translated into English until 1890 and was almost ignored by the UK’s newspapers and magazines.  The Economist mentioned the book in 1907. ‘Capital in the Twenty-First Century’ by Professor Thomas Piketty, a Frenchman, was an immediate hit during March.  In the United States, his publication was the top seller on Amazon, including fiction.  The right subject at the right time is one reason for this success.  Professor Piketty examines the causes and dangers of greater inequality.  The Americans had dismissed for years the gaps between the haves and have-nots as a European obsession.  However, they have been embarrassed by the excesses of Wall Street and are talking about the rich and redistribution.  They are attracted by this book of 577 pages which argues that wealth concentration is inherent to capitalism and recommends a global tax on wealth as the progressive solution. This conclusion has delighted the left, infuriated the right and stimulated discussion amongst the inert professional economists.  The Economist points to three substantial contributions by Thomas Piketty.  He is a pioneer in using tax statistics to measure inequality.  He then submits a theory of capitalism that explains these facts and offers a prediction of where wealth distribution is heading.  His third outcome is an offering of policies and your scribe feels that the author has ceased a remarkable piece of scholarship and shifted towards unexamined prejudices.

Dangerous notions.  Innovative products are being rolled out by the manufacturers of jargon : ‘stakeholders’, ‘corporate citizens’ and ‘company members’.  They will lead to cynicism and bring comfort only to their purveyors.  Whose interests ought the corporation to serve?  Those of the shareholders and debtholders, who own it?  Or those of the employees, who depend on it?  These are bogus questions.  What matters is how the corporation sets its course to make the greatest contribution to society.  The blunt certainties are that the state must eliminate all externalities and managers should act to increase the total value of their businesses.  All else is a chimera,.  The imperative has little to do with shareholders as such. Maximising value increases the average standard of living, whereas consuming £100-worth of inputs to produce outputs at £90 is the well-trodden road to ruin.  A stake in that is useless.

A company which pursues measurable economic performance does not ignore its constituencies.  Mistreated employees leave or become less productive;  abused suppliers drop quality and timeliness;  neglected customers go to a competitor.  The present notion of ‘stakeholder’ offers no guidance whatsoever for making decisions.  A primary danger is that managers would be turned loose to exercise their whims, idiosyncrasies and personal prejudices.  And how would others gauge their results?

Just a thought.  Necessity is the mother of invention but laziness may well be the midwife.

A deadly sin.  Feeding problems and starving opportunities is one of a manager’s deadly sins. It is astonishing how many companies assign their best performers to problems. These people become devoted to the old business which is sinking faster than forecasts;  to the declining product being outflanked by a competitor’s new offering;  to the ageing technology. The opportunities are left to fend for themselves. They are the future.  They produce growth. They are every bit as difficult and demanding as problems. Maybe a manager ought to draw up a list of opportunities facing the business and make sure each one is adequately staffed and supported?  Only then set out the problems and worry about managing them.

How do we get the right balance?  ‘Management have been allowed to act like owners, but it is the stockholders who own companies, not managements and the stockholders are just beginning to realise it.’  T Boone Pickens, corporate raider (1985).

Priorities.  ‘When a subject becomes totally obsolete we make it a required course.’  Peter Drucker.

Monday, 9 June 2014

DO THE FIGURES CONFUSE US?



Crisis.  English local government is facing a financial predicament according to the Local Government Association.  It estimates there is a funding gap that starts at about £2.8bn in 2013/14 and exceeds £14.4bn by 2019/20.  Social care and waste/recycling absorb an increasing proportion of monies available to councils.  Cash for other services is expected to drop by 46% at 2019/20, from £26.6bn in 2010/11. Greater use of technology and digital information has the potential to reduce costs, increase efficiencies and deliver improved outcomes.  Also, they would stimulate innovation, enable new ways of working and assist the reshaping of relationships between citizens, communities and councils.  John Thornton points out in Public Finance that the UK has one of the world’s strongest internet economies.  Maybe it would be wise for local government to invest collectively in more research and pilot schemes to understand better the opportunities offered by digital working, the internet and evolving technologies?

‘We are all in this together.’  This was the declaration of Chancellor George Osborne.  National statistics change quite often.  However, The Office for National Statistics (ONS) has taken the boss of HM Treasury seriously.  For the first time, it has started to measure the value to the UK’s economy (GDP) of sex work and drug dealing.  This will bring us in line with most of the advanced countries.  After all, transactions do take place.  The boost will be £10bn for 2009.  This is roughly the same contribution as farming and only slightly less than book and newspaper publishers added together.  ONS has concluded there are in the order of 60,879 prostitutes earning an annual total of £5.3bn.  Each has about twenty-five clients a week at an average price per visit of £67.  The nation has 38,000 drug addicts spending a total of £4.4bn.

Lost time.  Your scribe reckons he has observed that procrastination causes five working weeks’ lost time each year for every employee.  Reasons?  Inability or unwillingness to take decisions.  Lack of effective communications.  Confused or conflicting instructions resulting in overlapping and/or repetition.

The five Cs.  Relationships go through five Cs:  courtship, consummation, complacency, criticism and collapse.  The managerial challenge is to sustain mutual enthusiasm over a long time.

Inside story.  ‘Cabinet minutes should reflect the lies that were told at the time, not the lies people wish they had told after the time.’  Lord Norman Tebbit.

Objectives.  ‘Mankind always sets itself only such problems as it can solve;  since, looking at the matter more closely, it will always be found that the task itself arises only when the material conditions for its solution already exist or are at least in the process of formation.  Karl Marx, 1818-83.