Monday, 18 August 2014

COUNTER REFLECTIONS



UK’s economy looks different from 2008.  It has, at last, exceeded the previous peak.  The recovery has been slow.  This country came up at the rear of G7.  Only Italy’s GDP is smaller than six years ago. However, we have a different shape.  Some industries have dwindled, others have mushroomed.  Economic impact has shifted from workers to companies.  Economists predicted a boom in exports.  George Osborne, chancellor of the exchequer, looked forward to a ‘march of the makers’ as manufacturing businesses became more active.  The prognosis that Britain would ‘rebalance’ away from its large services sector became an exciting talking point.  It was wrong.

Yet businesses are flush with money.  Michael Saunders of Citigroup has calculated that the ratio of businesses’ bank deposits to their debts rose to 77%, up from 48% in 2008.  The rate of corporate liquidations was 0.56% earlier in 2014, the lowest for thirty years. The recession in the early 1990s put many firms out of business.  The recent downturn damaged households’ finances more than companies’. The pattern will probably persist. The reshaped economy means the fate of the recovery is in the hands of those people running this country’s newly enriched firms.  Investment is an upward trend, but still far below its heyday. Action on this need is the key to higher productivity and justification of higher pay.

Five millions British people live abroad.  This is an estimate from the World Bank and The Economist (9 August) and points to our government’s neglect of valuable contacts with the different type of emigrant.  It is no longer ‘leathery retirees’ in the Mediterranean.  Some ambitious graduates and technicians are moving to North America and Asia.  The Office for National Statistics (ONS) says that since 2007/08, emigration is down by 19% overall but up by 8% among 15-24 year-olds.  Of 193 of the United Nation’s member states, 110 have formal schemes to build links with citizens abroad. The UK is not one of them.  PR China’s diaspora is reckoned by informed observers to be the most powerful economic force on the planet. If we do not want our talented globetrotters, others do.  Germany encourages Britons actively to take apprenticeships there.  Government from the Middle East tour our universities.  There is some evidence that America and China (Hong Kong) are making direct approaches to small and growing hi-tech firms.  Maybe UK Trade and Investment (UKTI) ought to take fast corrective action?  There is plenty of experience in other countries:  France, India, Italy and New Zealand, just for starters.

Warren Bennis died on 31 July, aged 89.  He invented leadership as a business idea. Central to his thinking was a distinction between managers and leaders.  Managers are people who do things right, he argued that leaders do the right thing.  Managers have their eyes on the bottom line.  Leaders watch the horizon.  Managers help you to get where you want to go.  Leaders tell you what it is you want.  The process of becoming a leader is similar, if not identical, to becoming a fully integrated human being.  Mr Bennis emphasised that what constitutes good leadership changes over time and context. Leaders can no longer crack the whip and expect people to jump through hoops.  They must become more like mentors and coaches than old-fashioned sergeant majors.  One of Warren Bennis’s thirty books, ‘On Becoming a Leader’ (1989), included warnings about corporate corruption, extravagant executive awards and short-termism.  Warren Bennis and Peter Drucker were the primary movers in making managers think about being more effective in what they try to do.  Drucker said that management is the prose, leadership is the poetry. A business must have both.

Over-confidence.  Managers tend to make their biggest mistakes on issues and decisions they handled successfully in earlier years.  In business, as elsewhere, acting cocky when things are going well is an unforgivable sin.  As the Greek’s kept telling us, Hubris is followed inevitably by Nemesis.

What is this thing?  ‘I have nothing against work, particularly when performed quietly and unobtrusively, by someone else.’  Writer, Barbara Ehrenreich, in Real Simple. 
                                                                                                         
Wise planning: ‘Build your enemy a golden bridge to retreat across.’  Confucius, according to The Guardian.

And there are not many.  ‘A friend is one who sees through you and still enjoys the view.’  Wilma Askinas, quoted in Forbes.com.

Monday, 4 August 2014

THERE ARE THINGS TO DO



In the red.  The government’s plan to cut the deficit (the annual overspend) has had a setback.  The overall debt has risen to a new record at above £1.3 trillion, 77.3% of gross domestic product.  Yet the Office for Budget Responsibility expects borrowing to be 10% lower in 2014/15 as a whole.  This is hardly a promising start.  There is no sign of panic in the City.  Nonetheless, we must bear in mind that the deficit is high by historic standards.  The current pace of action implies the budget will not balance until 2019.  So we must watch out for anything going seriously wrong, say Russia or China causing a slowdown, or a new government deciding to increase expenditure.  Events of this kind might make the UK’s creditors worry about expenditure going out of control.  The immediate problem is that spending has been cut more slowly than predictions and receipts of tax are subdued.  Also, although there are more people than ever in work, falling productivity is a substantial defect.  There is reason for optimism that investment by businesses will rise.  Managers must keep their famous eye on these issues.

Fracking.  A dream?   Countries in the Middle-East have held a ruthless monopoly over supply of oil to the West for more than seventy years.  They have exploited our addiction to fuel.  There are signs that this grip will be loosened soon.  The map of energy is being re-drawn.  Influence is shifting.  Surprisingly, it will land here in the UK.  We will be one of the leaders in production of shale gas.  Research claims it is safer, cleaner and cheaper than oil.

Clawbacks and bankers.  A consultation from the Bank of England proposes that bonuses should be capable of being reclaimed from banks’ employees.  This would be legal if they are found guilty of misconduct or materials errors, if the business unit suffers a downturn in its financial performance or if evidence is uncovered of failure in management of risk.  Monies could be reclaimed up to six years after payment.  This period would rise to eleven years when deferred rewards are taken into account.  The British Bankers’ Association warns that these actions would be unenforceable and illegal in certain countries, including France and Germany.  There is no reason to believe the UK’s central bank will cease its determination.

A mind is free!  Of course, it is unwise for a company to think of customers as inanimate receptacles for products/offerings/services.  Many businesses have no idea of the resources within the people they employ Often, they still do not treat staff as adults.  Too many managers do not regard employees and suppliers as prime sources of prosperity.  As a result, the expectation is for a worker to do rather than know.  Her/his view of the job is limited. Peter Drucker reminded us that habit becomes a substitute for understanding and therefore, ‘Every change represents a challenge of the incomprehensible and .... threatens her/his psychological security’.  Successful organisations ‘hire the whole person’, both planner and doer.

Abuse.  There is now evidence that many institutions, possibly the majority of them, have concealed sexual abuse by their senior employees and high profile supporters.  The BBC, boarding schools, the Catholic Church, NHS and children’s homes come to mind.  It is hardly surprising that national politicians and senior civil servants are accused of such misdemeanours.  Denouncing people you have worked with a long time is not easy, especially when you are sure there is a need for collective moral authority.  We know the back of filing cabinets, good old British secrecy, discretion, quiet words in the proverbial ears is ineffective.  As is the confidence that chaps who went to the right school or occupy a senior job would not do anything so dreadful.  That it how certain influential men got away with it for a long time.

An appetite for additional laws on strikes in specified services?  The trades unions are embarking on extra days of co-ordinated industrial action.  The Coalition is beginning to adopt a harder line through plans to strengthen the rules on ballots governing withdrawal of labour.  The Government seems to be saying its intention is a minimum turnout for a lawful vote and there will be a limited period of validity for the result. Could this be the start of the Conservative Party’s election campaign proper?  Is it an attempt to attract electors who have shifted allegiances to UKIP?  Maybe the unions have brought this threat upon themselves?  They have called a series of strikes based on small responses.  Over the last few years, below 40% has become commonplace.  In 2011, Unison regarded 29% as adequate support for action relating to reforms of pensions.  PCS (Public and Commercial Services Union) accepted 28% as an adequate view of its members.  The Rail, Maritime and Transport Workers’ Union (RMT) has been content with a similarly low figure on London Underground.

The current assumption is that a minimum turnout in a ballot of 50% or so is OK.  This is unlikely to go far enough.  51% of half the members means that just over a quarter of the affected employees support the proposal.  A majority of those entitled to vote is on the present agenda.  Validity periods for ballots is entering conversations also.  There were too many complaints about members of the National Union of Teachers (NUT) striking on the ‘authority’ of results over two years old.  There will be long arguments, urgent consultations and careful responses.  And what is ‘an essential service’?  There’s a fascinating exploration.  The current accepted definition is where ‘... the interruption of which would endanger the life, personal safety or health of the whole or part of the population’.  Alf Crossman, University of Surrey, has put some hot cards on the table.

So there!  It takes twenty years to build a reputation and five minutes to ruin it.  If you think that, you’ll do things differently.’  Warren Buffett quoted on Forbes.com

It’s in the song.  ‘This record sums up our spirit on the field.  No player in my team struggles or battles alone.  There’s always someone there to help him.’  Bill Shankly, discussing ‘You’ll Never Walk Alone’.

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