Surface Ripples

Executive Pay - Abuse or Merited?

2012-02-09T01:30:00.000-08:00

It’s that time when executive pay is in the headlines as companies report their yearly results and bonuses. Arguments have been raging for a long time, as rewards at the top often appear not to be linked to results and the gap between the top and “the workers” continues to increase.

This causes continuing resentment, erupting in anti-global protests, in the anti-capitalist “camps” recently seen on Wall Street and St Paul’s and in personal vendetta against “fat cats”. Politicians and the media are increasing their rhetoric and a distinctly “hostile” atmosphere prevails.

I believe in “the bigger the job, the bigger the pay” and that the person(s) running a company, taking the risks and making strategic decisions should be paid more than the worker who (say) just packs the boxes. Both jobs are important, but the skills required to pack a box are less than those required to run a company. Therefore, the box packers are paid less.

The “market” argument goes like this: “Talent is scarce”. Another is “Top people have more to manage than ever”. The other favourite is “A CEO or Chairman can be sacked at any time, therefore he/she needs to be rewarded commensurately”.

Scarcity is a myth propagated by those whose interests it serves. No one is indispensable; if the CEOs of the Fortune 500 companies were to disappear overnight, the markets might wobble, but replacements would be found quickly either from within or without. Corporate governance requires that companies have a succession plan for all top management. When the search is on for a new CEO or Chairman, the press can field several names (when Eric Daniels stepped down from Lloyds Banking Group they managed 10 and at least four when Stephen Green stood down as Chairman of HSBC). Talent is not scarce.

On the rare occasions that a top manager is asked to leave before the end of their term or contract due to poor performance, there is usually a “sweetener”. The CEO of BP who presided over the Deepwater Horizon oil rig disaster wasn’t sacked, merely re-assigned to Russia with a handsome cash payoff.

We all have more to manage in our lives, and modern education should be geared to this. The head of a large company has considerable support in his/her efforts. How much of any large company’s success is due (at least in part) to its brand rather than to the individuals at the top? Equally, how much is due to the hard work of the people on the “front line” who deal daily with the customers who pay for the company’s product?

Bonuses come out of profits – money that would stay in the business as retained profit or be paid as dividends to its shareholders. The “main” shareholders tend to be institutions – pension funds, insurance companies, hedge funds, asset managers. The size of their shareholdings allows them to exercise disproportionate influence. Highly rewarded top executives oversee the rewards of other top executives – can this be truly objective?

Remuneration at the top should come in two parts. First: a salary that reflects the skills needed to run the organisation “competently: acting as a “good steward”, managing the assets of the business “sensibly”, taking neither excessive nor insufficient risk (risk will always be part of growing a business). It should reflect that the incumbent can be replaced. Given the number of MBA graduates appearing every year, we should be experiencing a “glut” of talent to act as a control on prices.

Second, if the business grows, that success must be rewarded equitably in proportion to the perceived contribution of each member of the team. What may happen is that everyone gets a percentage of their salary or of a “bonus pool”. However, the problem is that 5% for someone on £50,000 means a £2,500 bonus, whereas 5% for someone on £500,000 means £25,000. Who has worked “harder” or made “more contribution”? These and similar questions are asked by David Bolchover in his book Pay Check.

Penalties for failure must be proportional to rewards for success. If good results see high rewards, poor results should see “claw backs”. You can’t have all upside and no downside. “Unfair” some will say, “how can I help it if my great performance is impacted by the incompetence of others or by the vagaries of the market?” The answer is simple – if it’s impacted by the incompetence of others or poor market conditions in bad times, the same applies in good times. Therefore the bonus should be reduced to reflect the “support” received from others/benign market conditions…

Buying a top executive is not dissimilar to buying a high-spec car. As the former will cost more, so will a top executive due to the accumulated skills and experience they have amassed. However, when your high-spec Mercedes Benz breaks down, you repair or replace it. They aren’t scarce; so it is with top people.

Unless there is a massive shift in market perceptions, the top people will continue to benefit from what others see as excessive rewards. Political and media hysteria over this risks being seen as “anti-business”, driving away good talent from markets seen to take this stance. This can only result in mediocre performance at best.

Manage Customer Complaints Effectively

2012-02-07T00:47:00.000-08:00

Customer and corporate needs are often opposed. Nowhere is this better illustrated than a recent case with Apple’s “App” Store.

“Apps” are proliferating in the market and offer various functions ranging from the banal to the highly esoteric. Nowadays, you can find an “App” for almost anything. Some are free, some you have to pay for.

One “App” lets users read books published in “Kindle” format. “Kindle” is an electronic book (or “eBook”) reading programme for Amazon’s “Kindle” eBook reader. The Kindle device can store thousands of eBooks – handy when you go on holiday and want to minimise bulk and weight.

Amazon realised that to achieve the volumes to make money from selling eBooks, they needed more than just their own eBook device. Their answer: produce a Kindle “App” that could be downloaded free onto smartphones or tablet devices. Problem was, some of these were the Apple iPhone and iPad, and Apple has its own competing iBook “App”. Until last year, the Kindle “App” allowed users to purchase directly from the Amazon Kindle eBook store by pressing an icon (picture) on the screen of their mobile device.

The "App" changed and stated clearly that the icon to the Kindle store had been removed. This didn’t stopped people downloading it and then writing outraged reviews about how Apple was “stifling competition”. The fact that you could save the link to the Kindle bookstore (as at least one person pointed out) somewhat negated the cries of pain. Equally, Amazon’s Kindle doesn’t permit downloading any other eBook “Apps” or of eBooks in other than Kindle format – surely just as “anti-competitive”?

The point is that some users of Apple’s devices felt hurt that an “App” that they knew and love had been altered to satiate what they saw as corporate greed.

Once the outraged cries had died down, what happened? Apple clearly upset a small number of fans. Did they abandon their Apple iPod Touch devices, iPhones and iPads? Probably not, but Apple risked being seen (albeit by a noisy minority) as concerned only with profits.

Could this have been managed better? Of course – with just a simple note on the “App Store” as to how to get round the problem. Someone didn’t think about customer loyalty…

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Effective Email Management

2012-01-24T01:19:00.000-08:00

“I spent all afternoon sorting out my email”

“I can’t get on top of my email”

“X Department seem to think that we all sit around waiting for emails from them”

I hear complaints like these from many of my clients. Email is great for communicating, but it can also be the bane of our life. It lets us reach out quickly to literally thousands of people – and if we’re doing it, so are others.

Newsletters, requests for meetings, useful information that may be needed in the future, “urgent” (to the sender, anyway) messages, updates, reports all flood into our “Inbox” and we find ourselves “drowning” in cyber paper – especially when we get back from a day out of the office.

I recently looked at the emails that I received over a period of several days and categorised them by High/Medium/Low priority and by the action that I took according to the “Four Ds” (Do, Delegate, Defer, Delete). The results were in terms of priority:

• 5% were High;
• 14% were Medium;
• 80% were Low or Irrelevant.

This is an exact illustration of Pareto’s 80/20 principle – 20% of the emails I received were medium/high in importance, but 80% were of low importance or irrelevant.

When I looked at the action taken on the emails, I:

• Deleted 47%;
• Deferred/Filed 32%;
• Actioned (Did) 21%.

Again, just under 80% of my emails could be deleted or deferred/filed, whilst only just over 20% required action.

The trick is finding the 20% of emails that will bring you 80% of your rewards (and on which you should therefore spend 80% of your time).

A great approach is to look at your “inbox” a maximum of four times a day and sort its contents into “Action”, “Read Later” and “Maybe” folders. It takes discipline (as I have found) to sort things, and it takes experience to be able to tell the difference between the “Read Laters” and “Maybes”. However, like so many skills, the more you practice, the easier it becomes. By sorting things out, you’re then left with a folder of what needs to be done as soon as possible, a folder of emails to be read “when you have time” and a folder of emails to be read “if you have the time”. Your priorities have been set.

One folder that I have added is a “Keep In View” or “KIV” folder for all those emails I send out to which I expect a response, to follow up or on which someone has to take action. I look at this ONCE ONLY each day and transfer items from this into the “Action” folder as needed. It’s a great way of making sure that I follow up what needs to be followed up (and leaves others wondering how I do it).

A final tip: use the “auto-delete” and “archive” functions on your email. In some companies, the system will delete emails after 3 months, so if you need to keep something for longer, put it in a specially designated folder or save any relevant attachments to your hard drive or server.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Effective Management - Is Micro-Management A Good Thing?

2012-01-18T01:24:00.000-08:00

I recently saw a discussion on micro-managing where views were varied but, for the most part, negative. It made me think about this concept and its pros and cons.

Most of us see micro-managing as a process where our line manager “breathes down our neck”, criticises or negates everything we do and saps our confidence. I’ve been through this and it’s the most soul-destroying experience.

Some managers may do it because:

1. They are managing a low-skill team required to perform complicated processes where all inputs need to be checked before moving on to the next stage;
2. It’s needed to manage the team’s way out of a short-term crisis;
3. They’ve just been promoted from the supervisory ranks and haven’t yet made the mental leap from supervisor to manager;
4. They feel that this is the only way to maintain control;
5. They have a hidden agenda;
6. You may have given them the feeling that you need it;
7. They are still assessing you as a new team member;
8. They need to re-focus you as part of a development plan/disciplinary process.

Reasons 1-2 reflect the nature of the job or a temporary situation. Reasons 3-5 reflect more on the manager. Reasons 4-6 reflect more on you as an individual but at least lie within your control.

I remember one senior manager from the mid-80s who insisted on seeing every email our team wanted to send out before it was sent. Yes, he spotted errors, mistakes or stylistic inconsistencies which he was able to correct, but we all felt that it implied a lack of trust in us. Equally, it meant that too much of his time was taken up “proofing” emails and not adding value. He soon saw the light…

If you’re being micro-managed, ask first what’s causing it. Talk to colleagues to see if they’re experiencing the same thing. If yes, then it’s a team issue and you can do something about it as a team. If only you, then meet the boss to determine if it’s reasons 5-7, where matters are under your control.

If 6, then bear with it, but find out how long it’s likely to go on for and ask for feedback about performance. Suggest a framework which will allow you some freedom, but keeps the boss happy. Where there’s a development/disciplinary issue (7), then you’ll have to bear with it and make sure that you meet any targets set.

The one many don’t pay attention to is 6 – the trickiest. Different people build up speed, experience and confidence at different rates. As a result, they seek their manager’s guidance in the early stages until they’re happy that they understand how he/she wants things done. The downside is that this can be seen as needing to be “spoon-fed” so they need to set up a framework to agree that this is how things will go for a short period. They should ask their peers and reports the “really dumb” questions to avoid too much pressure on the boss who has other things on their mind and will only get irritated, but the boss should be ready to act as mentor.

In these days of “hitting the ground running”, noone likes micro-management, but sometimes, it can’t be avoided. Both sides need to set the ground rules. However, too much micro-management destroys value and needs to be corrected as soon as possible.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Tools For Effective Cost Management

2012-01-09T01:27:00.000-08:00

Every business needs to understand not only what its costs are and how they arise, but also whether they’re “normal” for the particular business concerned. This is where a good finance team, book keeper, accountant or even your own knowledge of the business’ numbers comes in.

The first tools are budgets (or forecasts) and reviews. A number of businesses don’t bother to forecast what they think they will spend – especially in good times. However, if you don’t do this, how will you know if the business is “on track” or not? A forecast need not be highly complex and it can be refined as the year progresses and more information becomes available. Banks will always ask for forecasts when deciding whether to lend, so you should have the latest actual and forecast numbers available.

The review is just what it sounds like - a review of what you have done against what you thought you would do. It helps you refine forecasts and make more informed decisions.

Another tool that banks use to make lending decisions are ratios. These cover any number of aspects of the business, but as a minimum you could use:

1. Gross Profit Margin:
This is your profit after costs of sales (purchases, direct advertising, sales commissions) but before overheads (e.g. rent, utilities, salaries, etc) divided by your total revenues. The answer is expressed as a percentage and shows how effective the business is at selling its products or services. In isolation, the answer is helpful; taken month by month or year by year, it will show a trend which can then be investigated.

2. Operating Profit Margin:
This is your profit after both costs of sales and overheads have been paid, divided by revenues. The answer shows how efficient the business has been in selling its products or services. Trends can be investigated to understand what may be getting better (or worse). If the percentage is decreasing, it means that costs are going up and that you may need to take action, depending on the reason.

3. Retained Profit Margin:
This is the final profit left after all costs (including tax, interest and depreciation) have been met, divided by revenues. The answer shows how much cash is left in the business to support further growth.

4. “Burn Rate”:
The “burn rate” is how much actual cash goes out of the business every month to keep it going (i.e. overheads, interest costs, depreciation). This is what the business has to earn as a minimum every month just to cover its costs after meeting costs of sales. Some say that depreciation shouldn’t be included as it is not an actual cash outflow, but if you want to be cautious, keep depreciation in as you will need to replace equipment, vehicles and other items.

5. Sales to Number of Staff:
Found by dividing revenues by headcount. If the answer increases or decreases (particularly the latter), find out why.

6. Costs to Number of Staff:
Found by dividing overheads by headcount. If the answer increases or decreases (particularly the latter), find out why.

A knowledge of these as well as any others that you find useful in your own business is vital in knowing how the business is performing (which you can discuss with staff, investors and lenders) as well as being a source of early warning if things are starting to go wrong.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Adding Value - Effective Cost Management

2012-01-02T03:06:00.000-08:00

Some costs are “value-adding” and others “value-destroying”. “Value-adding” costs are basically anything directly incurred in producing and/or supporting the product/service that brings in the cash.

“Value-destroying” costs are those that don’t add value. Businesses will have a mixture of each, and the trick is to minimise the destroyers. What you define as value-adders and destroyers depends on your business, but some examples of value-adders might be:

• Rent
• Rates
• Utilities
• Sales/production line salaries
• Raw materials
• Maintenance
• Staff training

“Value-destroying” costs might be:

• Time spent waiting
• Time spent checking
• Compliance costs (“red tape”)
• Correcting mistakes
• Fines/penalties

Small businesses frequently complain about the cost of “red tape” and its impact on their ability to do business. “Value-destroying” costs will never be eliminated. You have to pay the inspector who certifies your restaurant fit for business, otherwise you can’t do any business. This is a “bad” but “must have” cost. What you can do, however, is minimise your potential for incurring “value-destroying” costs such as waiting, checking, correcting mistakes or fines. These are the costs that arise from either inefficiency or errors and can be reduced or eliminated.

To find out your value-adding and destroying costs, ask yourself:

• “What do we do to produce our goods/services?"
• “What costs must be incurred to produce our goods / service?”
• “What are the values/standards on which we can’t afford to compromise?”
• “What can be done internally to reduce / control / eliminate mistakes?”
• “What will be the consequences (and can we live with them)?”

As much as possible, ensure that your costs are:

• Quantifiable;
• Ones where the results can be seen;
• Understandable in terms of what drives them and how;
• Ones that can be forecast with a relative degree of accuracy;

You have a potential problem if they are:

• Incurred in correcting mistakes.
• Not quantifiable until "after the event".
• Not measureable in terms of results, or if relationship to results is questionable.
• Not understandable in terms of what drives them.
• Not always forecast with any degree of accuracy.
• Incurred by default.

A business manager, finance director or finance team must have this sort of information. Make sure that the finance team aren’t running the business just to make the numbers look nice, however. Their job is also to add value without sacrificing cash inflows.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Effective Cost Cutting - Cut What Can Be Cut

2011-12-20T00:33:00.000-08:00

Some costs are easier to cut than others. Learn what are the “nice to have” as opposed the “must have” costs. These will depend on the individual business, its product, staff and customers. Some costs may provide the features that distinguish your business from others in the eyes of your customers and to cut these may lose an important differentiating factor.

Corporate giveaways could be a sensitive point, but they may have to go or become cheaper, along with advertising and sponsorship of non-critical events. You may be able to reduce print costs by setting up product/service brochures online and letterheads on your word processing software. Technology enables all businesses to be much more paper free than ever.

You may be able to negotiate reductions in fees or better credit terms from suppliers of goods or services. Look at finance and banking costs, along with accountancy and legal fees. Someone is usually willing to do a deal, and no one wants to lose a good paying customer in hard times (remember, you represent cash to someone else as well). Make sure that you know what’s out there and what you get before you terminate a relationship with a supplier of quality input.

You could sacrifice quality of raw materials, resulting in a lower-quality product. This may or may not be acceptable to buyers, so be aware that you may end up with increased returns of unsatisfactory goods which reduce your cash flow (and reputation) if they don’t like the new product.

Investing in new technology may mean that you can use less experienced (cheaper) staff in some jobs. However, if they need to make decisions or resolve problems for which the computer isn’t programmed, customers may become dissatisfied and look elsewhere if their problem isn’t resolved to their satisfaction. “The computer says no” is not a valid reason for poor service.

Some organisations have offshored parts or all of their process to cheaper areas. UK companies who moved their customer call centres overseas have experienced complaints that call centre staff are difficult to understand or inflexible (among others). At least one bank has moved its call centre back to the UK as a result. If you can’t keep control of the quality of a product, you lose business (and cash) in the long run. Here’s where local competitors may steal your market.

Redundancies have associated direct disadvantages such as redundancy payments and legal costs. Added to this are: costs of management time in counseling those made redundant, reduced morale of those who are left behind to manage increased workloads and potential dissatisfaction amongst customers if service levels fall or their “favourite” contact is chosen for redundancy.

Minimise potential “fallout” from cuts by communicating. Let your staff, customers, suppliers and other stakeholders (e.g. accountant, bank) know what you’re doing and why. Life will be easier if you have their support, and if times are hard, they will understand your reasons.

I recently read a fascinating book by Lara Morgan – former owner of Pacific Direct - in which she advised “cut once and cut deep”. She gives a great framework for reducing headcount in a sensitive but practical way. Her book More Balls Than Most shows how she went about it and the emotional pain it caused her.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Effective Cost Management - Understand Your “Burn Rate” And Cost Base

2011-12-13T06:22:00.000-08:00

Do you know how much you spend, and on what? Surprisingly, many often don’t. When they find out, it’s a shock. As long as the money has been coming in and the business has made a profit, they’ve been happy. Your “burn rate” is how much cash you need every month just to keep the business running in its current state after meeting costs of sales (i.e. what you need for the "other expenses", which for me includes depreciation).

Some costs are “fixed” (they don’t change depending on the level of business – rent, for example). Others are “floating” or “variable” (they rise and fall depending on business volumes). Ideally, a business needs as many costs as possible to be “floating” so that when times are slow, costs are low. One example of this is sales reps who are paid a low (or no) salary but make their money on commissions from sales. High sales mean high levels of commission (and high costs).

For an organisation with a high proportion of fixed costs, when times are good, profitability will be good because the bulk of costs are fixed. However, when times are bad, painful decisions have to be made.

An organisation with a high proportion of variable costs may see its profitability increase during hard times as its cost base will reduce significantly.

In reality, the nature of the business determines the proportion of fixed and floating costs. Where there is a higher proportion of fixed costs, you need to understand what can be reduced, by how much and how quickly without significantly impacting product or service and driving away paying customers. Simply making 10% of staff redundant across the board doesn’t necessarily do it if the ones that go are the ones that add value.

There are costs that add value and those that don’t. For example, sales people and customer service people add value because they make the sales and look after the customers who buy products/services. However, they may be the first in the “firing line” because they cost more. Understand which staff and departments add real value (cash) during hard times, and you know where to make headcount cuts.

One way of determining essential costs is to map the processes that result in products or services for which customers pay. See who and what is directly involved in the sourcing, production, delivery and collection of cash for these. Next, see who is peripheral, e.g. what IT, Admin, HR and legal/compliance support is needed for those directly involved. You will come up with a chain of those closest to and furthest from the action and those that add the most and least value.

The trick is to determine during the good times what you can cut without significantly impacting your cash flow. Have this plan ready for when times change.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Manage Your Costs Effectively

2011-12-08T02:54:00.000-08:00

In hard times, businesses all look to cut costs. Some do it well; others end up “throwing the baby out with the bath water”. Why?

My experience (from watching others and myself) suggests that because of the pressure to cut costs (and fast), people risk making poorly thought-out decisions. They forget that what matters is CASH, not cost cutting. You can cut costs, but not safeguard cash flow.

Cash flow is about money in and out. You work to make sure cash comes in to pay the bills when they’re due (cash out). You maximise what comes in and minimise what goes out. Cost cutting is as much an art as a science, and cutting a cost may actually cut off the cash that it generates.

All-too often, it is left to people who may have little idea of the actual business, of what drives the true value that it gives to its customers and of what brings in the cash. Staff, services or products which, at first sight seem expensive, are cut without realising that it is these staff/services/products that may be “loss leaders” which draw customers in to purchase more value-added services/products.

So, you need to start with:

Understanding The Business:

What is the organisation there to do and how does it do it? What values does the organisation adhere to? What products/services are produced/provided, and how? Which are the “loss leaders” that draw in the buyers? Are any obsolete but kept on for “sentimental” reasons? Do all employees from the top down understand why the organisation exists and what its customers truly value about it (i.e. what keeps them coming back and buying more)? Do they understand what generates cash? To answer these questions, you need to talk to those who matter – your customers and the staff who serve them.

An interesting example I saw in one Asian country recently was that supermarkets did not give out free plastic bags for groceries at weekends. Not only did this save them money (as many more people do their grocery shopping at the weekend), it saved the environment. The free plastic bags are a cost and, whilst useful, can be substituted for other more robust ones that can be used again and again (and are sold in the supermarkets). What customers valued (and needed) was the food and household products sold. They continued to shop.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Do Tablets Boost Productivity?

2011-11-30T01:16:00.000-08:00

Tablet computers (“tablets”) are appearing with more regularity and in different sizes. Since Apple launched the iPad in 2010, tablets have become the new “must-have” executive toy. I finally invested in an iPad 2 having (barely) contained my enthusiasm when the iPad 1 came on the scene.

Which tablet you choose depends on your needs. Mine were to be able to: manage diary, contacts and ToDo lists, produce documents, spreadsheets and presentations, send/receive email, access the internet and listen to music or watch films. I didn’t want a screen that was too small or too big.

In a classic case of “customer lock-in”, I went for an iOS device as I already had an Apple iPod and wanted to be able to continue using iTunes which already synchronised calendars, notes and contacts to my device.

The iPad came with calendar, contacts, notes and email software pre-installed, so I was able to synchronise my calendar, contacts and notes direct from Microsoft Outlook on my laptop. I downloaded other software that I use such as LinkedIn, Facebook and a useful (paid-for) programme (or “App” as they’re known) that handles my task list. I have an App to create, read and edit Microsoft Word and EXCEL documents as well as to read PowerPoint presentations (the “premium” version will allow me to create and edit as well). This synchronises wirelessly with my laptop so it's easy to transfer the documents I need.

My iPad has 32GB storage capacity, built-in WiFi and is a 3G model which means that it can take a Micro-SIM card (this won’t fit into a device that uses a “regular” SIM without an adaptor). As a result, I can connect direct through my mobile service to access email or the internet.

Does the iPad replace my a laptop? To a great extent, yes.

1. It holds the same diary, contacts and ToDo information as Microsoft Outlook on my laptop.

2. It's highly portable, weighing in at 613 grams and measuring 24cm x 8.5cm x 0.9cm – better than the screen of my 15” laptop. It boots up immediately, rather than taking the 5 minutes or so that my laptop does and the battery lasts longer.

3. I can send and receive emails and network with my social and professional contacts from anywhere.

4. I can create, read and edit Word and EXCEL documents, and read PowerPoint and Adobe Acrobat documents. Any important documents for client meetings can all be kept on the iPad, replacing bulky paper files.

5. Quality of graphics is excellent, so I can read everything easily.

So far, it does everything that I need it to do. What’s the downside?

1. Less memory than a laptop. Even if memory capacity increases as time goes on, it’ll never compete. This is excellent for discipline as I generally don’t think about what I keep on my hard drive and end up with all sorts of stuff that hardly ever sees the light of day.

2. The iPad 2’s “soft keyboard” requires me to switch from alphabetic to numeric keyboards and back when typing. For certain symbols (e.g. %), I have to switch again. This makes typing long documents a chore and I’m looking for an external bluetooth keyboard to overcome this.

3. The App that creates, edits and reads Word and EXCEL documents only allows “simple” formatting. This isn’t surprising, given that it’s a “lite” version of the full software suite. My solution: prepare “form” letters and quotes on my laptop and transfer them to the iPad. I have to save the documents as lower versions than Office 2010 documents for them to work with the App and to make sure that any formatting will save in the “older” version.

4. Reduced functionality also means that I can’t perform certain tasks like reading the comments that I have made on a Word or a *.pdf document on my laptop using the “full” Word or Acrobat software. A minor inconvenience.

5. The iPad lacks USB ports, keeping it thin. The lack of a VGA output port is a disadvantage when giving presentations using a projector; Apple get round this by selling an adaptor. ACER have included USB and mini-USB ports on their Iconia tablet.

In short, my iPad can and does replace my laptop for portability, convenience and most functionality. As I use the laptop mainly for email, word processing, creating spreadsheets and presentations and surfing the internet, I can now take the iPad on trips on which I would previously have taken a heavier and bulkier laptop. As time goes on, many of the “niggles” above will no doubt be ironed out. I will still use a laptop as my “main” PC, but the iPad is now my “portable” and my productivity has definitely increased.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Boost Your Sales - Effective Contacts

2011-11-07T05:18:00.000-08:00

Businesses rely on selling products or services to make money. Unless you’re very lucky, you’re likely to have competition, so what do you do to stand out from the crowd?

Research: make sure you know your target and what will interest them. You may sell the same product or service as others, but if you can show why your product meets their needs, you’ll get their attention. Too many salespeople leave the buyer to “guess” how their needs are met. How do you do your research? Ask questions.

Don’t make assumptions: this is illustrated by the story of the car salesman who sees an elderly man in his showroom and starts showing him “man” cars only to find out after some time that the man is looking for a car for his daughter! Equally, make sure that the person you’re talking to is the one who makes the final decision and is paying. Husbands and wives often shop together for furniture, for example, but whilst one may choose the sofa set, the other has to be prepared to pay for it.

Use logic: buying decisions are based partly on logic and partly on emotion. What are your buyer’s logical drivers? These are the “facts” that you need to find out. Don’t assume anything (see Don’t Make Assumptions above).

Understand emotions: buying decisions are based partly on logic and partly on emotion. What are your buyer’s emotional drivers? For example, if they’re buying a new car and have small children, safety features may be a powerful emotional driver.

Sell what they want (not what you want or have to sell): I took my elderly mother into a mobile phone outlet to help her buy a new mobile phone and contract. The young sales assistant started showing her all sorts of hi-tech handsets without first finding out what her needs were and what she would use the phone for (see Research above). Banks have been penalised in the UK a number of times for selling products that weren’t suitable but were sold to meet revenue targets.

If you have done your research, established the logical and emotional drivers of the buying decision, and have what they want, then you can sell them a product that you are convinced meets their needs. If you’re convinced it meets their needs, your sales pitch will be all the stronger because you’re convinced that it really will satisfy your buyer.

A final warning: it takes a brave salesperson to say that they don’t think a product is right for a customer who wants to buy it – are you that brave? You won’t get the sale this time, but you will get trust.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Improving Customer Loyalty

2011-11-01T01:46:00.000-07:00

Would you recommend a customer did not buy your company’s product or service if you felt it wasn’t in their best interest?

The UK has seen its share of companies being forced to compensate customers after being found guilty of mis-selling (Payment Protection Insurance being the latest example). In most cases, staff are under pressure to sell products to generate revenues and are given high targets. If bonuses (or the future of your job) are linked to how much you sell, the temptation to sell to anyone whether the product suits them or not is there and you will find ways of justifying the sale. The banks have proved this, to the cost of taxpayers in the UK, Europe and the USA.

Occasionally, you meet someone who recommends you don’t take their product or service. Such people are rare, but I recently had an encounter with a member of the Customer Service Team of one of America’s largest companies. I had some questions about a piece of software that I wanted to download and emailed the company. They arranged for a representative in the USA to call me (in the UK) at a time that suited me. The rep called on time, and I was able to ask all my questions. As we came to an end, the rep advised me to wait a couple of weeks to download so that any “bugs” could be discovered and ironed out.

No doubt Head Office would cringe at such “irresponsible” behaviour, thinking that not only would it result in a lost sale, but also customer suspicion that their product wasn’t robust. These are usually the ones who are most out of touch with the customer and whose focus is short-term profit against long-term customer loyalty. Yes, you can find new customers, but how much does it cost to find new ones as opposed to retaining existing ones?

My reaction? I felt more loyalty to the company because someone was looking out for my interests rather than those of some faceless corporation. They’re looking long-term to keep my business over the next 5 – 10 years. Too many focus on the next 5 – 10 months when bonuses have been paid, annual results announced, and (maybe) they have moved to another department and so won’t face the consequences of their mis-selling.

The power of the internet now enables unhappy customers to reach out to millions to warn them of sharp practices at companies who place revenues before retaining customers and reputation. Combined with sharp journalism and people being willing to “go public”, hiding devious sales practices is rapidly becoming a thing of the past.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Successful Telesales - How To Improve Performance

2011-10-06T07:50:00.000-07:00

Many people receive sales calls over the phone – “telesales” calls as they are known. Some of these get the recipient’s attention immediately and make a sale; others result in them thanking the “teleseller” (perhaps) and hanging up after the first 10 seconds.

Effectiveness at telesales is a skill. Unlike a face-to-face encounter, where both sides can see height, weight, colour of hair, facial expression, body language and so on, the teleseller has only their voice to help them and has less than 15 seconds to grab their “buyer’s” attention.

What’s the difference and why do some telesellers succeed whilst others are halted in mid-sentence?

What I’ve noticed is that the callers who get buyers’ attention display several common characteristics. They:

1. Check if it’s convenient to speak; if not, they offer to call back later (and agree date/time);
2. Tell the buyer why they’re calling;
3. Sound energetic and cheerful and speak clearly;
4. Get information out of the target, making it a 2-way conversation;
5. Keep the call short.

Those who don’t get attention do the opposite; they:

1. Call at awkward times (late in the evening, dinner time or weekends);
2. Fail to define the purpose of their call;
3. Use a prepared speech before checking if the buyer has time;
4. Are often inarticulate or incomprehensible;
5. Don’t engage the buyer with questions to draw out their needs.

A teleseller has only seconds to get their buyer’s attention and can’t waste this time with being incomprehensible or by running through legal/administrative speeches. Assuming that they zero in on why they’re calling and that they still have the buyer’s interest, they then need to engage them. This will not happen if they run through a long list of features and benefits, as a buyer will not retain information delivered like this.

A simpler tactic is to use a series of “closed” questions (requiring a yes or no answer) with carefully chosen “open” questions (requiring an explanation or a longer answer). The teleseller can then build up a profile and “lead” their buyer to a sale.

This means that telesellers need to plan their calls – not always easy when under pressure to complete a given number of calls within a given timeframe. However, unless they are being judged on numbers of calls only (which may be the case), they will experience a higher success rate (i.e. sales made) if they plan and execute properly.

So to recap:

1. Plan your call;
2. When the phone is answered, state who you are, why you’re calling and ask if the person on the other end has time to speak (if you can, say it’s for five minutes);
3. If they can speak, go ahead; otherwise, ask for a convenient date and time to call back (and make sure you do); if they aren’t interested, thank them for their time and hang up;
4. Speak clearly;
5. Ask closed and open questions to engage the person and lead to the sale.

A badly planned and executed telesales call not only results in no sale. It may also cause the buyer to view that company with suspicion or even hostility in the future, resulting in lower sales and/or loss of reputation.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Effective People Management - Job Descriptions

2011-09-23T03:53:00.000-07:00

How do you recruit the “right” person? How do you choose between candidates for promotion? What should staff be spending their time on? How do we determine which jobs are more “senior” to others (and therefore deserve more pay)?

The simple answer is “Job Descriptions” (JDs). Even in its most basic form, a good JD provides clarity for job holders, their managers, recruiters and HR among others. What is troubling is how few organisations have them.

No organisation is “too small” to have JDs. The instant you have more than one employee, you need clear definitions of “who does what”. In some organisations, employees need to be “multi-tasking”, so make sure that this is stated in the JD (and what the other tasks are).

If you need to recruit a replacement, the JD tells you the qualifications and experience needed. If you need to choose between two candidates for promotion to a higher level, the JD will give a clue of who may be more suited. If the JD includes information on experience, problems solved and ability to commit the organisation, it helps to decide which jobs are “bigger” than others. If someone isn’t performing, are they not following their JD, or was the wrong person put into the wrong role?

At the least they will include:

An “Accountability Objective”: a short sentence explaining what vital function the job performs (what would not get done if this role didn’t exist?)

“Principal Accountabilities And Responsibilities”: the areas in which the job holder is expected to produce results (and percentage of time devoted to each).

“Know-How And Experience Requirements”: formal education, professional qualifications and type of professional experience required to perform “competently” (but not as an expert).

“Problem-Solving Requirements”: problems faced, how frequently and how they are solved.

“Accountability”: limits of authority or ability to commit the organisation.

JDs are the organisation’s “Swiss Army Knives”, providing a range of vital support. Don’t forget though, they describe the job, not the job holder.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Improving Performance - Effective Feedback (3)

2011-09-15T01:59:00.000-07:00

I have posted two articles on performance improvement through effective feedback. To recap, effective feedback is:

• Specific and justified;
• Timely;
• Acceptable (to the listener);
• Balanced.

My first post covered the first two criteria; the second looked at the last two and I promised that I would also look at planning and follow up.

Planning feedback sessions and follow-up are as important as the sessions themselves. Schedule the right time and place. If it’s going to be a tough session, allow more time and make sure you won’t be disturbed. If the recipient needs more support, make sure that you schedule time to provide it.

Allow the person to whom you’re giving feedback a chance to digest it and to respond. Different people react in different ways; some argue, some meekly accept, some need to go away and think about it and maybe come back for more explanation. Don’t treat the feedback session as “over” until the recipient says it is. If they need more time and you have another appointment, fix the next available time to continue. The advantage of this is that the “time out” allows you both to refocus – particularly important if it has been a “fraught” session!

Following up means just that. If you have agreed or set a goal, make sure it is achieved and create the conditions for success. By this, I mean make sure that the person involved has the support that they need and chat with them to ensure that are "on course". Too many managers simply set the target and don't check to ensure that their staff remain on track, resulting in disappointment all round when things don't go according to plan. Schedule meetings or observe and give “on the spot” feedback where appropriate and practical.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Improving Performance - Effective Feedback (2)

2011-09-07T02:46:00.000-07:00

I recently posted an article on feedback and stated that it had to be:

• Specific and justified;
• Timely;
• Acceptable (to the recipient);
• Balanced.

My previous post covered the first two criteria; this will concentrate on the last two. A final post will look at planning and follow up.

“Acceptable” is an area which doesn’t receive much attention as many believe that it is enough that the feedback is “justified” (see above) and “timely” (see below). However, if your object is to improve performance, you need to give feedback on poor performance in a manner acceptable to the recipient. This involves the choice of words and “personalisation” of the issue. Instead of saying “you” did this, try using “that behaviour isn’t/wasn’t appropriate/acceptable”, or “How do you think that went?” The recipient is more likely to listen, accept and change poor behaviour if it is de-personalised or they are given the chance to comment first. Of course, there are those who won’t see the point, whatever the circumstances. However, you may be able to increase the acceptability of negative comments by making sure that your feedback is balanced.

“Balanced” feedback looks at the positive as well as the negative. Too often, when asked for “comments”, many tend to focus mostly on the negative, albeit with the best of intentions. Whilst this may drive improvement, it also drives resentment and may lead people not to approach you at all. Find positive examples to feed back as well. It is unlikely that anyone is entirely “bad” or entirely “good”. Many feedback processes demand that one finds something to comment on. Get the recipient to say where they feel they could change – they’re often more self-critical that anyone if they trust you.

A friend of mine worked for a manager whose “negative” focus often coincided with whether he liked the person or not (so I was told). The result was that any negative feedback to those whom he disliked (or was perceived to dislike) was automatically discounted by recipients, witnesses (if any) and senior management. Result: little improvement in performance unless there were other “negative repercussions”. The manager became more stressed and eventually retired.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Improving Performance - Effective Feedback (1)

2011-08-18T21:56:00.000-07:00

The object of giving feedback is either to get someone to change their behaviour (to improve) or to continue with a behaviour that is exemplary to others or that you wish to see continue. It is not to make them feel angry, resentful, unappreciated and uncooperative.

There are those who know how to give feedback and those who don’t. When you give feedback to someone, it’s usually because either:

1. They asked you for it;
2. It’s your job as their boss.

Feedback should be:

• Specific and justified;
• Timely;
• Acceptable (to the listener);
• Balanced.

I will deal with the first two in this post and will follow later with the second two.

If your feedback isn’t specific then it’s useless. Don’t be general and if you can’t think of the “right words” then use examples to make your point. This applies to both positive and negative feedback. Saying that someone is “poor at customer service” doesn’t help unless you can show what is “acceptable” and “not acceptable” about their service.

Justified means based on someone’s behaviour or words. If you can’t link comments to examples, avoid giving them. The best way to do this is by giving the feedback quickly (i.e. make it “timely” – see below). Some organisations have a formal “assessment process” every quarter or half year. Some encourage weekly “feedback” sessions. If you know that you can’t give feedback immediately, then make sure that you note down what you heard or saw so that you have examples to back you up. If others give you feedback about one of your direct reports, ask them to provide examples as well.

Timely feedback (positive or negative) is given as soon as possible after the event. After all, the quicker you do it, the quicker the recipient can take action (if they need to improve) or repeat the behaviour (if it is to be encouraged). This means that it is still relevant and the recipient has the opportunity to take corrective action immediately rather than waiting for months until the next appraisal.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Improving Performance – Effective Appraisals

2011-07-28T18:18:00.000-07:00

An effective appraisal system results in increased customer loyalty and therefore higher profits, more effective recruitment and more engaged and productive staff.

Larger companies usually have highly structured processes involving multi-page forms covering pre-defined competencies. The danger is that appraisal competencies take on a “standard form” and the “system” takes on a life of its own, becoming a “cottage industry”. There are those who make their living out of advising on performance management through appraisal systems.

Before defining appraisal competencies, start with who the organisation’s customers are, what the organisation is about (its “culture”) and the sort of roles required. Many will be “standard” roles (e.g. Marketing, Sales, HR, IT, Customer Service) but customer needs are what should drive the competencies.

When identifying competencies, expect “standard” ones like “Technical Knowledge”, “Problem-Solving”, “Working With Others” or “Leadership”. These have their place, but for an appraisal system to be truly effective, it must reflect what customers want and not what makes the “perfect” manager.

Ideally, each function would have its own unique competencies. One could go further and sub-divide these by rank within the function…

Assuming that the organisation has one set of competencies for everyone, it often compounds its error by looking to achieve high scores on all competencies. This ignores two things: the character of employee and the relative requirement for that particular competency in the function and organisation. I once asked the HR department of a large organisation if they had different scores for different roles and functions. The answer? A lengthy silence.

The final step? Train appraisers and appraisees in the use of the system.

An effective appraisal system:

• Reflects customer needs;
• Reflects company values;
• Is easy to understand;
• Is easy to administer;
• Identifies both strengths and areas for improvement.

Does yours meet the above?

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Improve Performance - Improve Communication

2011-07-28T17:29:00.000-07:00

I recently wrote about empowering teams through information sharing. This article is about identifying those who don’t, can’t or won’t share information.

The consequences of not sharing information can be delays, poor service, customer complaints, miscommunication, mistakes, inadequate resourcing, stress, frustration, resentment, low morale, loss of business and even litigation. Sharing information shouldn’t be the exception; it should be the rule.

Not all information can be shared if it relates to a confidential new product launch or something similar that has to be kept “under wraps”, but for day-to-day efficiency and effectiveness, you have to share what you can share. Those who don’t can’t or won’t become a liability to the organisation and their colleagues. Here’s how to spot them…

• They’re usually in a rush or “busy”.
• They like to feel “needed”, important or both.
• They feel that nothing will go right unless they and only they handle it.
• They don’t have time to clarify things, so have to handle everything themselves.
• They frequently have crises that require people to “drop what they’re doing” and help.
• No one understands them (in their opinion).

Does this sound familiar? If so, the chances are that there’s an “information hog” in your office, company or team.

Allied with this is the inability to delegate. Delegation isn’t easy at the best of times, and takes practice. If you aren’t in the habit of sharing information, delegation is harder. If you have a crisis that needs solving, it’s going to take longer.

The way to change this behaviour? Show the person or people that it’s OK to share, that their position isn’t threatened but rather enhanced. You may need to play to their sense of importance for a bit, but if they open up, it’s worth it.

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Focus, Inform, Perform - Improving Team Performance

2011-07-15T18:54:00.000-07:00

The phrase “Information is power” used to mean that there were people who deliberately withheld important information from their juniors, colleagues or even managers on the basis that it gave them an “advantage” of some sort.

Nowadays, information is power, but in a different way. Individuals, teams and companies rely on real-time information to deliver products or services. In some ways, the situation hasn’t changed; we need information, but now it’s easier to obtain thanks to email, the internet and mobile communications. However, there are still individuals who won’t (or, more often, can’t) share information when it’s most needed.

Failing to share information means delays, poor service, miscommunication, mistakes, inadequate resourcing, stress, frustration, resentment, low morale, loss of business and possible litigation to name a few. Most of these can be eliminated or at least reduced through one simple method – the “team briefing”.
Different organisations have different names for these. Some call them “Team Briefings”; others call them “Morning Prayers” or “Management Meetings”. What they all have in common is a fixed agenda, focus (i.e. brief and to the point), they last little time and action points are distributed and actioned. Those attending know that if they have nothing to say, they need not say anything to “fill the gaps”. The point of these meetings is to get the team focussed and informed to perform (think focus, inform, perform).

I used to attend monthly meetings which could go on and on as everyone felt that they had to contribute (it was viewed as a bad sign if you had nothing to say after the last meeting one month ago). These days, few have the luxury (or inclination) to sit through a 2-hour meeting. I’ve heard of teams who have meetings standing up so that everyone stays focussed. Others ban Blackberries and other mobile communications devices.

Ask yourself how well you and your team share information now, and what you could do. Who are the “keepers” and who are the “sharers”?

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Manager Or Leader? Which Are You?

2011-07-07T01:30:00.000-07:00

Over the time I’ve spent with clients one thing has become clear: you reap what you sew. By this I mean that leadership style has a direct impact on service standards, customer satisfaction, staff morale, efficiency and overall profitability.

Too many leaders “manage by memo” or take the “Do as I say, not as I do” approach. Another aspect of poor leadership is ineffective delegation or delegating what you don’t want to do yourself. The British army teaches its young officers never to ask their men to do that which they’re not prepared to do themselves. Leadership in the armed forces comes by example and respect is earned. In civilian life, many still believe that it is owed to their position because the position is higher up the ranks.

If a leader wants to see certain standards in their team / department / company, they need to set those standards and follow them themselves, not tolerating any exceptions or dissent. Some may “rebel” to start with to see how far one’s determination goes. The fatal mistake is to back off; if a particular standard is important to you as a leader, insist on it. Speak to the person in question and, if you can’t reach an understanding, point out that they are welcome to join another team if they don’t like your regime. If others see that you will back off in favour of one person, your credibility is lost forever.

I recently saw an article from the Federation of Small Businesses stating that the top five skills in which management were investing were sales / marketing and PR, IT, financial, planning and lastly legal and regulatory. Leadership / Management came seventh after “Other (Sector Expertise)”. Customer Service came tenth. In other words, we have a lot of managers who are experts in their field and can sell you anything, but know little about leadership and less about serving the people who buy their product or service.

Sound familiar?

I have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Why Less Competition May Be Better

2011-06-06T18:08:00.000-07:00

An article that appeared in the Financial Times in April suggested that the Lloyds-HBOS merger will not be reversed. What are the pros and cons?

Pros:
•Less uncertainty for LBG – good for investors, staff, customers.
•Too much competition may have led the UK banking industry to its 2007 state.
•Costs to be saved from having to de-merge HBOS or key businesses.
•Taxpayer may be able to sell shares at a profit earlier than anticipated, thus providing more revenues to the government and further reducing the National Debt and interest costs.

Cons:
•Should the merger have happened? Discussed ad nauseam already. It’s done!
•EU competition rules? Do they really suit this sort of emergency?
•Less choice for the consumer? There’s still plenty in the UK, how much choice is too much?
•Dragging-down of Lloyds TSB – the only real argument that stands up.

What would have happened if HBOS had been allowed to fail? We had already experienced IceSave and Northern rock. The UK was in crisis thanks to competition in part. Did we really want another series of pictures of penioners queueing up to withdraw their savings? As it was, many lost all or a substantial part of their savings if these were in Lloyds-TSB shares.

Conclusion:
Competition in the UK banking industry has not really reduced, despite the FT claiming that Britain's "Top 5" banks now have 85% of the "market" (of which "market" is not clear). This means that each has an average 17% (as opposed to 14% when HBOS was still "alive"). Competition increases through market forces, not regulation.

We are where we are, the deed is done. Given the circumstances, it was the best of an unpalatable set of options at the time. With the UK taxpayer owning just shy of 50% of LBG and substantially more of RBS, perhaps reform for the best can be forced on two of the UK’s “giants” which will, in turn, see change for the better in the rest of the UK financial services market. Can it be done?

I was born overseas and have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email . My website provides a full picture of my portfolio of services.

Backing Out of Russia

2011-05-11T06:29:00.000-07:00

HSBC have recently announced the closure of their Russian retail banking operations (having invested USD200million of shareholders’ money to do so) due to overwhelming competition from local rivals. This is a shame as apparently banks benefit from a 9 percentage point spread on the difference between mortgage and deposit rates there.

So what happened? Without being privy to the details just yet, but knowing the market, I suspect that HSBC both went in too late (almost 10 years too late) and did not have the critical mass that a Citibank or Raffeisenbank has locally. Yes, it’s easy for them to get out as they have only a “handful” of branches, so exiting will be relatively painless.

The main question is, why did they go in so late, when it should already have been clear what they were up against? The best time to have gone in was just after the “GKO Crisis” of 1998 when Russia was crying out for well-run foreign banks (who could be trusted). Except for HSBC’s Rep Office, there were no British banks with a presence at the time, the foreigners were fewer, and Russian banks were still trying to recover.

A well-capitalised, respected HSBC coming in at that time could have done well. Coincidentally, they had just acquired Republic National Bank of New York which had a banking license in Moscow thanks to its Moscow branch there. Hiring well-qualified, knowledgeable local staff would have been easy, and support from the government (desperate to re-establish an aura of respectability) may well have been forthcoming.

So why didn’t it happen? As the meerkats would say, “Simples”. HSBC was not known for taking risks. Russia was seen by senior management at the time as “too dangerous”, although the rewards were greater at the time. They had a local base, with people who knew the market, where the real risks lay, and who could have helped to avoid them.

Instead, they waited until it was too late. Russia was well on the road to recovery, costs were rising, the local banks were reforming, and Citibank and Raffeisenbank had stayed the course.

Not one of their best decisions, but sad.

I was born overseas and have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and now work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website provides an excellent picture of my rich and varied portfolio of services.

Bin Laden’s Legacy

2011-05-04T07:04:00.000-07:00

Osama Bin Laden – one of the world’s most wanted (if not the most wanted) men, is dead.

Does this mean the end of Al Qaeda?

No.

Bin Laden was the spiritual head of Al Qaeda and gave it direction. Like any corporation, Al Qaeda will have a succession plan and there will be enough to take his place. Whether they will have the same impact is another question. Security and intelligence-gathering processes have improved since that ghastly day on 11 September 2001 when three thousand were killed in one of the most audacious and well-planned attacks on American soil since Pearl Harbour. Intelligence-sharing is now more common, and those who wish to be seen on the side of right know that they have one choice – cooperate or be ostracised.

So what now? It’s unlikely that there’ll be any immediate major reaction. His lieutenants will be recovering from the shock, and will then plan something. It’ll happen when security is lower, and guards are down. Extremist groups (not necessarily connected to Al Qaeda) have grown and spread like franchises. The sense of injustice at US aggression in certain parts of the world won’t disappear. If anything, it may increase now that one of the “heroes” of the oppressed has been brought down.

Like it or not, Al Qaeda is a corporation in its own right, with subsidiaries and associate companies. They are all united by an ideal and mission statement to bring down what they see as oppressors.

I was born overseas and have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website provides an excellent picture of my rich and varied portfolio of services.

Can You See The “Big Picture”?

2011-05-01T07:38:00.000-07:00

Steven Covey, author of “The 7 Habits of Highly Effective People”, describes his second habit as “Begin With The End In Mind”. It has as much application to how you conduct yourself and your business.

I’m as guilty as anyone else (more, probably) of not beginning with the end in mind. How many toes I have trodden on in my lifetime I’ll never know (well, some of them I do…), but I see so many instances of people not keeping the end in mind that I felt it was time to talk about it.

I’m sure everyone reading this will be able to think of instances where either they themselves were - or accused someone else of being - guilty of not “seeing the big picture”. We all lead pressurised lives, with expectations of performance in so many areas (profitability, sales, efficiency, family, community to name a few). Everyone and everything demands our attention NOW. Caught up in the moment, we focus on what needs to be done NOW.

We all risk falling into the trap of forgetting what we’re really “in it” for. One way to check this is to look at the “Mission Statement” (MS) of companies with whom you deal (or indeed, of your own company). Is it short, sharp and punchy? Is it memorable? I’ve seen MSs which cover several lines – how can you remember that? More to the point, if you can’t remember it, how can you “live it”?

Do you have your own MS and long-term goals? Is your behaviour consistent with these? Even as I write this, I find I’m asking myself the same question…

Covey suggests that you visualise your funeral and what you want people to say about you during the eulogy as a way of clarifying what your “end” is.

In business, this means deciding how you want your business or organisation to be perceived. Some (a lucky few) have the luxury of not having to care how they are perceived – people have to use their service (start your list of these organisations here…). These won’t all last…

What is your “end” and what are you doing to plan for it?

I was born overseas and have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and work with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. My website provides an excellent picture of my rich and varied portfolio of services.

How Is Your Business Performing?

2011-04-28T00:58:00.000-07:00

It’s surprising what understanding a business’ accounts can tell you.

I learnt my “Business Banking” in Hong Kong lending to small traders who sold anything anywhere if they could make money on it. They didn’t have accounts audited by the “Big Four”. You had to meet the owners and see the business for yourself.

The accounts were always a good place to start. However, you had to look at what lay underneath the actual numbers to understand what drove the business, and what the owner’s plan was. You had to get close to him or her, and to be able to react quickly when things changed.

I was recently asked to have a look at the accounts of the client of one of my professional associates. The client’s margins were falling, and he was worried that he might have to raise prices. Not perhaps the best thing in a recession?

I looked at three years’ worth of accounts and suggested that the business should implement a budgeting and review process. On being asked how I knew that they didn’t have one, my answer was simple – the numbers told the story.

There was more: the business’ book keeper wasn’t consistent in the way that he/she passed entries, and the business’ auditor had signed off on some glaring inconsistencies.

In all, the numbers in the accounts didn’t reflect what was really going on. Valuable financial information on which the owner would base decisions was either not there, or was wrong. This could have been disastrous if the owner was making decisions based on inconsistent financial information. Worse if he/she was looking to borrow money from a bank or an “angel investor”.

Good accounts can tell you so much about your business: where it’s making money and how much and where there are problems. With a few simple tools, you can see whether your business is becoming more (or less) efficient, debtor collection trends, your ability to service bank loans, and whether your business is sufficiently “liquid” to cover its debts as and when they fall due. What’s more, once you’ve spent the time setting up the tools you need, you don’t need to change them very often.

Knowing what’s going on in terms of your numbers gives an added advantage: you can talk confidently with accountants, bankers and investors. Many entrepreneurs are nervous in front of these types, but “knowing your numbers” gives you all the backup that you need.

I was born overseas and have spent more than half my life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, I started my own Performance Management Consultancy and works with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, I can be contacted by email. I recently published Financial Management For Small Companies Made Simple – an easy-to-read basic guide to business finance. My website provides an excellent picture of my rich and varied portfolio of services.

Do You Know Your Risks?

2011-04-20T08:09:00.000-07:00

The world is littered with examples of companies and organisations that failed because they didn’t manage their risk effectively.

“Risk” means different things to different people and organisations. Since 2007 for example, the debate has raged over how much “risk” banks took, whether they and the rating agencies understood it and how much they should take now.

Some businesses and organisations have got risk management down to an art, others have further to go. One thing is: risk management is as much of an art as it is of a science.

In order to manage risk effectively, you have to be able to identify and measure its impact on your organisation. There are different types of risk, e.g. financial risk, operational risk, market risk and so on.

Identification depends on a number of factors, both internal and external. An organisation needs to identify to which internal and external risks it is likely to be subject.

Once you have identified the risks, you need to measure how much they could impact your business or organisation, and the likelihood of them happening. The higher the impact and likelihood of a particular event arising, the more significant its risk and the more effort you may need to put into managing it.

Managing risk can take various forms, including taking no action at all (yes, this is an accepted strategy!). Your chosen risk management strategy for a particular risk or group of risks will depend on a number of factors including likelihood and impact, cost of managing the risk and even what others do.

As an example, people choose to insure their car either because the institution lending them the money tells them to, or because they choose to so that, if hit by someone else, they will receive compensation (well, that’s the theory anyway). There may be circumstances where they choose either to take “comprehensive” cover, to take only “third party” liability or maybe even not to insure at all.

To summarise, risk is everywhere and we all have a basic grasp of it. We accept some risk more than other types (e.g. most of us don’t think twice about walking across the road, even though a higher percentage of people are killed doing this than jumping out of an aircraft with a parachute).

A prime example is staring us in the face now following the earthquake and tsunami that hit Japan over a month ago. Manufacturers are finding that “just in time” stocking techniques have all been upset by no parts ex-Japan. The alternative suppliers are not working flat out to fill the gap – and charging accordingly!

Have you identified your risk and what you can do about it?

William was born overseas and has spent more than half his life working in different world markets from the most developed to “emerging” economies. With more than 20 years in the world financial services industry running different service, operations and lending businesses, he started his own Performance Management Consultancy and works with individuals, small businesses, charities, quoted companies and academic institutions across the world. An international speaker, trainer, author and fund-raiser, he can be contacted by email or via his website which provides an excellent picture of his rich and varied portfolio of services.

Part Of The Solution, Or Part Of The Problem?

2011-03-23T06:21:00.000-07:00

There are two types of people in this world: those who are Part Of The Solution (I’ll call them POTS), and those who are Part Of the Problem (I’ll call these POPS). Which are you? More to the point, how do others see you? Who do you work with?

You can tell POTS right away. They tend to:

• Have a “can do attitude”;
• Be proactive – anticipate problems and take action;
• Can always be relied on to be around;
• Offer to help in solving problems;
• Come up with solutions without being asked;
• Be the first to volunteer;
• Encourage others;
• Don’t mind working extra to “get it finished” (although this has its limits!);
• Think “outside the box” and generate multiple or different solutions;
• Take accountability for sorting things out.

The POPS are the direct opposite, in other words they:

• See the downside in everything;
• “Goof off”;
• Never volunteer to help;
• Think within rigidly prescribed limits and rarely come up with innovative solutions;
• Leave solutions to others (and find fault with them all when they do);
• Either don’t see the problem coming or leave it to someone else to worry about;
• Find fault with everyone except themselves;
• Don’t make any extra effort unless incentivised/threatened;
• Leave it to someone else to sort out or “pass the buck”.

POPS can be a severe drain on a business, resulting in lower morale, productivity and profitability. If not dealt with or sufficiently bad, your POTS may leave to get out of the poisonous atmosphere that they cause (remember, this is “part of the solution” for a POTS).

Signs that you may have one or more POPS include:

• Increasing/high number of customer/supplier complaints;
• Slow response times;
• Cumbersome/out-dated processes;
• Finding excuses not to do something;
• Poor team morale;
• Resentment towards one or more team members;
• A steady trickle of resignations from or requests to transfer out of a team.

I have worked in teams with people who were POTS and had a visible effect on morale. The Team Leader had to work extra hard to maintain morale, recruit replacements for those who had left/were leaving, get the best out of the team and justify their performance to his/her own manager. All this could have been solved with a well-targeted approach.

So what do you do? The answer is: address the problem (in other words be a POTS yourself). If you’re the team leader, speak to the POPS and find out what’s causing the behaviour. Is it personal circumstances, resentment of other team members, lack of belief in the job, feeling unappreciated, feeling that they’ve been “passed over” or should be paid more? It can be any number of reasons and it may take time to find out. At NO stage should you indicate that you think “they” are the problem, as this will cause them to close up.

Once you’ve worked out where the problem is, ask the POPS how this makes them feel and how it may have impacted their behaviour. If they start listing behaviours that you have noticed, then you’re half way to a solution. Agree to work with them to assist where you can. You can’t guarantee promotions or salary rises, but you CAN put together a Development Plan which may increase their chances. If the issue is not salary/promotion, you still need a plan.

If you’re part of a team where there is a POPS, you can still react in a similar manner, but you will have to be more sensitive when it comes to action plans. You may find that YOU are the cause of the problem and so will need to understand why and modify your own behaviour.

In the end, the only solution may be for someone to leave the team. If it’s the POPS, well and good. If it’s a POTS, then the problem remains…

What Message Are you Sending?

2011-03-14T07:14:00.000-07:00

Have a look at the pictures attached to this article. They are the first things that passengers see at one of the South West Trains (SWT) stations that I use. What message do they give you?

There is no doubt a reason for these posters appearing, which is that in the past (and indeed perhaps still in the present) passengers have travelled without purchasing tickets, or have abused staff in the past, or act in a disorderly manner. What happened to them?

These acts aren’t solely committed on the premises of SWT. They can happen on your local high street, at a pub, a theatre or any public place. However, I’m only aware of seeing these posters at train stations and at some shops warning that shoplifters will be prosecuted (and even then, these are less “obvious”). Why are train passengers or shoppers worse than anyone else?

Why does at least one train company, in a more affluent area of the UK, feel that it has to provide warnings that no other private or public body has to provide?

For many, they may indicate defensiveness, aggression and a view that those who pay to travel on SWT are dishonest, abusive and disorderly. They may provoke feelings of hostility and defensiveness amongst “ordinary decent passengers” (who, for them most part, probably ignore them) and will certainly not stop real criminals or hooligans from behaving in an unacceptable manner.

The SWT staff that I have encountered are pleasant, friendly people with a sense of humour all trying to do a job which, at times, must be hard. No doubt they will encounter abuse, or anti-social behaviour. For SWT management to try to infer that somehow paying passengers may not vent their feelings over poor or sloppy service seems a chronic lapse in service and tantamount to institutional bullying.

Assuming that SWT can prosecute customers for being “rude” (disorderly and destructive are another issue), then this must apply to any other institution and therefore they as well as SWT are entitled to display similar signage. Only thing is, they don’t.

If SWT have the right to prosecute (or indeed threaten) passengers, do passengers have a similar right if they encounter rude/abusive or disorderly conduct from SWT employees?

The message seems to be that, like children, passengers need to be warned beforehand and cannot be treated as responsible adults. Rather sad, really.

Re-Arranging The Deck Chairs?

2011-03-01T04:26:00.001-08:00

This makes for interesting reading. It outlines how the new regulatory structure for the UK Financial Services Industry will quite literally "stack up". The information is drawn from the Financial Times and a "Dear CEO Letter" from Hector Sants (currently Chief Executive of the UK FSA).

At the top, we have the "Financial Policy Committee" consisting of regulators, central bankers and "external experts" (my quotation marks) which takes responsibility for:

●Systemic risk (macroprudential regulation)
●Watching for and deflating credit bubbles
●Monitoring shadow banking

Who appoints the FPC's "external experts" is not clear.

Next will come the Prudential Regulatory Authority (PRA) - a subsidiary of the Bank of England - which will oversee safety and soundness of banks and insurers. This is one of the areas in which the FSA was heavily criticised for failure. Here's hoping...

We also have the Financial Conduct Authority (FCA). This was previously to be known as the Consumer Protection and Markets Authority (CPMA) mentioned in the "Dear CEO" letter above. The FCA takes on:

●Consumer protection
●Market supervision and regulation
●Business conduct of banks and financial services
●Civil and criminal enforcement of market abuse rules
●Responsibility as UK listings authority
●Prudential regulation of firms that don't fall under the PRA!

Costs over the next two years for setting this up are estimated at £12.3million to be paid for by the institutions that are regulated, and we know who that will be passed on to...

What are missing so far are the Bank of England and the Treasury who will needs be involved (I assume on the FPC?) as part of the overall macro-prudential and financial system. From a triumvirate, we're moving to a regulatory oligarchy, with attendant confusion and therefore systemic risk. As an exampe, what is the difference between monitoring "safety and soundness of banks" (PRA) and "market supervision and regulation" (FCA)?

A case of "too many cooks"?

Cost Cutting

2011-02-28T05:55:00.000-08:00

With the current economic situation, people are cutting costs to increase productivity or competitiveness, increase profitability or just to stay in business.

In many cases, the highest cost of an organisation is salaries and any related taxes (Employers’ National Insurance Contributions in the UK, for example).

When it comes to cutting costs of any sort, painful decisions are needed. However, these decisions need to be based on a balance of what is good for the business as well as what is good for the “bottom line” or for shareholders. Some costs are necessary to bring in the revenues that keep the business alive. If you can’t keep it alive, you might as well close down anyway.

You need to understand which costs add value to a business. Which costs result directly in new sales or revenue, preserving sales or revenues or in maintaining efficiency? If a business relies on sales, does it cut its sales force? Surely not (unless the problem is definitely with the sales force). The comparison is “Profit Centre” versus “Cost Centre”.

It may sound nasty, but if a business is “up against it”, the first costs to cut are those that don’t directly contribute to sales growth, retention of business or to efficiency of operations. Often, though, it’s the Sales or the Customer Service teams who are cut first because “if we’re selling less, we don’t need as many highly-paid sales people or Customer Service staff”. You end up with the proverbial tail wagging the proverbial dog. A reduced number of revenue-earners or keepers end up supporting the same number of “cost centres” and profitability and productivity fall. This translates to dissatisfied customers, sales drop, and the cycle continues.

If anything, Sales and Customer Service Teams should be maintained to ensure that customer opportunities, communication and service are kept at the highest levels. Cut those who aren’t pulling their weight, by all means. You can’t carry any excess fat.

Other staff may have strong relationships with your biggest buyers (they may be the only reason that buyer deals with you). If they go, so may the business that they look after (straight into the arms of a competitor).

Some may be highly efficient at chasing debts, or at making sure that production meets deadlines. Who are they? You should know. If you don’t, others do (including your customers).

You need to know how and where to cut costs in hard times, but all too often, this is left to chance, by which time it’s too late. Have your strategy ready before this happens.

An Easy Way To Improve Customer Service

2011-02-17T03:39:00.000-08:00

The first (and lasting) impression your business can make on a potential customer is the way it handles telephone calls.

Some businesses just seem to be “naturally good” at this. The voice sounds friendly, energised, nothing is too much trouble, you’re the most important person in their life and every atom of their being is focussed on you and meeting your needs.

Others sound far too busy or tired, as though they’re reading from a prepared script, and only grudgingly consent to move things forward (and only after you’ve sent in a letter, email or form). “Policy” is often used as a reason not to do something.

Here’s a thought. In a quiet moment, pick up the phone with your staff and call a number of companies at random. Listen to how they handle your call. Would you want to do business with them? If so, why? If not, why not?

Listen to:

• Greeting: is it just “ABC Limited” or “Good morning/afternoon, this is X at ABC Limited, how may I help you?”;
• How do they sound? Happy or bored? As though you’ve interrupted them or as though helping you is their reason for being alive?
• Dealing: do they just go through a list or do they try to be “human”?
• Do they empathise with you?
• Ending: do they ask if there’s anything else they can do for you?
• Thanks: do they thank you for calling?

If you can’t find a quiet moment in the office (a problem common to many of us) then do this when you next call a supplier or another company with whom you don’t normally do business about a product or service that they advertise.

You could do this with your competitors – if you think that they’re answering well compared to you, maybe this is why they’re doing more business.

Get a friend to call your business and tell you what their experience was.

Another thought – if you work in a large business, how do your colleagues handle the phone? Are some departments “better” than others?

The phone is such a vital part of the “customer experience”. What do your customers experience with you?

How Do You See Your Customers?

2011-01-31T00:51:00.000-08:00

The way a business sees its customers influences the way it serves them and therefore its continuing success.

Perceived management “wisdom” dehumanises customers by teaching that they are a source of income and that one should find as many ways as possible to extract this. This has resulted in the development of Customer Relationship Management (CRM) systems designed to track, record and analyse a business’ interaction with customers and how much revenue is earned from each customer, contact or product, as well as how much each customer costs to serve. Customers become fruits to be squeezed for juice, and they’re clever enough to tell!

Systems segment customers by age, income, socio-economic group, education, sex, postcode and any other number of categories. Systems “slice and dice” them to determine the best way of squeezing more out of them, identify new opportunities to sell a particular product, or reduce costs of service.

As pressure mounts to increase revenues and productivity and/or to cut costs, customer service gets relegated to low-cost “service centres” far from the customer they’re meant to “serve”. Typical examples of this in the UK are the offshore Call Centres so often vilified in the press. So intense have the complaints become in some cases, that some organisations are bringing their Call Centres back to the UK (albeit still to more remote – read “cheap” - locations).

Another strategy is to push customer-handling further “down the line” to more junior (and therefore cheaper) staff who have little authority and work from “decision trees” to handle up to 95% of possible customer enquiries. When they get a problem they can’t solve, they have to refer “up the line”, causing delays.

A friend of my parents had a typical encounter with one “Call Centre”. She called up to ask to speak to her bank branch and was told that the person to whom she was speaking could handle any question. She said that in her opinion only her branch could answer her question, but was assured that this was not the case. Her question: had she left her glasses on the counter at her branch?

With all the “science” and cost-consciousness, what people forget is that it’s the “traditional” methods that often produce the best results. As technology improves, it is becoming cheaper to provide certain services, but in the end, it is the customer’s experience that dictates whether they will continue to use a particular supplier. Cheap can work, but many of us have encountered expensive and poor service more than once.

Good service begets customer loyalty which begets repeat business. Although people have realised that it costs more to bring one new customer on board than to keep one happy, processes seem to focus more on extracting more cash rather than making the experience pleasurable and therefore maximising that which is already there. Yes, one has to have “new customer initiatives”, but how many “existing customer initiatives” does one hear about? How many initiatives does one hear about designed to treat customers as the people that they are?

Michael Heppell in his book 5 Star Service offers some great insights into what makes for good service – and it’s all about treating customers not as piggy banks but as people. As long as customers are seen as cash cows, there will always be room for organisations who “treat them right”.

Brand Damage By Others

2011-01-20T04:36:00.000-08:00

One of the risks that businesses often fail to take into account is the damage that can be done to their reputation or brand by the acts or omissions of others. Reputation/brand are often what make customers choose one supplier over the other and you need to make sure that you don’t forget this vital marketing tool.

In a previous article, I showed how a business can damage its brand by its own acts/omissions. These can be controlled. The acts/omissions of others, however, are a trickier issue as you don’t have as much control over them (or do you?).

Here’s a story of a friend of mine. Tom (let’s call him) recently switched to a new gas supplier as they offered a lower price than his current one. The new supplier was a “household name” and their promotional literature painted a rosy picture of “quality service” and “reliability”. Tom’s gas is stored in a tank on his property and has to be refilled by a tanker truck. Tom pays by direct debit and never misses a payment.

He ordered a delivery of gas in mid-December 2010, and was told that his new supplier couldn’t give him a delivery date. The UK was suffering at the time from unseasonably heavy snow and cold weather and the resulting dangerous driving conditions prevented delivery trucks from reaching outlying areas. They were having to prioritise and it was felt at the time that Tom’s gas levels were still sufficiently high not to constitute an “emergency”.

Over the following weeks (which included the Christmas and New Year holidays), Tom called his supplier regularly to update them. The weather improved, but then it turned out that his supplier got their gas from a third party and that this third party was rationing the supplier!

Situation: Tom’s supplier’s reputation was now being damaged by another party who couldn’t supply gas in sufficient quantities. Tom wasn’t the only one in this position. As his gas levels sank lower and lower, he began to worry for his young family as they needed gas for heating and cooking. In his eyes, his supplier wasn’t performing. When he pointed out that he considered this a breach of his Supply Agreement, he was referred to a clause in the small print which any half-competent lawyer would have had thrown out.

He asked to speak to a senior manager and was told that this was not possible.

Lesson: if you rely on someone else to enable you to deliver a product or service, you need to understand what could go wrong for them, how it could impact you and what you need to do to limit reputational damage. Tom’s supplier hadn’t assessed this properly and therefore hadn’t developed an Action Plan for when things went wrong. The weather in the UK turns colder in winter and therefore demand for gas for heating will rise. Physical conditions may prevent safe delivery of the product/service, but that’s no excuse for not having a well thought-out and communicated plan.

Your customer service staff will be critical – there’s no point in them hiding behind technicalities, “policy” or “other parties” – this is not what customers want to hear! As far as they’re concerned, they deal with you and it’s up to you to ensure delivery. They want empathy and action, not platitudes.

So what do you do?

First: assess what could go wrong with the supplier (you may need to understand how they work).

Next: ask what is the worst impact that this could have on your ability to perform?

Third: develop a plan to deal with this. It may involve having an alternative supplier, prioritising which customers you will supply, special training for staff to handle unhappy customers, additional insurance cover, maintaining a “buffer stock”, agreeing with your supplier a plan for restoring “normal” service as soon as possible and so on.

Fourth: have a plan to deal with any resulting negative publicity. The internet is a powerful tool and with Facebook, Twitter and various consumer complaints sites, it’s all-too easy for people to damage your reputation beyond recovery. Northern Ireland Water failed to do this when 40,000 customers lost their supplies due to pipes bursting in during the cold winter weather in 2010.

Finally: when the crisis is over, thank all those who helped you – your staff, other suppliers, customers who were particularly patient or understanding and so on. “Thank You” costs nothing to say, but will buy you masses of goodwill!

The Men At The Top: Antonio Horta-Osorio

2011-01-12T02:28:00.000-08:00

António Mota de Sousa Horta Osório (to give his full name) was born in Lisbon in January 1964. He is the eldest of four children of António Lino de Sousa Horta Osório, a lawyer and champion table tennis player, whilst his grandfather was a lawyer and politician. His great-grandfather is described as a nobleman, magistrate and jurist. His maternal grandfather was Procurator General of the Republic and President of Portugal’s National Sporting Club.

He graduated in Management and Business Administration from the Catholic University of Portugal in 1987. In the same year, he married and is now a father of two daughters and a son. He also received an MBA from INSEAD - where he was awarded the Henry Ford II Prize – in 1991 and completed an Advanced Management Programme at Harvard Business School in 2003. His educational and academic pedigree is, to say the least, strong!

He was created a Commander of the Order of Civil Merit of Spain by Juan Carlos I in August 1998 and of the Order of the Southern Cross (of which his maternal grandfather was a Knight) in October of the same year.

In June 2009 he was appointed as a non-executive Director to the Court of the Bank of England. He is believed to be close to Mervyn King, making him that rare specimen – a banker favoured by the Governor (according to The Telegraph). This may also give him credibility as he tries to convince the Independent Commission on Banking this year competition is alive and well in the UK banking industry.

He began his career at Citibank in Portugal in 1987, becoming Vice President and Head of Capital Markets until 1990. Concurrent with this, he was an Assistant Professor at the Catholic University. After receiving his MBA from INSEAD In 1991, he moved to Goldman Sachs International Limited, working in New York and London on Corporate Finance activities in Portugal.

In 1993 he moved as CEO to Banco Santander de Negócios Portugal at the invitation of Emilio Botin. From here, a well-documented series of moves saw him climb the Santander management ladder in Brazil and Portugal until he became a non-Executive Director of Abbey in 2004 and then Chief Executive in 2006 of its successor – Santander UK. He also became Director General and a Member of the Direction Committee of Banco Santander in Spain, President of the Administrative Council of Banco Santander Totta and Banco Santander de Negócios Portugal. With the purchase in 2008 of Bradford & Bingley’s savings business and the acquisition of Alliance & Leicester his responsibilities increased again. He cleaned up the businesses, taking them out of the mortgage market before the crisis, enabling Santander to weather the storm. This is the success that set him apart from many of his peers and may have been what attracted Lloyds Banking Group (LBG) to him.

His motto at Santander is described as “Efficiency, service quality, value for money, customer loyalty and a meritocratic environment.”

In 23 years since graduating from university, Horta-Osorio’s career path and success in Abbey and Bradford & Bingley have attracted the approbation and admiration of the markets. His appointment to LBG where he takes over as CEO in March this year may mean a focus on costs and divestments. The sale of the Cheltenham & Gloucester branches may be moved up the agenda, underperforming loans may be sold cut-price as the bank seeks to reduce its loan book. Bad assets will be reviewed and cleared out. After his success at Santander in the UK, Horta-Osorio knows about running large financial organisations, and he will need this for the new LBG.

What did the markets think of the appointment? The share price rose by £1.23billion when his appointment was announced, and other market commentators have been favourably impressed by the charm and political skills of this scion of Portugal’s hereditary, legal and sporting aristocracy.

One colleague at Santander speaks highly of him, describing him as “charming and smooth”. “He has an aura that says, ‘I’m in charge’… We’re very disappointed he’s leaving and would rather he stay,” he said. “People who have worked with him are loyal and filled with pride.”

It wasn’t all good, though. When details of his remuneration at LBG came out in late 2010, it sparked comment from Shadow Chancellor Alan Johnson and Brendan Barber of the TUC. To put it into perspective, his package is (according to LBG) "substantially" less than his maximum potential pay at Santander, where his salary and bonus for 2009 were £3.4million according to The Telegraph. He had to give up 17 years’ of pension benefits, a lot of goodwill and perhaps even a shot at the mantle of global Santander Chief Executive.

Not being a member of the “Botin Dynasty” might, however, have been a deciding factor against him and a contributor to his decision to move to LBG… The Chancellor has said that part of his pay package depends on him boosting business lending, but targets need to be set. Additionally, LBG’s shares must rise to 114p before a £4.3million share incentive plan comes into force. This, according to the Chancellor, will give UK taxpayers a profit of £11billion on their 43% stakeholding. As at time of writing, LBG’s shares are trading at 67p, so there’s a way to go…

Horta-Osório wrote in his INSEAD profile that he “would like to create the best and most successful commercial bank” in the UK. Noone can doubt that he has moved Santander well up the league tables. However, he is described as “a ruthless cost-cutter” - around 10,000 Abbey roles were cut in the three years after Santander’s acquistion. Customer service has been seen as a weak point. Abbey/Santander, have consistently finished at the bottom of the customer service tables. In their favour, though, Santander has also offered the best deals according to The Telegraph.

In the same profile he writes, “Throughout my business life my success has stemmed from my ability to recruit and build high calibre teams, without whom the companies I have led would not be where they are today.” For LBG, this means that Juan Colombás, Head of Risk at Santander UK, is scheduled to join this month as Chief Risk Officer. He replaces Carol Sargent who will leave. Antonio Lorenzo, Santander’s Chief Financial Officer, will join in March as director of its Wealth and International Division, replacing Truett Tate, head of LBG's wholesale banking business.

Commenting on the UK banking scene, Horta-Osorio says, "I wouldn't say bankers are being victimised. I would say that as an industry it has to work hard to improve its credibility." At the time of writing this, the new Chief Executive of Barclays is in front of a select committee defending the industry… Horta-Osorio is optimistic, however, "I think the UK has all conditions to emerge even stronger from this crisis on a relative basis and will continue to be a key competitive advantage of the economy. That does not mean errors don't have to be corrected." The Telegraph November 2010.

The challenge for Horta-Osorio can’t be understated. He needs to shrink LBG (albeit by a modest 5%) to avoid a break-up being forced on him, but at the same time re-shape the organisation into a force that delivers value to its shareholders and a return to the taxpayer. Perhaps expansion overseas will figure on the list of strategies to examine. This would reverse the previous trend of LBG’s contraction into a large UK-oriented bank. Is there the expertise within, though, or will he need to hire more from outside?

Additionally, LBG faces a funding problem over the next two years and will suffer if house prices fall further, as many expect they will.

The press have commented that Horta-Osorio is known to swim with sharks during his holidays. Without knowing where, how often and with which type, I won’t attempt to draw parallels, but he will certainly need his nerves about him over the coming years.

The Men At The Top – Eric Daniels

2010-12-06T05:03:00.001-08:00

Eric Daniels was born on August 14 1951 in Dillon, Montana of a German university professor and a Chinese mother, who met at the University of Berkeley.

He went to High School in New Jersey, took a BA in History at Cornell University in 1973 and then studied for an MSc in Management at Massachusetts Institute of Technology, leaving in 1975.

His wife is from Panama and he has one son.

Daniels’ career began with Citibank in 1975. He was in Panama for five years, then moved to Argentina and later to Chile. In the late 1980s he spent three years in London and became Chief Operating Officer of Citibank Consumer Bank in 1998. When Citibank and Travelers merged in 1998, he became Chairman and Chief Executive Officer of Travelers Life and Annuity. From 2000 - 2001 he was Chairman and Chief Executive Officer of a small internet start-up company which didn’t last long. He joined Lloyds TSB in 2001 as Head of Retail Banking and became Chief Executive in June 2003. When Lloyds TSB took over HBOS in 2009, he became Chief Executive of Lloyds Banking Group.

Daniels comes across as anything but the “brash American” so beloved of critics of US bankers (unlike one of his peers). In 2008 The Guardian described him as “The quiet American” and “The Invisible Man”! Those who have known him or met him describe him as a “deep thinker” and “good with numbers”. In some ways, this made him the perfect counter balance to Sir Victor Blank – Lloyds’ former high profile chairman. Some say that it was Blank who pushed the HBOS deal rather than Daniels, but this we may never know.

Although not seen as a “star” at Citibank according to David Enrich of The Wall Street Journal , his activity in purchasing successful businesses in Latin America clearly impressed potential future employers, especially Lloyds where, as one of his reports told the BBC in September 2010, he brought “vision and effort” and a “sense of direction and purpose”.

When Daniels joined Lloyds as Head of Retail Banking in 2001, things had slowed down thanks to its ill-timed £7billion acquisition of Scottish Widows two years earlier. He spent the next five years turning things around to make Lloyds a serious player once more.

Equally, the effort that he has made to put things right after the HBOS acquisition (let’s not call it a “merger”) has been impressive, with Lloyds returning to profitability in the first half of the year (although there is now speculation that another profits warning is in the offing…). He maintained the confidence of his shareholders sufficiently to support a £13.5billion rights issue to increase its capital and fend off accusations by the EU that Lloyds benefitted from state aid.

Those achievements have allowed Daniels to claim, as Blank did, that the HBOS deal will eventually be applauded. That argument is certainly now plausible given the size of the profits – £3.7bn this year, say the analysts – but let's see if Lloyds survives the fallout from the Banking Commission. (The Guardian)

Will the HBOS purchase be seen as a good move in the future? It has been fraught, to say the least, with critics pointing out that competition rules were waived to save the previous government’s face. Lloyds was seen to have increased its market share to between 25-30% of the UK retail market whilst destroying shareholder value by not making proper disclosure of a £25.4billion loan from the government to HBOS and handing a 41% shareholding to the UK taxpayer.

Thanks to this, Daniels is the subject of litigation by shareholders who are demanding about £14million in compensation, and a commission has been set up to assess whether Lloyds Banking Group should be broken up.

HBOS will be a subject of debate for some time. Some will say that its acquisition has made Lloyds Banking Group a major force in the UK market, but at the expense of huge bad debt and being 41% owned by the UK taxpayer. There is talk that Daniels was interested in Northern Rock, and one wonders whether his failure to acquire that may have pushed him more strongly when HBOS came up for grabs. Apparently he knew that it would be “painful” in the short-term, but the speed with which the global economy deteriorated after Lloyds stepped in seems to have caught everyone by surprise.

Daniels is not, according to many, a risk-taker in the same mould that other high-profile bank heads were. Some believe that the HBOS acquisition may have been “pushed” by a government anxious to avoid another “Northern Rock” episode. However, Lloyds Banking Group have now taken on what some would feel is “toxic” debt which will take time to sort out. Equally, there’s the issue of Lloyds having to shrink its balance sheet due to competition regulations, which were happily torn up by the previous government to make the rescue possible. When his departure was announced, shares in Lloyds Banking Group rose, giving the taxpayer a profit on its stake of around £1bn on the average price paid for the shares. Clearly the markets approved…

From the remuneration point of view, Daniels embarrassed himself before MPs in February 2009 by describing his £1million salary as "relatively modest". When he leaves, he could take with him shares and cash worth over £14million, but this is rumour so far. He’s also entitled to a pension of at least £190,000 a year according to The Guardian.

The Banking Commission set up to enquire into the financial markets will be looking closely at the banking industry, and rumour has it that they may recommend a break-up of such as Lloyds Banking Group. Politically, this is tempting for a (relatively) new government keen to be seen to be “doing something”, but Daniels and his peers will resist.

Conclusions? Daniels leaves Lloyds Banking Group in profit (excluding HBOS) and probably with a good deal. In March 2008, he told the Sunday Times “my job is to leave Lloyds in shape to last another 240 years, and that means you are very careful with reputation, with capital, with customers and with the franchise you build.” Let's hope he did right with HBOS, as that is what he’ll be remembered for…

BUSINESS CONTINUITY PLANNING “IN THE BLEAK MID-WINTER”

2010-12-06T02:07:00.000-08:00

I wrote this on the second day of Britain being brought to a halt by heavy snow. The country saw winter come more quickly, with lower temperatures and heavier snow than it did in 2009.

The result? Blocked roads, rail network at minimum efficiency, schools, businesses and airports closed. I’ve also heard stories about employers calling employees who haven’t come into work and threatening them with docked salary or worse.

One of my clients had clearly thought ahead. They sent out an email - short and to the point, giving an emergency contact number and that the company intended to advise their customers of any likely delays in receiving product or reaching customers’ offices. This told their customers and other stakeholders that they were being proactive, that they cared.

So what can you do to make sure that your business has the best chance of running as best it can in conditions such as the UK experienced? You need to look at various issues:

First: what does your company or business actually do? If your business is (say) working from home with visits to customer or client premises, that’s different to a shop on a remote country lane one mile from the nearest main road. Some kinds of business will hardly be affected; others will really feel the impact.

Second: your premises need to be looked at from several angles: their accessibility to you and your staff, to your customers or suppliers, and to other services. Are approach roads likely to be cleared, and will the actual car park also be cleared (it’s surprising how often this doesn’t happen)? I saw that our local Tesco had a small ploughing/gritting machine for the customer car park – that’s what I call service! If there’s a heavy fall of snow during the working day, can you and your staff get away? Can you get to your customers’ premises? Just because you can get out of yours, it doesn’t follow that your customers will be accessible.

Continuing with premises, what are the arrangements for heating, electricity, gas, water? Does your business operate from a Business Centre where the managing company pays utility bills (and have they kept payments up to date)? Does the building rely on a delivery of heating oil (and can this be delivered)? What arrangements does the Business Centre have in the event of severe weather warnings (e.g. to clear approach roads, car parks, etc)? You may find that it could get too cold for your staff or you to function properly if something goes wrong… If you’re the one responsible for paying the bills, make sure your payments are up to date and that any critical supplies of gas or oil are delivered before any snowfall forecast.

Third: how long can you survive without doing any business? If you can be closed for 2-3 days without a problem, then you only start worrying if the snow lasts longer than that. In this case, which services or processes need to be up and running first and therefore have to be given priority? What will be needed to make them work?

Next, who are your “critical” staff – the ones you must have on site? How long can you operate without them? What arrangements may need to be made for them? Who can work from home without jeopardising confidentiality or data protection? Can their phone be diverted to (say) their mobile number (and do they get reception at home)?

Fourth, do you rely on any critical suppliers? These could be for raw materials for your manufacturing process, or stocks of merchandise for sale. Do you have any important deliveries scheduled and will they be made? You need to ask your suppliers what their arrangements are in case of snow. Will they still be able to supply you? If not, how will this impact your ability to supply others? Can you get earlier delivery of critical supplies if there’s a severe weather warning?

Other critical suppliers may be outsourced services such as banking, post, legal advice, your accountant/book keeper, technical services (to name a few). Can they get to you or you to them? What happens if your computers go down and your outsourced IT partner can’t get to you? Do your buyers pay by cheques sent through the post? Can they get to the post office to send their mail? Is mail being delivered to your premises? If not, what impact will this have on your cash flows if cheques can’t be received (and do you need to speak to the bank or not write certain cheques yourself if you can do this)? Can your buyers pay through the internet? Can you pay your suppliers the same way?

How about your buyers? Depending on the business, you may rely on a steady stream of customers during the day (e.g. a café or supermarket). Alternatively, you may rely on despatching your goods by courier, or on customers sending their truck to your warehouse. You’re back to the approaches to your business in this case; if the roads are cleared, you don’t have a problem unless you’re some distance from a road. A consultant based at home may be able to hold meetings by phone with little or no problem.

In the event that you end up “snowbound”, what vital supplies should you have? Have you laid in sufficient stores of stationery and other items (e.g. toilet paper, tea, coffee)?

These are just some the main areas that you’ll need to look. You may know others that are peculiar to your particular circumstances to ensure that you are in a position to cope in some measure with what Mother Nature can throw at you. You might want to apply the same process to flooding as well.

Re-Kindle Your Interest...

2010-12-01T03:26:00.000-08:00

Those who know me know that I'm a gadget fan. I started reading eBooks in the nineties when I purchased an HP95-LX "Palmtop Computer" and heard about "Project Gutenberg".

There are a number of eBook formats, with Microsoft Reader's ".lit" format being one of the first. As companies looked at this market, many developed their own eReader with its own proprietary format, meaning that you couldn't change supplier once you bought one particular device.

Amazon seem to have realised that their "Kindle" will not in itself be enough to attract legions of buyers of the device. However, realising that the object is to sell eBooks from their store, they've announced the development of a free Kindle "App" so that iPhone, Android phone, iPad, Mac and PC users can download "Kindle" format eBooks, magazines or newspapers to their platform of choice. You can therefore switch from an android phone to an iPhone (to take a simple example) and not have to re-purchase your entire eLibrary, according to their TV ads! They've thus extended their potential market.

So far, so good, but with all the pros come the inevitable cons, which mainly seem to revolve around the quality of newspaper and magazine subscriptions that are available on the Kindle. In brief, the Kindle versions may lack quality, functionality or are (in the eyes of the reviewers) over-priced. The comparisons are sometimes fair, sometimes not. To put things into perspective, the same criticisms have been levelled against the iPad versions of newspapers and magazines.

In the case of price, you pay for convenience, for (usually) not having adverts to distract you, and finally you pay VAT as digital magazines are subject to VAT unlike their paper counterparts.

eLiterature still has a way to go. It needs to be easily obtainable (wireless and internet take care of this), seen as value-for-money (the jury seems to be out on this one) and (most important) transferable. When I buy a newspaper, magazine or book, I can lend it to whomever I like. Electronic formats often come "tagged" with a password that means that only the platform onto which they have been loaded can open them from then on.

Amazon may be about to change this.

The Men at The Top - Stephen Hester

2010-11-29T04:10:00.000-08:00

Stephen Hester was born on 14 December 1960 and went to Easingwold Comprehensive in North Yorkshire before moving on to Oxford University. Here he was chairman of the Tory Reform Club and obtained first-class honours in politics and economics.

On leaving university, his first job was as assistant to the chairman of Credit Suisse First Boston (CSFB). Clearly of no mean ability or indeed ambition, he impressed his colleagues enough to become the youngest-ever managing director when aged only 35. Following this, he became Chief Financial Officer, then Head of Fixed Income and co-Head of European Investment Banking. He left when John Mack (aka "the Knife") took over. There are different versions of the reasons behind this, with Hester claiming that Mack didn’t want anyone who might be competition!

From CSFB he moved to Abbey National where he oversaw a major overhaul (“slash and burn” was how he described it in a 2007 interview with The Sunday Times) resulting in disposals and a successful sale before changing direction briefly for the job of Chairman of British Land after a fortuitous meeting with Sir John Ritblat in Venice. Despite his lack of experience, he successfully modernised BL.

In 2008 he was appointed non-executive Deputy Chairman of Northern Rock – a position he had to relinquish some eight months later as he was nominated for the top job in RBS in November 2008.

Apparently, when asked what he would do if he took over RBS (This Is Money October 2008), he listed six actions:

1. Make the business less risky; (because it needed to be);
2. Re-engineer the retail versus wholesale businesses mix, with more bias towards retail;
3. Introduce a higher customer component with less proprietary involvement;
4. Be completely international;
5. Grow the group - after shrinking, then grow but carefully;
6. Ensure the bank kept and attracted good employees (the most challenging?).

As a person, Hester could be characterised as:

Ambitious: apparently fellow students at Oxford remember his drive for a First and his colleagues at CSFB will also have seen this in his rise to almost the top. He has been quoted as saying, "If you are a footballer you want to play in the Champions League final. It's the same in business... you want to test yourself against the biggest and most complicated challenges."

Realistic: "Jobs like this are unbelievably stressful, leaving you open to unpleasant scrutiny, and there is a 50% chance it ends in tears, because that is the way the world works. But, as they say, if you can't stand the heat, get out of the kitchen." (The Guardian January 2009).

Ruthless (Abbey National) is how some would see him at Abbey National as he cut costs and disposed of what he felt were non-core businesses.

Open: unlike Fred Goodwin at RBS, he has made himself as available as is possible “for someone struggling to wrest a bank from the brink of collapse” (The Guardian). He has also been described (again by The Guardian) as “transparent in his management style” and as leaving “people in no doubt what is expected of them”. .

In terms of successes: at British Land, he introduced a more transparent culture, rationalised its structure and moved its offices from Regent’s Park to Marble Arch as well as making several good acquisitions.

At Abbey National he helped rescue this former building society with disposals and rationalisations before selling it to Banco Santander.

At RBS he has stopped a 10-year long expansion drive and has raised more than £1.65billion from exiting or selling over 20 businesses.

On the other side, he can be seen as “unclubbable” and lacking intuition about other people (not unusual in highly intelligent and able people).

Hester is not doing the RBS job because he needs the money – he made this before joining during his 19 years at CSFB. He has properties in Verbier, London and Oxfordshire. Yes, he’s taking a £1.2million salary from RBS (not out of line with his peers) but the real payback will come from the 10.4m shares he was granted on arrival if he can turn RBS around. Some question on this though - they were priced at £0.65 (the price at which the government subscribed for shares in October 2008) and are languishing well below this at the time of writing. Contrast this with the £6+ high enjoyed in 2007!

His real challenge is to create the conditions for the government (read “Taxpayer”) to start selling its 83% stake which he wants to do from 2011. This does look tricky at the moment, and RBS will need some spanking good news to achieve this.

Hester has a long way to go, but seems to be the right man for what must be one of banking’s most poisoned chalices. He’s putting the building blocks for RBS’ recovery in place, but with the current banking headwinds, expect his to be a longer and tougher job than at first expected.

The Men At The Top: Douglas Flint

2010-11-17T03:25:00.000-08:00

Douglas Flint is one of the first top men that I’ve come across without his own Wikipedia profile – not that this makes a difference (in fact, it may even be a strength).

From his HSBC CV, he was born in Scotland in July 1955, carrying on the tradition of HSBC having Scots at its head.

HSBC tells us that he was educated at Glasgow University where he gained a B.Acc (Hons) degree. He also completed the PMD course at Harvard Business School in 1983. He is a member of the Institute of Chartered Accountants of Scotland and the Association of Corporate Treasurers. He is a Fellow of The Chartered Institute of Management Accountants

Flint began his accounting career with what is now known as KPMG where he qualified as an accountant. In 1988, he made partner. His specialities were banking, multinational financial reporting, treasury and securities trading operations, group re-organisations and litigation support. He joined the HSBC Group as Group Finance Director-Designate in September 1995 and was appointed to the Board on 1 December 1995.

In June 2006 he was honoured with a CBE (Commander of the British Empire) by the Queen in recognition of his services to the finance industry.

In a recent article on the succession to the Lloyds Banking Group Chief Executive position, Flint was described as “A good man going nowhere” – David Buik - (how things change!). From other information, though, he is clearly respected by regulators – important as the financial services industry extracts itself from its current mire. He’s been involved with and/or led a number of high-profile committees and panels, e.g.:

• Chaired the Financial Reporting Council’s review of the Turnbull Guidance on Internal Control 2004-2005;
• Co-chaired the Group of Thirty report on Enhancing Public Confidence in Financial Reporting;
• Served on The Accounting Standards Board and the Advisory Council of the International Accounting Standards Board from 2001-2004;
• Served on The Shipley Working Group on Public Disclosure.

The above have brought him a number of high-profile connections Mr Flint, 55, in contrast to Mr Geoghegan's reputation for hot-headedness, is seen as a safe pair of hands for a bank that while one of the financial crisis's great survivors, also faces numerous threats to its business model from regulators around the world.

One of Flint’s tasks was to sort out Household Finance Corporate at the very start of the subprime crisis. This succeeded in enhancing HSBC’s reputation, despite the heavy write-offs that it suffered. According to the London Evening Standard, this resulted in his being “consulted by government as the planning for the bailouts began in earnest” (24 September 2010). Although The Observer commented in September that this hasn’t helped his CV, one has to point out where he’s ended up…

As a recognised expert in the highly technical area of financial regulation, Flint's move to the top is a clue as to the importance to HSBC of having someone with connections in the right regulatory places.

He is said to be a strong believer in teamwork and that is people who make an organisation. No doubt, this networking ability will help overt the next few years.

In terms of remuneration, he receives a rise from £700,000 a year to approximately £1.25million. His shares in HSBC are reportedly worth £6million. Despite this, He’s a far cry from the “flashy banker” of the type vilified by the likes of Vince Cable and the popular press. This may well have served to endear him among “traditionalists” at HSBC and elsewhere. He is seen as a “safe pair of hands”.

Flint was seen as a chairman-in-waiting (he was tipped for Eric Daniels’ job at Lloyds Banking Group) but not at HSBC. He has been there some 15 years and is seen by some as too close to bring the independent view that bank shareholders need. However, he has been accepted by The City. There are those that say that HSBC continues to defy corporate governance best practice by continuing to promote their Chairmen from within, but given the size and complexity of the group, it is just as (if not more) risky to have a rank outsider. Flint is balanced by a large and diverse board, although it looks as though he will not keep John Thornton – a renowned China expert who was passed over for his job.

The years ahead will be challenging as the global financial services industry regroups and rethinks its strategy. Flint, given his experience and connections, is the right person to keep HSBC on the road to growth.

The Men At The Top: Stephen Green

2010-11-04T07:41:00.000-07:00

Stephen Keith Green was born in November 1948. Wikipedia and The Telegraph can’t seem to agree whether on 3rd or 7th, but his official CV on the HSBC website declares that it was the latter.

He grew up in Brighton, attending church with his father, a partner in a local solicitors' firm, and mother. After school at nearby Lancing (where apparently he was “good at music” but “bad at sport”) he went to Exeter College Oxford where he started reading modern languages but switched to PPE (Philosophy, Politics and Economics). He still speaks French and German.

He is a practising and “performing” Christian, having become a deacon in Hong Kong in 1988 after studying by correspondence. An ordained Anglican priest, he preaches regularly and has written a book – Serving God? Serving Mammon? Christians and The Financial Market. It was apparently at Oxford that his religion strengthened, though he credits no single incident or person.

After university he took a gap year, working at an alcoholics' hostel in Spitalfields in London's East End. It was there he met his wife Joy, a nurse who was also a volunteer. They married in 1971 and have two daughters.

Green didn’t go straight into banking. He started his career with the Ministry of Overseas Development, which also gave him the opportunity to do two years' study in America. He took a masters in political science and business at Massachusetts Institute of Technology to add to his Oxford credentials.

In 1977 he joined McKinsey & Co and carried out projects in Europe, North America and the Middle East. This and his US exposure must have helped when he joined what was then The Hongkong and Shanghai Banking Corporation Limited in 1982 with responsibility for corporate planning activities. In 1985, he was put in charge of the development of the bank’s global treasury operations. In 1992 he became Group Treasurer of HSBC Holdings plc, with responsibility for the HSBC Group’s treasury and capital markets businesses globally.

After this in 1998 he was appointed to the Board of HSBC Holdings plc as Executive Director, Investment Banking and Markets responsible for the investment banking, private banking and asset management activities of the Group, and took on the added responsibility for the Group’s corporate banking business in May 2002. He became Group Chief Executive on 1 June 2003 and Group Chairman on 26 May 2006.

Green is clearly a different sort to what you might expect from a banker. Indeed, The Telegraph described him as “the unlikely banker” in a profile in 2007 and said of him “He is so faceless that when he was promoted The Guardian had to carry one of its famous apologies for using a photo of the wrong person.” In the same profile, they said “He is cerebral and academic - so thoroughly civilised you would expect to encounter him in an Oxbridge common room rather than the top of an international bank.” What is the underlying message about bankers here?

He had a reputation for watching costs. One thing for which he is remembered was cutting bonuses in 2001 when he was head of investment banking which saw more than 40 staff walk out after receiving no bonus (something which would have endeared him to Vince Cable).

Green was no stranger to controversy during his early days CEO. HSBC’s acquisition of America’s Household International was dogged by controversy concerning payouts to executives and a $484million settlement due to accusations of predatory lending by U.S. regulators. In the UK he became the object of opprobrium after deciding to shift around 4,000 call-centre and back-office from the UK Asia. At the time, this was the largest job migration of any British financial-services company.

Thankfully, he has shoulders broad enough to absorb criticism from inside and from without. He may have been seen as an “unlikely banker”, but he will clearly stand firm on what’s important to him. Following on from Sir John Bond would not have been easy. The latter was seen as more of an international statesman – how was the cerebral Green to succeed him? Succeed he did, however, and cum laude.

Green has a code of dealing fairly with customers, employees and community. He feels that one needs as an employee (whatever your religion, creed or colour) to espouse the importance of morality and integrity in business life. "I happen to believe it is the only basis of sustainable success over the long term," he said (Guardian , October 18, 2003). Would that some of his peers in the financial services world had taken the same view, instead of pursuing short-term gain.

In terms of his successes, he saw the significance of emerging markets in Asia, Mexico, and elsewhere to HSBC's continued success (especially in terms of their potential consumer business). Despite this, he didn’t ignore Europe, overseeing the launching of a credit-card business in Poland – a growing economy that had joined the European Union.

He also sought new opportunities outside Europe. One was supporting HSBC's development of a Islamic financial services business in Asia, with a comprehensive range of products and services at Amanah Finance - HSBC's Islamic division. Apart from Asia, he felt and stated that this service needed to be aggressively marketed throughout HSBC's global banking network. In the end, he pushed the group to develop products that gave HSBC a significant stake in the Islamic finance industry. The results were that in 2003 HSBC was the first international bank in the UAE to provide Islamic personal-finance products when it launched Amanah Personal Finance. In the same month, it was the first "high street" (finance district) bank in the United Kingdom to launch Islamic personal finance services under its Amanah brand. He also launched a British-based Islamic finance program and expanded the program to over 70 branches in the United Kingdom.

His expansion in Asia focused heavily on China. Unlike others who looked for short-term gain, Green felt that HSBC had to take a long-term perspective in China and told Brian Kelleher in a Reuters news-service report "China is going to become more and more important on a global scale. I think you will see us constantly growing our business there" (August 11, 2004).

Green also oversaw a successful £12.5billion rights issue in 2009 to shore up the bank’s capital base following a hectic year and the write-downs that it and previous years had bought – particularly from the US. He also successfully defused a highly-publicised challenge from Eric Knight of Knight Vinke - a vocal opponent of the US venture.

In terms of bankers’ compensation, Green is unequivocal. He has been quoted as saying:

"Compensation practices ran out of control and perverse incentives led to dangerous outcomes. There is genuine and widespread anger that the contributors to the crisis were in some cases amongst the biggest beneficiaries of the system," The Independent

“The industry has done many things wrong. It is important to remember that many ordinary bankers have always sought to provide good service to their customers, but we must also recognise that there have been too many who have profoundly damaged the industry’s reputation.” The Sunday Times

Too many people had “abandoned asking whether something was the right thing to do and focused only on whether it was legal and complied with the rules.” The Sunday Times

The money will not be as important to him, judging from his character, although no doubt his HSBC pension and shareholdings should keep the wolves at bay.

Green will leave HSBC by the end of 2010 to become an unsalaried “Trade Minister” for David Cameron (although it is believed that he will receive a peerage). However, it may be that the Prime Minister has engaged Green for his banking experience. Vince Cable, the Business Secretary, who was initially in favour of splitting investment and retail bank activity, has apparently already had discussions with him as to how banks can change their structure without this forcing them to relocate overseas. No easy task, given that if he gets it wrong, we may yet see HSBC, Standard Chartered, Barclays and a large portion chunk of the UK financial services business defect to parts abroad where regulation is lighter, taxes lower and politicians altogether more accommodating.

In conclusion, Green has had his share of the “slings and arrows of outrageous fortune” but deserves credit for steering the behemoth that is HSBC through some remarkably challenging times and not taking government support. He deserves all success in his next role.

The Men At The Top: Bob Diamond

2010-11-02T05:36:00.000-07:00

Robert Edward Diamond Junior (to give his full name) was born in 1951 in Concord Massachusetts, so is slightly older than John Varley whom he will replace as Group Chief Executive of Barclays in March 2011. He was one of nine children with both parents being teachers. Perhaps he developed a competitive streak as he had eight siblings to compete with! On the sporting side, he is reputed to be “obsessed” with baseball, football and golf as well as playing tennis and skiing. He credits his love of sports with helping him to run his businesses.

He has three children and has been married to his wife Jennifer (whom he met in 1983) for 24 years. She is (apparently) a “scion” of the Barclays family. He is a strong family man.

Diamond was educated at Colby College – a well-regarded liberal arts institution in Waterville, Maine USA. Here he specialised in economics and earned his BA in 1974 before taking his MBA at the University of Connecticut (graduating first in his class in 1977). UConn again is highly regarded. His Barclays official biography also advises that he was awarded Doctor of Humane Letters from the University of Connecticut in 2006 and Doctor of Laws from Colby College in 2008. In all, an impressive academic background!

He began his career as a lecturer at the School of Business at his Alma Mater from 1976-1977, after which he joined Morgan Stanley where he stayed for 13 years and finished as Managing Director and Head of Fixed Income Trading.

He then joined CS First Boston in 1992 and went to Tokyo where he was Chairman, President and Chief Executive Officer of CS First Boston Pacific, responsible for Investment Banking, Equity, Fixed Income and Foreign Exchange for the Pacific region. After this, he became Vice Chairman and Head of Global Fixed Income and Foreign Exchange. He then went to New York where he was a member of the Executive Board and Operating Committee.

This would have set him up well for when he joined Barclays in 1996 where he moved up the ladder to become President of Barclays PLC and Chief Executive of Corporate & Investment Banking and Wealth Management. In 1997 he became a member of the Barclays Group Executive Committee since 1997 and is an Executive Director of the Boards of Barclays PLC and Barclays Bank PLC. Diamond is also a Board Member of BlackRock following the integration of Barclays Global Investors. He led the (controversial, some would say) initiative to purchase key assets of Lehman Brothers after its collapse in 2008, resulting in Barclays gaining a strong foothold in investment banking.

Diamond was voted the 37th in New Statesman’s annual survey of the world's 50 most influential figures Who Matter 2010.
Seen as the opposite of his predecessor, his appointment was described by Lord Oakeshott, the Liberal Democrat Treasury spokesman and a man known to be close to Vince Cable as “a great gambler but he has no experience of retail banking.” Up close, he is said to be measured and thoughtful, choosing his words carefully and showing an awareness that does not fit the brash image that some find more convenient to associate with him. John Varley has also, it appears, made sure that Diamond has been exposed to areas outside (as he puts it) his “comfort zone” in preparation for his takeover.

Diamond’s background shouts “Investment Banker” - involved in the kind of deals that Business Secretary Vince Cable dubbed “casino banking”. His success, remuneration and personal wealth have spawned critics and his elevation to succeed John Varley has caused concern and indignation. A tough customer who focuses on his goals, Peter Mandelson has described him as “The unacceptable face of banking” despite his contribution to Barclays’ success. Others describe him as “charming”, “inspiring”, “charismatic”, “a motivator” and “strong”, a “formidable builder of businesses”.

On the other side, he is also said to be “ruthless”, “aggressive”, “thin-skinned, even prickly, and is inclined to shoot from the hip” (these are all from recent press articles). He has been compared to the fictitious Wall Street character Gordon Gekko. He is said to have a number of high-profile acquaintances who can help “get things done”. He’s American, with the ebullience and aggressiveness that the Brits perceive “goes with the territory”.

John Varley said of him, “I think he’s been the progenitor of [Barclays Capital’s record performance]. When he joined Barclays, which was about ten years ago, I think that what we had then was an underperforming, subscale investment banking capability. And what we have today is an outperforming world leader. That’s quite a transformation in ten years. And Bob has personally led that.”

He is already thought to be worth around £95million but the new role will see this increase further. Mr Diamond has long been regarded as one of the top deal-makers at Barclays. He waived his bonus last year after widespread criticism of bankers. But he did receive £26million for his shares in Barclays Global Investors, the bank's fund management business, when it was sold to BlackRock. He has also been given a shares-based bonus deal over three years that could be worth £20million at completion.

Diamond faces a number of challenges as he takes over. He apparently feels that parts of the Barclays business aren’t up to standards that he would like to see. There will, it seems, be a focus on the commercial and retail divisions and their profit profile to increase their proportion of profit contribution versus BarCap (which provides the lion’s share).

On discussions about potential splits of investment and retail banking being discussed by regulators, Diamond plays his cards close to his chest, stating only that Barclays is cooperating with the government’s commission and that whatever decision it takes will be right for the UK and that Barclays will support it. All good, diplomatic stuff. One of the members of the committee, Martin Taylor, recruited Diamond to Barclays when he was CEO.

On Basle III, he wants to see a level playing field to protect against regulatory arbitrage – a valid point, considering that that the US has yet to fully implement Basel II…

The way ahead will have its challenges, but if ever there was a right man to face them, it’s Diamond. Expect to see (and hear) more of this remarkable man.

The Men At The Top: John Varley

2010-10-27T05:38:00.000-07:00

The reason for this is that I was asked to write on the “men at the top” of the UK’s banks, given the changes that have been announced at Barclays, HSBC and Lloyds Banking Group.

My first task was to decide whom to write about – and which would be the UK’s “top” banks. A re-hash of CVs would be interesting, but what else could I add? The answer for me was to look at them as a whole to see where the commonalities and differences might lie.

In the end, I chose four banks: Barclays, HSBC, Lloyds Banking Group and RBS. These dominate the UK financial landscape for a number of reasons. What’s more, by the end of 2011, all will have changed their men at the top from those who saw the beginnings of the crisis. Yes, there are others (e.g. the newly-started Metro Bank and Virgin Bank), but none cast quite the shadow that the “gang of four” (to coin a phrase) do. These will be the subject of review later. I have also chosen not to include Santander as this group is officially headquartered in Spain, despite its vast interests in the UK.

Over the next weeks I’ll be looking at each of the men at the top (and, in some cases, their replacements). I’ll only be using information that’s in the public domain, so there’ll be no “secret interviews”. We start with John Varley at Barclays.

John Varley was born in 1956; his father was a solicitor. He was educated at Downside School, Oriel College, Oxford (where he took first-class honours) and then London’s College of Law. He started professional life as a solicitor in 1979, so there seems to have been a different plan for his career at the start. Things changed when in 1981, he married Carolyn Thorn Pease, daughter of Sir Richard Thorn Pease. This family established the Stockton and Darlington Railway and their bank became part of Barclays in 1902.

The next year, John Varley joined Barclays in the Corporate Finance Department of the then Barclays Merchant Bank. Senior appointments followed with the successor bank, BZW (now Barclays Capital), included Deputy Chief Executive of BZW's Equity Division and head of BZW's offices in South East Asia. In 1995 he became Chairman of the Asset Management Division and from April 1998 to October 2000 was Chief Executive, Retail Financial Services. He joined the main Barclays board on 5 June 1998 1998 and was Group Finance Director from 2000 until the end of 2003.

On 1 January 2004, he became Group Deputy Chief Executive of Barclays and was made Group Chief Executive in September 2004. Since then, he has tried to buy ABN AMRO (and must be thanking his lucky stars that the RBS consortium pipped him at the post), has seen the UK reel from the worst financial crisis it has ever known and presided over well-publicised sales of shares to Asian and Middle East buyers (one of whom lost a reported £800million on its investment). He also closed the Barclays final salary pension scheme in 2009 to save about £150millon a year and to remove the potential for an actuarial deficit of £2.2billion growing into an even larger one. Barclays has not required government assistance, along with HSBC and retains its independence.

Varley is clearly an extremely bright, able and tough individual who has made it to the top of one of the UK’s most respected financial institutions. His educational background suggests “traditional” as do his stated hobbies of walking and fishing. However, this impression is belied by his willingness to pursue adopt out-of-the-box (if not controversial) courses of action should the need arise.

His compensation for 2009 was reported to be approximately £1million. Justified, considering the shape in which he leaves Barclays, and in line with his peers.

Varley is to be succeeded in March 2011 by Bob Diamond - currently President of Barclays PLC and Chief Executive of Corporate & Investment Banking and Wealth Management – who will be the subject of another article. Varley appreciates Diamond’s contribution to Barclays’ success and is quick to point this out when needed.

BUSINESS CONTINUITY - WORKING FROM HOME ON THE INTERNET

2010-10-18T06:37:00.000-07:00

A recent experience for myself and a friend who runs his business from home made me realise how much we take the internet for granted. We both lost internet connection; me for one week, him for a good month whilst the cable to his home was renewed.

It got me thinking about how I use the internet. Here are some examples:

Email
Sending documents
Research
Banking
Booking hotels, flights, transport, cinema tickets, theatre tickets
Organising meetings
Website maintenance
Blogging
Receiving orders*
Invoicing*
Placing orders*
Networking
Keeping up with legislation
VOIP (Skype)
Tax returns
Road tax renewal

*could be covered by email/website

This is just a small sample. The key is, how long could your business survive without the internet? Large companies have IT experts who make sure that this is unlikely to happen, but small businesses who may not be able to afford a full time IT specialist have a potential problem.

How do you receive your internet service? Direct by cable to a PC, cable to wireless router (like me), or do you use a USB “dongle” for mobile services wherever you go? Three offer a wireless modem that connects to the Three network and allows one to run up to five wireless devices. Many of us now have mobile phones which allow us to browse the internet and send/receive emails. If we’re lucky, we can even read attachments in Microsoft Word or EXCEL, but I wouldn’t recommend this on a small screen.

What are your alternatives/fallbacks? As I mentioned above, you may have a mobile phone which allows you internet access or you may have a”dongle” supplied by one of the mobile phone providers. Coffee shops often provide free wireless access to their customers, as do some libraries. You could also use an internet café nearby, but this may not let you access any security-protected databases. Still, it’s worth having “up your sleeve”.

How about a friend/fellow business owner who has wireless internet at his/her place of work? It would need to be their own office where they can allow you access to the premises.

Otherwise, try local WiFi “hotspots” – best to search online where these are. Try using sites like http://www.myhotspots.co.uk/ and keep a list of where the nearest hotspots to you are. Check also whether they are free or if you have to pay, and who the provider is. For those who have BT as their ISP, you get access to BT Openzone free depending on your contract. It helps if you check hotspots out before you need them in an emergency. Some of the spots may not be as “hot” as you would like. As they’re often in pubs, coffee shops and other places where food/drinks are sold, you may need to pay for refreshments whilst you operate and you will need to think about confidentiality as you’ll be using an unsecured network. Another thing to think about is how easy they are to get to, how much parking will cost and how long you can “reasonably” stay there.

The other problem I’ve encountered with other WiFi networks is that, whilst I can receive emails, I can’t always send them. Best to check this as well about your “fallback” areas.

Some questions to ask yourself which might help you in deciding how to handle a failure of your ISP/service are:

1. What do I use the internet for? (list each task as you work over the next week)

2. How vital is the internet to each task? (rate Low/Medium/High)

3. How long can I do without internet for each task? (some of them may only require occasional use. The “regular” tasks need internet restored more quickly).

4. Where’s the nearest alternative source? (e.g. do you have a kind next door neighbour?)

5. What alternative sources are there?

6. How do I get there?

7. How long will it take?

8. How long can I stay there?

9. How much will it cost?

10. How much can I do on my mobile phone (this is where it pays to have a good-size screen)?

11. What’s my supplier’s troubleshooting process? (is there a dedicated helpline if the internet is down)?

12. Does my supplier provide a guaranteed timeframe for troubleshooting?

13. Do I have details of my internet account (number, password, etc) in case I need to call the ISP?

14. If problems are due to equipment failure, how soon will they call and replace it?

If you run your business from an urban area, chances are you’ll get served more quickly. If you’re in a more “remote” area as I am, things may take longer. In the meantime, what can you do to maintain a service to your customers?

Failure of internet service is very rare, but it does happen, and it’s better to be prepared than to be caught “on the hop” with the attendant reputational damage that you could suffer.

Another thought: if you use other companies’ websites to order supplies/services, what are their plans to maintain a robust service?

SETTING UP A FINANCIAL SERVICES REGULATOR

2010-09-20T10:22:00.000-07:00

Regulation is the "hot topic" now thanks to the global financial crisis which broke in 2007.

Most countries have always had a regulator in some form or another. Often, this role has been performed by the Central Bank. However, as the global financial system develops and expands, many countries have started to examine whether they need to strengthen their regulatory capacity and what the most effective way of doing this is. For those setting up a regulator, the following need to be considered:

Objectives:
What will be the overall objectives of the regulator? Each country will have its own needs, which may or may not be common to those of its neighbours. The UK Financial Services Authority, which regulates the UK financial, markets has five:

• market confidence
• financial stability
• public awareness
• consumer protection
• reduction of financial crime

These cover a wide range of activities and thus the regulator will need to have diverse experts, skill sets and systems. What is essential is to work out what the country itself needs rather than trying to fit on someone else’s model. Since thew crisis, the UK FSA is being re-structured, so the conclusion is that this area will continue to be a "moveable feast" as time marches on.

Formation of the Regulator:
The regulator needs to be authorised and set up by law. Depending on the country, this will be by ministerial decree, parliamentary legislation, or other methods. The point is it has to exist in law and be a legally recognised institution to carry out its work. The law has to be drafted to allow it to do the job set out above.

Scope:
By this, we mean what sort of organisations the regulator will be expected to regulate and the powers it will have. Whilst this is easy to answer at one point in time, there’s no telling what the future might bring, as I hinted above. New financial products, services or technology will bring about the creation of new types of provider which may not exist now. Will the law allow them to fall under the scope of the regulator? If not, will they be exempt from its control? Hedge Funds are a prime example. Despite the fact that they’ve existed for some time nobody really thought to regulate them, resulting in perceived excesses and overstated contributions to the financial crisis.

Powers:
When promulgating the law setting up the regulator, its powers must be made clear (and these need to be enshrined in the law that sets up the regulator in the first place). Is it expected to set policy? Is it expected to supervise, inspect and report? Is it expected to approve appointments and if so at what level? Is it expected to take legal action in cases of fraud and/or criminal activity and impose penalties(and if so, under what legislation)? Existing laws may need to be reviewed for relevance and amended if required. What enforcement powers will it have? These need to be clearly stated. In the UK, various laws (e.g. the Financial Services and Markets Act 2000 and the Proceeds of Crime Act 2002) set out the law by which providers of financial services are expected to abide and under which they may be prosecuted for various offences.

Cooperation:
One of the lessons learnt in the UK as the crisis unfolded was that the UK regulator (the FSA), the Treasury and the Bank of England were not really coordinated and as a result no one took the lead in resolving the crisis for some time. It needs to absolutely clear who should do what and in what circumstances. These parties all need to work together and avoid overlap (which will make drafting the law even more critical as you can’t have two departments doing the same thing).

The regulator will also need to work with other world regulators and agencies, professional bodies and governments in order to maintain full awareness of worldwide developments in the financial services markets and their impact on the local scene.

Structure:
Will the regulator be independent of the Central Bank? Who will it report to? Who appoints its officers? How will it be structured? This will depend partly on the powers given at law (it will need departments to carry out those functions, e.g. audit, investigations). Are the staff available, and if not, how can they be found?

Systems and Processes:
Having a regulator is well and good, but assuming that monitoring is one of its functions, it needs systems and processes not only to gather information, but to analyse it and report problems quickly.

Budget:
The regulator has to be paid for to do its job. Most regulators levy fees on those whom they regulate and can also impose fines for breaches of regulations and code of conduct. The budget will largely depend on what the regulator is expected to do and the sophistication of the market which it oversees. This is why I’ve left this item til last!

In all, a number of issues to consider and manage on a continuing basis. This will be an industry that will always be playing "catch-up".

2010-09-13T01:34:00.000-07:00

We're now back from summer holidays, the children should have gone back to school (or be getting ready to start back at university), so where does that leave you?

September is a critical month for businesses. We're all gearing up for the pre-christmas push after a long summer of school holidays and absent colleagues. "Budget period" will soon be upon us (if it isn't already), so this is when you need to knuckle down to set things up for the next year.

So what do you need to do?

First: go over the current year's plan. What did you (and/or your team) want to achieve by the end of this year and how far along are you? What still needs to be done (as you've only got three months left to do it)?

Second: get back in touch with your internal and external network and/or customers. What have they seen/done/experienced over the summer? How can you support them? What might you need to put in place? Have events over the summer affected other people's ability to deliver to you?

Third: make your plan - week by week and month by month. Remember that, from mid-December, people will be off on Christmas holidays until mid-January, so time is short. By putting together a plan, you give yourself focus and direction for the rest of the year and the start of the next. So often, next year's sales are set up in these final few months of the year!

Seek And Ye Shall Find..

2010-09-08T03:42:00.000-07:00

I've received a number of calls over the last week from various organisations trying to sell me products or services. One thing they all had in common was that they were too focussed on telling and not enough on selling.

Too many sales people are so full of information on how brilliant their product/service is, that they forget to ask what their customer needs. Instead of a productive two-way conversation, you get a monologue which has resulted in me simply hanging up on several occasions. Not only has the salesman lost a sale, he or she has also lost my goodwill towards their company. What will it take to get that back?

So what do you need to do? The answer is simple - ask questions. Draw information out of the customer about what it is they need and then describe your product in those terms.

Two interesting cases:

My mother wanted to get a mobile phone, so I took her to the outlet of one of the UK's largest mobile operators. The young assistant greeted us and then immediately moved over to the latest gadgeted wonder that they had. He didn't take the time to ask what my mother needed (basically a mobile with large keys and screen so she could see what she was doing). What she didn't need was a mobile which could browse the internet, tell her where she was through GPS or allow her to watch video clips. When the assistant finally finished some minutes later, I had to bring him back to earth and take him through the process of finding out what she actually needed (and was prepared to pay for). We got the phone, but that assistant had wasted his time (and ours) and could have lost a sale or ended up with an unhappy customer who had been sold a mobile that wasn't suitable.

The second story happened a few days ago. A van turned up at our house at 6.15pm and the owner wanted to introduce his quality frozen food business. Before he could launch into his pitch, I said we were due to go out at 6.30pm, so could he hurry? He obligingly did, but started by showing frozen fish. After several minutes, my wife informed him that I wasn't a fish eater. He had just wasted his limited time trying to sell something that we wouldn't buy. He'd have done better to ask first what we ate and then moved to the product that would interest us most.

This all seems so simple to avoid, but how often do we fall into the trap of telling and not selling? What counts isn't the product, but the customer and what they want.

"Dear Valued Customer"

2010-07-28T18:20:00.000-07:00

I recently saw a letter from a large financial services organisation to one of their High Net Worth personal and corporate clients which started with "Dear Valued Customer".

With three words, this organisation managed to show the customer concerned that he wasn't really "valued" at all but simply part of an amorphous group of faceless individuals.

The letter was correctly addressed to the customer by name at the top, so why couldn't they use it after "Dear"? They have enough cash and technology to do a "mail merge" which would result in a letter that at least started with "Dear Mr Smith".

The letter asked for updated information and was accompanied by a two-page questionnaire asking a number of questions to which the organisation already had the answers. For a client of their upper class banking service (I can't use the brand name as this would give away the organisation's identity), this could be more easily addressed with a simple phone call or even a face to face visit. It would certainly make the client feel "valued".

Perhaps the letter had been "approved" by someone in "Head Office" as "suitable", but did it really achieve its purpose (i.e. to gather up to date information on a "valued" client and make them feel "valued")?

One wonders what was going to happen to the questionnaire once returned. Was the information going to be keyed into the "system" and forgotten until the next update, or perhaps used to gather information for a follow-up promotional mailshot? It might well be used for further genuine development of the relationship with the "valued" client.

Whatever happens, one hopes that the organisation gets the information it needs and that it uses it to good effect!

Brand Damage

2010-07-07T00:13:00.000-07:00

I've been hearing a lot of complaints from friends and others about companies not calling them back when they said they would or after a message was left on that company's answering service requesting a callback. What does this do?

The main damage is to the company's (or individual's) brand. Your company's or your own personal brand is something over which you exercise enormous control both by commission and omission. Most, unfortunately, choose the latter without realising the enormous damage it can do. "They'll understand" or "They shouldn't get so wound up if I miss" seems to be the attitude. People are so busy chasing new business, attending meetings or getting bogged down in administration that they forget to maintain existing revenue streams and wonder why they have to work so hard getting new business because they're loosing the existing client base!

It's all about expectations. If you say you'll do something, people expect you to do it. They don't expect to have to chase you up and get irritated when they have to do so. I now get (pleasantly) surprised if someone calls me back without me having to chase. Why?

What do people assume if you don't keep your promises? Basically, that you're unprofessional or unreliable. Is this the sort of person/company with whom or which you would deal? Of course not.

Crisis Management 101

2010-06-29T04:00:00.001-07:00

We all have to face crises in our careers as managers and entrepreneurs, and it's often said that your ability to handle a crisis is what defines you as opposed to how you manage "business as usual".

I'm sure that anyone reading this can come up with examples of "good" and "bad" responses to crises to show what I mean. Such examples will often form the basis of business school studies, but from my limited experience, you need to cover off a number of areas when handling a crisis.

Firstly, what's the situation now? What needs to be done to stop it getting worse? What equipment/manpower, money, official/government support, etc is needed? How long to get it?

Secondly, who are the "stakeholders" involved: buyers, suppliers, staff + families, management, shareholders, community, government? What's the impact on them, and what action is needed? Do you need to calm nerves, soothe feelings, explain what's going on? What's the best way of doing so? Look at BP and how they've handled things - stakeholder management could have been better.

Legal: any possible litigation problems (against you?). Do you need to start litigation against someone else? Do you need to talk to a legal adviser?

PR - who needs to be briefed? How will you do it?

HR: what staff issues will you have? Do you need extra time worked to clear things? Will you have a potential court action on your hands or a strike? Will you need to make special arrangements for staff/families? Will you need extra people to help out? Can you get them? If the crisis was caused by a member (or members of staff) being negligent, what discip[linary action is required? How do you keep up staff morale during the crisis?

Systems: What is the impact on your systems? Do they still work? Do you need new computers/servers? Can y ou get them? How long to set up/restore data? Is your data intact and not compromised?

Processes: did staff follow laid-down procedures, or was the problem due to faulty or out of date processes? What needs to change?

Lessons learned: what can you learn from this for the future?

What Can We Learn From Deepwater Horizon?

2010-06-22T01:34:00.001-07:00

The Deepwater Horizon disaster has sparked considerable comment - from the environmental and economic havoc resulting to President Obama's efforts to show he's in charge, to BP's risk management to CEO Tony Hayward's public comments and behaviour.

There are several dimensions to this event: environmental, economic, political, commercial and perceptive. The environmental part will take massive efforts to resolve and recover from. Similarly, the economic hardship caused to those who make their living from the sea and shoreline (in a time of global economic crisis) will reverberate for years to come (assuming that the economy can be restored to even a shadow of its former self).

Politically, President Obama has to show leadership despite having allowed this kind of drilling to take place. The grilling of BP CEO Tony Hayward by the US Congress shown on TV to millions has really been political grandstanding in the run-up to congressional elections this year.

Commercially, the US consumes almost 20% of the world's oil output, whilst having only 2% of global oil reserves. With such an imbalance, the oil to feed US demand has to come from somewhere, and BP responded to this. Would the fuss in the US have been as great if the pollution had hit the coast of another country far away? One can only speculate.

On the perception side, this is where real damage limitation could have been done had BP taken advice on managing the situation. Whatever the truths of the matter, BP have adopted a crisis management strategy of a CEO as the front man and the Chairman and the most senior US employee out of sight. Soundbites have consisted of gaffes (perhaps unfairly in one case, given that the Chairman's native language is not English). Information has been sketchy and perception is that senior management are distant and too keen to await the results of the enquiry into the disaster. Facts reported look more selective than part of a coherent chain.

BP's CEO is now spending all his time managing one disaster. This should be managed by the most senior BP US employee who understands the culture and priorities in the US and has the contacts. Tony Hayward should be keeping a close eye on things and flying to the US once a week for updates and meetings, but he still has the rest of the world to manage. We have little idea of how BP is managing the rest of its global operations, and this is getting the market antsy. The one calming factor has been their setting aside a USD20billion compensation fund.

In the end, this episode will result in stricter regulation of the global oil extraction industry, a review of our dependence on hydrocarbons and a change in BP. These will take place relatively quickly. Longer to repair will be the environmental and economic damage to the US and BP's reputation.

Walking For Jack's Place

2010-06-16T02:34:00.001-07:00

A couple of weeks ago, my nine-year old daughter and I completed 12 miles of the Clarendon Walk from Broughton in Hampshire to Salisbury Cathedral in Wiltshire in aid of Jack's Place at Naomi House. This was our first big fundraiser together and I'm glad to say that we managed the whole course!

What impressed me most was my daughter's willingness to put in the effort for this. She needed to have the right equipment (a good pair of boots and socks, as well as a daddy with a rucksack full of extra rations, drinks, first-aid kit, spare socks), training and - most importantly - attitude. By the time we started, she had the equipment and the training and knew that she could do it. Half the battle was won!

As in many cases, the journey is part of reaching your goal. A group of friends and parents were also on the walk, and we all encouraged and supported each other along the way. The weather was fantastic with scattered clouds, a good breeze, and firm, dry going on the way. Preparation paid off as blisters came up, drinks were needed, and other minor distractions arose where "Daddy" was needed. We kept going, guided by others on the route and by a wonderful group of marshalls who encouraged us as we passed with updates of how far we had to go. We all had each other for company, so could share conversation and not notice the miles as they passed.

The time I really knew that we were going to do it was when, cresting a rise, we saw the spire of Salisbury Cathedral about two miles away. It was all "downhill" from there. As we finally crossed the line, we were applauded and told where to go to get our medals. For my daughter, she had certainly achieved a physical goal over which she had doubts at the beginning (as did I over my own physical abilities!).

Lessons? Preparation, attitude, and a willingness to support others help you not only reach your goal, but actually enjoy getting there. We sometimes forget to enjoy the journey, so focused are we on getting to its end. It's the journey that teaches us more about ourselves and others, the end is the icing on the cake.

What Happens When A Bank Fails?

2010-06-16T02:11:00.000-07:00

This is the final article in my series on the current global financial crisis. The root cause of much of the panic stemmed from a number of financial institutions which were let down by poor decision-making by senior management who were subject to a number of external pressures and expectations in the modern financial markets. Added to this was that markets had become much more inter-connected and more “stakeholders” are now impacted than anyone previously realised.

I’m not trying to exonerate the management teams, but I am pointing out that we all contributed to the current global crisis and that we all need to learn from it. We need to be prepared for when banks fail again (as they will). We need to learn from the mistakes of the past.

We've heard enough theory on “living wills”; breaking up banks deemed “too big to fail” (no real definition of this yet); increased regulation; separating investment from retail banking activities. My personal favourite is taxing the banks (including those who managed to survive and spare their customers and governments the effort of bailing them out). Here the politicians are now going to tax the very institutions that are expected to add grease to the wheels of the global economy to help it recover. Sensible? You decide…

Another way to look at what to do is to consider the “stakeholders” in banks: customers, creditors, debtors, staff, shareholders, pension funds, insurance companies, asset managers, the local community, auditors, ratings agencies, regulators, governments, the local and international economy, international trade, recruitment agencies. The impact of a failure of a large bank can be massive now.

To start with, regulators need to have more “teeth” and that means having qualified inspectors who have been in the market and understand it, the risks taken and their structure.

Secondly, we need to stop expecting exponential revenue growth every year – this was what caused a lot of the pressure to perform “whatever the cost” and turned cautious men into cowboys.

Third, we need to lower our expectations of what the banks are for. They aren’t charities and should not be viewed as “loan on demand” providers.

The above would go a long way to removing the systemic problems that caused the crisis in the first place. Banks will fail in the future for reasons yet unknown. The first thing to do is define what "failure" is. Next, identify which stakeholders are impacted. Next, minimise fallout with prompt action: get regulator, auditor and government on side (and inside); ring-fence the business that has caused the problem; call creditors into an emergency session; develop a media response to prevent panic amongst markets and customers. This may seem like overkill, but if done quickly enough, will save taxpayers a bundle!

Are Our Markets Really "Efficient"?

2010-06-04T00:37:00.000-07:00

The price of an asset (say a share in a company) is meant to reflect a number of things: past performance (earnings), future earnings potential, financial strength of the company, quality of management and the idiosyncrasies of the industry/market within which that company operates.

So, according to the above, my answer to this question is a big “NO”. Prices are governed these days by a few speculators betting billions one way or the other. Not surprising when you consider that of the trillions of dollars traded on the foreign exchange market, 95% or more is speculation. Why should other markets be any different?

So who are the people who manipulate our markets (if “manipulate” is the right word)? Simply put, they’re what we call the “institutional investors”: life insurance companies, pension funds, asset managers, hedge funds, sovereign wealth funds. These organisations have huge amounts of money to dispose of and need somewhere to put it. They’re also judged on their performance, so they’re dead scared of loosing money.

As a result, if anything looks risky, they bail out (assuming they’re “in”). This can create a self-fulfilling prophecy as others see the price of an investment fall and, lemming-like, “follow the herd”. A prime example is Europe at the moment. The Euro is under pressure, and as a result, anything European is being treated cautiously (if not cavalierly). Another is BP – a company capable of earning more than enough to cover the costs of cleaning up the shoreline of America, yet whose shares have plummeted (mind you, the “political fallout” will have a bigger impact than the environmental). Never mind sound underlying fundamentals, Europe is bad, let's sell!

Just to add to the fun, some investors deliberately target the shares or bonds of those who look like they may be in trouble and deliberately “short” (i.e. sell those shares/bonds) in the hope of buying them back later (hedge funds are allowed to do this). Although there are market manipulation rules supposed to prevent this, deliberate intent is difficult to prove.

I spoke to a fund manager at the beginning of 2009 who was watching the value of their portfolio drop despite the fact that the underlying fundamentals of the company shares that made it up were strong. This was the result of panic and our question was; what if governments worldwide ordered a cessation for two weeks of all exchange activity? Of course, such action would be unthinkable and would bring unimaginable chaos as those needing to raise cash from asset sales could not do so, but the point was, if people had time to sit back and think, what would be the result?

Perfectly sound companies are seeing billions wiped off their market capitalisation for no good reason other than the panic of a few individuals out to make a buck for a small group of investors. We have all being willing to castigate the bankers for the current crisis, but what about the fund managers? When will people look at what they do?

How Should We Pay For Financial Services?

2010-05-25T04:00:00.000-07:00

This is the fourth question that I attempt to answer in my series on the global financial services market.

There is a psychological resistance to paying for banking services. Unlike consumer goods, or other professional bills such as lawyers, doctors, dentists and accountants, banking services don't provide any tangible benefit. Indeed, it seems to be adding insult to injury to have to pay someone to keep your hard-earned cash safe. What people don’t realise is that there's a cost to the global financial system, which I see as coming in three forms:

1. The cost of providing professional banking products and services;
2. The cost of regulation;
3. The cost of safety of deposits.

The cost that noone has really mentioned (but that we have all seen) is the cost of the irresponsible pursuit of revenues without taking all stakeholders into account.

As the world becomes more sophisticated and demanding, bank customers are becoming the same. Banks need to pay for systems, people and products to meet these demands, and that has to come from somewhere. Up until the late 70s, these costs were met mainly through the difference between the interest earned on loans and that paid on deposits (with a bit of fee-earning thrown in). With the advent of interest-bearing current accounts, this all changed, and banks had to look to other means, a lot of which have been the cause of debate and referrals to the Competition Commission in the UK.

The second cost is the cost of increasing regulation. The world’s regulators cover their costs by charging fees to those whom they regulate. Naturally, there’s pressure on them to keep these costs as low as possible, and as the bulk of said costs will be salaries, it follows that if these are kept low, the quality of regulator may not necessarily be of the grade required. Could the UK FSA, the Federal Reserve and Iceland’s regulator have anticipated the crises about to engulf them in 2007 if they had had a better quality of staff? Did they see this coming, but lack the "clout" to do something? Perhaps. Equally, the banks need to pay people to make sure that they meet all the regulatory requirements – not cheap!

The final cost (more relevant since the global financial crisis) is that of ensuring deposits. Essentially, banks pay a levy to insure individual deposits up to a maximum value (GBP50,000 per individual in the UK).

Given all the above, it follows that someone has to pay. If I buy a new car, the price that I pay will include (in basic terms) the cost of parts, labour and a profit margin. I have a choice of whether I buy a cheap car or an expensive one, and have to accept that a cheaper one may not be as powerful, comfortable, reliable, well-equipped, etc as a more expensive one. So it is with banking services. The problem is, we seem to have paid a lot for dubious behaviour which was not checked or controlled and look at the results!

If I want safe, reliable and professional banking services, I expect to pay for them. This could be in the form of monthly or annual charges, wider margins between borrowing and lending rates, differentiated products with attendant fees, etc. However, I expect my bankers to act with due care – something that not all have done in the past – and to be penalised if they don’t.

If we want a “Rolls Royce” global financial services industry, we have to pay for it. Part of this cost might be “subsidised” by, for example, regulators levying higher fines on those that they regulate if rules are broken, thus defraying their costs. Equally, part of this may have to be met by governments in future (worth it, if the trade-off is less burden on tax payers bailing out trouble-stricken banks in future?). However, the costs of these fines and/or government subsidies would in the end be passed back to the customer/taxpayer.

Otherwise, we should think seriously about not earning interest on current accounts, or about paying a monthly fee for our banking. We think nothing of paying a monthly subscription for mobile phones, satellite TV, or broadband internet, so why not banking if it means a better, safer service?

HOW SHOULD THE FINANCIAL SERVICES MARKET OF THE FUTURE BE CAPITALISED?

2010-04-27T08:05:00.000-07:00

This continues to plague regulators, investors, legislators, governments and banks. My own view is that purpose, risk, capital, liquidity and (most important) investor expectations are all parts of the same equation, and yet are all being treated as different elements. If this is to continue, we will still have problems.

During the worst of the crisis, some banks were seen to be running out of (and in some cases, did run out of) a sufficient pool of funding to absorb the unexpected and unprecedented losses that they were seeing. Fear drove asset sales, reducing the value of assets still held on books and raising the spectre of further losses, driving further “fire sales” of assets, bank shares and so on , provoking a “vicious circle” or “self-fulfilling prophecy”. I remember one conversation with a fund manager where we speculated on what would happen if no trading were to be allowed for two weeks at the beginning of 2009 to allow people to pause for breath, think and review underlying fundamentals. It might have worked, it might not.

Banks, unlike other organisations, have two classes of capital: Tier 1 and Tier 2 which were first defined in the Basel I Capital Accord of 1988 and later on (in substantially the same form) in the Basel II Accord of 2004.

Tier 1 capital consists of core capital - primarily common shares and disclosed reserves (or retained earnings), but may also include non-redeemable non-cumulative preferred shares (source: Wikipedia).

Tier 2 capital consists of supplementary capital, i.e. undisclosed reserves, revaluation reserves, general provisions, hybrid instruments and subordinated term debt. Supplementary capital can be considered Tier 2 capital up to an amount equal to that of an institution’s core (Tier 1) capital (source: Wikipedia).

What complicates things is that each country's banking has some discretion over how differing types of financial instrument may count in how a bank’s capital is calculated. Although this is probably right as different countries have different legal frameworks, it does mean that not all banks may be on the same level playing field when it comes to assessing their strength and ability to absorb losses.

Capital is there to provide against unexpected losses. Expected losses are covered by provisions, reserves and the current year’s profits (if any). The higher the level of capital a bank has, the higher the level of unexpected losses it can absorb and therefore the “safer” it is. What happened in the crisis was that in some cases unexpected losses from what were perceived as less risky deals crystallised so fast that capital itself proved inadequate.

The development of capital markets over the years has also meant that “traditional” capital providers (shareholders) have been joined by others (hedge funds, pension funds, fund managers) each with their own agenda. Different parts of capital are also subject to different priority in the event of a wind-up, with the “common” shareholders being last in the queue. Equally, different types of capital or finance have different costs and are treated differently for tax purposes. This has resulted for many institutions in a complex cat’s cradle of capital constructed over a number of years to meet different needs.

We need to get back to basics. This is more easily said than done as unwinding or re-structuring the capital of some of the larger players will take time, money and effort. A gradual move to a more unified and simple structure could happen if there is the political will. The current regulatory approach is to break up the large players through “living wills” so that losses in one business, area or country are confined to that area/business/country. Simple? Yes. Practical? Perhaps not, as market sense requires that capital be deployed where it will achieve the highest return.

The global financial system needs capital that is fit for purpose and the risks it undertakes. Should Northern Rock have relied on short-term money markets to finance long-term mortgages (and why did the UK FSA not act on this)? The more expensive capital should, ideally, support the riskier (and rewarding) types of business, but chopping things up like this is easier said than done.

Equally, when there are problems, banks need to be able to shore up capital fast to prevent loss of confidence. The latter may have to be through government stakes until a sale can be arranged and the crisis is over. The other answer is to take fewer risks and see less RoE. IN this case, JPMorgan have predicted that returns will fall from an average of 13.3% to 5.4% - will investors swallow this?

How Should The World Financial Markets Be Regulated In Future?

2010-03-16T03:54:00.000-07:00

One of the questions that has been asked in only a few circles is “How much are regulators to blame for the current financial crisis?”

The focus of attention has been on the banks (and financial institutions such as AIG where apparently 15 people were the main cause of the debacle) and their management, especially on management who took risks that they shouldn’t (in hindsight) have.

Amidst all the furore, however, other parties (governments, investors, borrowers, rating agencies and regulators) have not asked themselves whether they also bear some responsibility for the massive asset bubbles that took place towards the end of the first decade of the new millennium.

Regulators occupy a difficult position. They need to act as “party poopers”, raining on everyone’s parade when times are good and people don’t want to hear bad news. From what I can see of the UK markets, not only did the regulator lack the strength (or political backing) to make a difference, it was also staffed by people who did not understand the markets they covered and who lacked the internal communications to pass information where it was needed. I have read of supervisors in the US regulator (the “Fed”) complaining of lack of resources. Clearly, something was wrong in at least these two organisations.

Since 9/11, the approach seemed to have been more on preventing money-laundering than on really assessing the inherent risk in businesses. Regulators were staffed primarily by academics or specialists because they couldn’t pay the fees for people who had been in the markets.

I’ve written about the regulatory issue before (see Regulating the City 23 September 2009 and Whither Risk & Regulation? 14 April 2009) and still feel that regulators need to examine themselves as much as banks. We need regulators who:
• Understand their markets;
• Are properly paid so that they don't end up rushing out to the banks;
• Are independent of political interference BUT;
• Have political backing;
• Can impose proper sanctions;

The last is starting to come to fruition, but I fear that the rest will still take time. Markets move fast, and regulators will always be playing “catch up”. The best they can do is hire (and pay for) those in the markets who understand that market. Regulators tend to be inward-facing (i.e. focussed on their domestic market). They need to cooperate on a global scale (only just starting to happen).

Speaking to those in the UK financial services market tells me that their regulator still doesn’t “get it”, that they want academic and regulatory knowledge first, understanding of markets and how businesses fit together second. Specialisation will continue to dominate experience. Until this changes, I fear that the UK at least is condemned to “second-class supervision”.

WHAT DO WE WANT OF OUR FUTURE GLOBAL FINANCIAL SERVICES MARKET?

2010-03-10T03:27:00.001-08:00

In my last post, I set out five questions for the future of the global financial services market. They were:

1. What we want of our future global financial services market;
2. How it should be capitalised;
3. How it should be regulated;
4. How it should be paid for;
5. What happens when an institution fails.

In this post, I will tackle the first.

I once used to think that no one looks after banks if they go down. In the past, this was the case (witness Barings, BCCI). However, I was remarkably wrong when the latest crisis happened as I (along with many others) had failed to spot that the global financial and economic systems at large had become so closely intertwined that allowing a major player to fail now would be like amputating a leg without anaesthetic or proper surgical instruments. If the victim survived the shock and loss of blood, they would have to adjust to a very different way of doing things.

In the same way, the loss of several major players on the world financial stage has resulted in a massive shock to the system and, after rushing the victim to the ER, we’re now in "intensive care mode".

We need to decide what we want of a global financial system both now and going forward. It's not enough to legislate for sins of the past (did Sarbanes-Oxley really achieve anything, except to drive companies to list on the London Stock Exchange rather than on the NYSE?). We need to think of the future and of the unthinkable. Knee-jerk reaction of the type we've seen in many cases will only do more harm than good.

So where do we start?

Back to basics: whatever you may think, banks are a vital part of any economy in that they: provide a safe haven (in theory) for savings; promote transformation of excess capital (savings) into products that add value to the economy (loans to businesses); provide an efficient mechanism for moving wealth from one party to another (payments); support global trade with an international network of either their own branches or of correspondents. They require specially trained staff who adhere to a set of rules which prevent them doing things that other organisations might consider “normal business”.

In other words, they're an integral part of the global and national economies. Think of them as the plumbing or wiring in a building. You might notice if this failed for a short time, but if the whole lot failed permanently, you would be faced with re-wiring and/or replumbing the whole building. So it is with banks. They're capable of causing a major disaster and so need the same safety precautions that plumbing and wiring do. We want our lights to work when they're meant to and the same for our taps. We don't expect the house to be burnt down when we turn on the lights, or flooded by faulty pipework.

We require our plumbers and electricians to be trained and certified competent. We don't expect them to be millionaires (and don't pay them enough to be so), but we do expect them to do the job properly with good quality materials and need inspectors to make sure this happens before the building is declared fit for purpose.

We want our infrastructure to work properly, and this includes basic financial services: savings, payments, loans, investments. The rest is icing on the cake.

With the loss of confidence, banks are lending neither to each other nor to the economy, and yet an economy needs finance to grow.

Banks need to remember the responsibility that goes with their position in what is a strategic industry. Much has been made of the distinction between the "low risk" and the "high risk" activities that the large players undertake, and that it is the "high risk" activities that risk bringing them down (but equally, allowed them to make the stellar profits that we saw in the past). Was this the case with Northern Rock? The risks that banks undertake need to be clearly understood, controlled, funded and ring-fenced. I'm not saying that banks shouldn't undertake riskier activities as this is what often leads to innovation, growth and prosperity. However, it seems clear that where this prosperity is confined to a select few, we should question its real value to society.

Conclusion:

Banks are a strategic industry and risks need to be managed in this light. We need to adjust our expectations of what we expect them to do, the profits we expect them to earn and how much we expect them to lend.

We want them to innovate, but not at the potential cost of loss of confidence. We need to respect the fact that because credit is cheap, they shouldn't use it to undertake riskier lending.

We want a global financial system that supports economic growth by lending to activities that contribute to this without undue risk.

We want managers who have been bankers all their lives, not brought in from fast-moving consumer goods companies to develop sales. If that means not lending to people who can't pay back, or making less in profits then so be it.

SO WHERE ARE WE NOW?

2010-03-03T01:52:00.000-08:00

The world is starting to emerge from the global economic recession (some countries faster than others), but in terms of what brought the global financial system to its knees, what have we learnt and what are we doing about it?

The answers to these questions seem to be "a lot" and "not much" respectively.

The UK FSA and other regulators have come up with insightful commentary on the causes of the implosion in the financial services markets. Their remarks are true and diverse. They're also available on the various regulators' websites.

I was talking to one of the world's regulators recently and was struck by the absence of any vision of what needs to happen though. True, bonuses have been limited (and, no doubt, will be in future) and we've seen calls for increased capital, liquidity, governance, oversight and "living wills" (with variations on these major themes).

What we haven't seen is an understanding that what we've got today is the result of banks and economies developing over the centuries on their own, and regulators having to wrap themselves around the results. True, in most cases, these developments were the result of customers needs, regulatory developments, global trade expansion, economic and technological progress.

What we have now is a chance to ask:

1. What we want of our future global financial services market;
2. How it should be capitalised;
3. How it should be regulated;
4. How it should be paid for;
5. What happens when an institution fails.

Free market economics will necessarily drive much of this, and the last thing we need is government alone deciding how the system should run (Volcker, take note). Government and regulators do have a part to play, but so do the markets. We're still in the midst of mass hysteria where fingers continue to be pointed at bankers' bonuses as a useful diversion from other systemic flaws of which the politicians (and regulators) of the world would rather we remained as little aware as possible.

I will look at each of these questions in a series of articles over the next few weeks and attempt to put a framework on them. Suffice it to say, any suggestions (constructive, of course), are welcome.

Managing Relationships

2010-01-28T03:42:00.000-08:00

One of the main results of the internet's appearance at prices which most of us can afford is that we now have more information than ever. To help manage this, sites like GoCompare, Moneysupermarket, CompareTheMarket, Expedia, Plebble and others have all sprung up.

The idea behind most of these comparison sites is either to provide comparative information on the cost of whatever it is that you want to buy and/or reviews of products or services. As money-saving tools, they have their pros and cons. The pros are mainly that you'll have more information on which to base a buying decision and so could save money. In fact, many comparison sites offer the last as the reason to use them. Few people bother to think about the cons though.

One of the cons is illustrated by the old adages of "if you pay peanuts, expect monkeys" or "you get what you pay for". A great example of this are the low-cost airlines who make their money from people who don't want to pay the sort of prices charged by the big airlines and who don't mind putting up with flights leaving at inconvenient times of day from non-mainstream airports, no meal included as part of the price, only carry-on baggage (unless you pay extra AND book in your check-in suitcase in advance!) and delays. This attitude isn't only limited to the less well-off. I've even seen investment bankers fly low-cost airlines, despite the profits their firms make (or maybe this is one of the underlying reasons!).

The flip side is that if something goes wrong, the low-cost airline in question may not be all that equipped (or inclined) to sort out the problem and subsequent passenger relations issues. When questioned about this, the boss of one low-cost carrier simply suggested that if you pay rock-bottom fares, you should expect rock-bottom service and treatment. Not an unreasonable response, and one that no doubt generated further publicity for the carrier! Here's a case where relationship management plays second-fiddle to financial considerations and people accept the logic of it!

Another con is that comparison sites may not actually show you all the possibilities - only those from companies that pay them for advertising or by offering some other incentive to display their wares.

Now that it's so easy to find out who charges how much, for what and what current or previous users think of it, an attitude of going for the cheapest deal, and an expectation of no loyalty (on both sides) has begun to make itself felt. Consumer websites let us post comments on products and services for everyone to see and our expectations get adjusted by these reviews whether they're biased or not. The printed word still has tremendous impact.

The trouble is that thanks to all this, buyers (customers) and sellers (providers of goods and services) risk losing sight of what relationship management's about. I worry that the new millenium will see less loyalty on both sides as consumers and suppliers alike have more information to help them switch supplier or change prices, and expect less loyalty from their counterparties than before as a matter of course. I think that suppliers will need to be more "nimble" in dealing with buyer expectations, and that relying on contract provisions may backfire in some cases.

In the current economic climate, cost control is king, and we're all looking to save money however we can. Beware that what at first sight looks like saving might well turn into something more expensive in the long run as people go for lower costs at the expense of established relationships or quality standards. Of course, some suppliers are easier to change than others without too much trouble (mobile phone companies once your contract ends, airlines, electricity, gas, etc). Some are harder to change without potential risk to one's reputation (banks?).

Size does matter as well for two reasons. Larger suppliers may be able to ignore buyers leaving them (and even expect it in the case of "supermarket wars" where one chain may be flavour of the month for a while until they fall from grace). There are companies (again no names, no pack drill) that, despite a reputation for less than stellar service (see above) still manage to turn a profit because they provide what people want at a price they will pay - in other words, they are seen to give value for money. Others who are not so lucky have to rely on good old-fashioned service.

Let's not forget the supplier's point of view. It may simply not be workable for that supplier to service some types of buyers. I recently saw an article about "Jackass Clients" in which the writer exhorted suppliers of goods or services not to deal with certain types of buyer as in the end, this was going to cost them more than it was worth.

Do relationships matter? Consumers may want them to, but don't always behave as if they do. Are suppliers also giving the wrong signals? They want loyalty, but sometimes their behaviour suggests otherwise! For me, relationships do matter; happy customers will continue to buy from me, and happy suppliers will continue to deal with me.

Conclusion: both sides need to manage relationships, but if neither of you are giving value, expect people to walk!

Contingency Planning - A Waste of Time?

2010-01-11T09:26:00.001-08:00

A number of businesses that I speak to don't have a Business Continuity Plan (BCP). For some, this is because they feel they're too small, because they think they can "wing it" when a crisis hits or (more often than not) because they haven't had time to think things through. Here's why you need a plan.

The heavy snowfalls in early 2010 in the UK resulted in a number of businesses suffering through staff not being able to get to work, disruption of supplies and/or an inablity to get goods out to buyers as postal and courier services have ground to a halt. In 2009, Swine Flu was the big concern, followed by threatened postal strikes disrupting christmas deliveries by small gift companies. A crisis can come from anywhere and, if not handled properly, can drive you out of business.

Any business needs to consider the following when planning for crises (whatever they may be):

Nature of Business

Location

Premises

Staff

Health & Safety

Equipment

Processes/procedures

Buyers

Suppliers

Payments

Systems/Technology

Publicity

Communications

Finance

Insurance

Legal/regulatory

The environment

This list isn't exhaustive, and will vary depending on the type of business, but using it as a framework will give you a start in working out what you'll need to do if something does go wrong. If you need help or further advice, let me know.

Bank Charges - Still Up For Grabs

2009-12-23T03:41:00.000-08:00

Like any other industry, banking services are a chargeable product. Recently, the Office of Fair Trading gave up on its attempt to halt what were seen as "unfair" overdraft charges.

The outcry here is because the charges are seen as often exceeding the amounts by which people exceed their authorised overdraft limit - sometimes (as in the case of student Julia Turner) for exceeding their limit by the princely sum of 1p. Why, we ask, should we have to pay nearly GBP50 of charges for going GBP10 over our limit? The objection seems to be not so much to paying a charge, as to the "fairness" of the charge.

Therein lies the rub. What is "fair" when it comes to charges for financial services? We can't see or touch them, and many would say that they see little benefit in them. The charging mechanism grew from the 80s when banks started to compete for deposits and paying interest on current accounts where previously current and even some savings accounts earned no interest, but the funds were lent out at a premium in the days of the "3-6-3" rule (borrow at 3%, lend at 6% and be on the golf course by 3.00pm).

As competition and the number of "banks" increased, so "traditional" revenue streams eroded. In addition, the cost of bank premises were going up, as well as the costs of staff, technology and regulation. In the face of declining lending margins and increasing costs, something had to give. In this case, it was charges for services.

Charges are here to stay, but many people don't realise what they get for them. At the least, you have your money looked after, a monthly statement, an ATM card plus several thousand ATMs in the UK and overseas to get cash from and someone to advise you when needed. In return, most bank accounts maintain a very low "average balance" (the money that's left over after all your deductions have been made for utilities, Council Tax, etc) which does not, by itself, cover the bank's costs of running your account.

The whole system of charges in any bank should be transparent (you should be able to request a copy of your bank's tariff of charges which sets out the amounts and conditions under which they are charged). If you don't like them, look for another bank or type of account (as I have done in the past). Remember, you DON'T have to do business on terms which to you seem unfair. There are accounts which don't allow you to go overdrawn, so if you want to avoid "unfair" overdraft charges, have one of those, but be preapred for other limitations.

It appears that the message is slowly getting through to the banks, who apparently are reducing their charges. However, they will probably find other means of recouping them.

Bonuses Banished??

2009-12-22T02:09:00.000-08:00

There's still a huge debate over bankers' bonuses and whether they are deserved or not. What seems to be missing is a closer look at who is getting bonuses and why.

Our friends in Westminster continue to make political hay out of the fact that some bankers are being paid bonuses at all. Whilst this may delight the public, there are some facts that are being overlooked and/or conveniently ignored:

1. The bankers aren't solely to blame for what's happened. True, we would expect them to have exercised more caution, as the good times couldn't last. However, the current government (remember the boast that we had "abolished boom and bust"?) has plenty to do with the current state of play as they certainly didn't discourage people from borrowing as it resulted in more tax revenues form VAT and stamp duty on property sales.

2. The UK FSA either couldn't or didn't have a grip on things. They are now belatedly shutting the proverbial stable door after the horse has bolted (having warned the owners that it might come to this).

3. Joe Public equally played his part as he lashed out on luxuries, holidays and spent, spent, spent.

4. Shareholders in banks came to expect exponential revenue growth as a right. As credit became cheaper, riskier investments had to be made to earn a decent return.

Now for the banks. The convenient excuse is that they have been saved with taxpayers money. True? Almost. Northern Rock was nationalised, RBS is more or less completely owned by the taxpayer, whilst what is now Lloyds Banking Group is majority owned after the current government set aside normal legislation to enable it to take over HBOS. Barclays and HSBC however, are still free of government interference (Barclays, perhaps by the grace of God as their bid for ABN failed in the face of the RBS consortium's offer). There are those that say that HSBC and Barclays have benefited as business previously with RBS and HBOS may have gravitated to them, and therefore were also indirectly "rescued".

This is over-simplifying the situation; when any bank is in trouble, there will naturally be a "flight to quality" of some of its business. The fact is, HSBC and Barclays have been better managed (or so it seems) and therefore haven't needed to be bailed out. Why shouldn't they and their employees (and indeed their shareholders) be rewarded for not placing an EXTRA burden on the UK taxpayer?

Of course, this doesn't suit the politicians who are trying to distract attention from their abuse of their expense accounts and their economic mismanagement, so we'll still see the "bash the bankers" (who are also seen as "the rich" in this case in the current class war).

To stop bonuses that are part of the market mechanismk for rewarding talent is to drive that talent away and reduce London's competitiveness as a financial centre. In the end, this can't be good for the UK or for tax receipts to the government. In the end, the banks are still needed. New regulation is coming into place that will limit their excesses and I hope that we'll also see an FSA staffed by people who understand what they're doing.

Who's Learned Their Lesson?

2009-12-09T04:09:00.000-08:00

In March and April I wondered how people were looking at opportunities presented by the current world economic crisis.

Since then, stockmarkets have recovered from their lows, some economies have started to show signs of life again, and the flood of redundancies seems to have slowed to a trickle. General feeling is that things are lurching towards recovery.

Interestingly, some organisations may be persisting in making the same mistakes that got us into our current state of affairs. By this, I mean that they are being very particular about the qualifications of potential hires. Of course, this may indicate that they have learnt from their mistakes and now know exactly what they should have done, but I can't help feeling that there are others who want to hire the same kind of specialists who failed to see the problems coming - in other words, who couldn't see the whole wood for the specialist trees.

In good times and bad, specialists have their place (look at the management of our railway network which seems to be by accountants rather than engineers, for instance), but in bad times you need people who can think on their feet and think outside the proverbial box. Often, a specialist will not be able to generate the thought processes needed in these circumstances.

What people need to do is look at the skills needed for a job, ask if what they had before was right (and why/why not) and then think about the sort of skills needed for the future strategy of their company. This assumes that they are out of "survival mode" and have the luxury of thinking about the future now.

The employment market is flooded with good, hard-working people who will be an asset to any organisation that they join. People are not like specialist parts for a car, and in searching for exactly the right match, hirers risk passing up golden opportunities to take on some real talent at a lower price which, although it might go through a "learning curve", will prove invaluable in the long term. Some people will still "miss the boat".

How To Lose Customers Successfully

2009-11-24T05:24:00.000-08:00

There's a lot of literature and theory out there about customer care, but what it all boils down to is a simple case of "Do As You Would Be Done By". How many get this wrong!

The fact that we have so many books, studies and courses tells me that we may be over-complicating things. Customers have one simple need - to feel important. I see a lot of writing on how to make incredible experiences happen, but underlying it are several basic steps that make all the difference.

Be Courteous:
By this I don't mean going overboard with syrupy platitudes, just treating people with respect and consideration.

Keep Your Promises:
If you say you'll do something, do it. If you say something will happen, make sure it will (and if you're not sure, don't commit). It's called "being reliable". People will trust you. Simple.

Respond:
One thing that SO many get wrong. If someone writes to you or phones you with a question or complaint, answer it. Not responding (for whatever reason) is just plain rude. Customers don't like being ignored and this is a real business killer - they will tell their friends and the press.

Apologise:
If you got it wrong, don't try to cover it up. Apologise and make it right. You will not only retain a customer's loyalty, they are more likely to tell their friends how much you care.

Keep People Informed:
If you are handling a complaint and need more time, tell the customer and tell them why. Tell them when you'll next report in and make sure you do. Again, it's all about trust.

Be Consistent:
Too often, I hear stories of how people get told one thing by one person, and another by another person. This makes for inconsistency and lack of customer confidence. Make sure your staff are trained, informed and updated. Have regular sessions where everyone gets to say what is going on with them and to share any problems thay may have.

Get it wrong and you risk being in the position of "Being Done By As You Did"...

How To Kill Business

2009-11-19T03:13:00.001-08:00

Perception (reputation) is a vital part of your company's success. If you are well perceived/have a good reputation, anything is possible. If not, you will have a major PR effort in front of you to get where you want to be. Very few seem to realise the importance of PR and how easy it is to convey a negative impression which could be fatal. Here's how...

The most extreme example that comes to mind is how Gerald Ratner killed the Ratners Jewellery chain overnight (literally) by jokingly saying that they sold "crap". Whilst this may have been true, the reason that people bought from Ratners in the first place was that the merchandise was seen to be relatively good quality at affordable prices. What Gerald Ratner failed to realise was that one small misjudgement was all it took.

In these days of recession, it's more important than ever to get your PR right, and it can be something as simple as responding to an enquiry or phone call. I constantly hear stories of how someone has rung/emailed someone else to enquire about a job/product/event only to receive no response at all. What does this say about the company being contacted? Either that they are so busy that they haven't the time to respond, or that your enquiry has been "lost in the system" or that they don't (for whatever reason) consider you important enough to merit a response. Whatever the right answer may be, all are bad for the company's or individual's image.

In Gerald Ratner's case, it was his image and the media that "did for him" in the early 1990s recession. Nowadays, not only have the media become more adept, but consumers also have the power of the internet at their disposal and can reach a large audience without the help of TV or the press (just try Googling "complaints about BT service" to see what I mean).

Failing to respond to any enquiry (even with a polite "no") is, frankly, rude (let alone unprofessional). It says that you/your company do not value that customer's (or potential customer's) business. In the current recessionary climate, this is corporate suicide and will only get worse as we emerge and new competitors come on the scene.

People may have no choice but to deal with you today - but they will leave as soon as they can. It is a case of caveat vendor.

Selling The Silver

2009-11-03T03:20:00.001-08:00

As expected, Lloyds Banking Group and RBS are having to re-structure at the behest of the EU Commission in order to qualify for state aid.

The way that the Times portrays this is that employees earning over GBP39,000 a year will forego bonus payments in 2009, whilst the boards will defer bonuses until 2012. However, the key point that people seem to have missed (or elected not to mention) is that the British taxpayer is again propping up two institutions that the EU Commission did nothing to help in their time of need, but insists on dismembering at additional cost now that the "immediate" crisis is over. Even before Lloyds and HBOS got together, it was known that there would be "competition issues", but is this the best time to break them up?

Here are some points to think about. Firstly The UK economy is still fragile. To start dismembering RBS and HBOS will cost time, money and effort that could be more effectively used in keeping these banks going and supporting their business customers. Now management will be distracted again from their job of running the businesses profitably for their shareholders (in this case, the UK taxpayer) and their customers as they dress up the businesses identified for sale. This is only likely to prolong the agony. The report suggests that the Chancellor will have to add a further GBP13billion to fund purchases of shares in both institutions - where will this come from?

Secondly: there is some question as to the availability of buyers out there. Even if there are buyers, they will be looking for the proverbial "knock-down" price as this is essentially a fire-sale. Is this really in the best interests of RBS/LBG and the UK taxpayer? No doubt, the price has to be low enough to attract buyers and to reduce the potential burden on the UK taxpayer, but let's not throw the proverbial baby out with the bathwater.

Thirdly: whilst the transfer goes ahead, there will be continuing uncertainty for both the customers and staff of the bits being sold. Staff at Cheltenham & Gloucester have already had an on-again, off-again ride this year, and this will serve only to further lower morale and commitment. Existing mortgage and other customers will also face uncertainty at a critical time for them until they know whether their business will continue as before.

Fourth: there will have to be a "shakedown" period as the new owners come to grips with what they have bought and introduce "their way" of doing things (including their management who may/may not know anything about managing a UK business). On the positive side, they may bring in newer, better ways of doing things that will benefit customers and staff in the long run.

Alastair Darling says that he would like to see "more competition" on the street - a laudable aspiration, but in a way it was too much competition that was partly to blame for the current state of affairs with too many lenders with too many products chasing a finite borrowing market. Any new competition will, in any case, be unlikely to surface until at least one year from when the disposals are made for the reasons stated above.

We should look at this not from the point of objecting to the re-structuring, just to its timing. The EU Commission can already point to ING as an example of another institution playing the game, but again, this has happened more quickly than forecast. The question has to be asked, is the EU acting in the best interests of customers, governments and shareholders, or does it need to review the situation and set more pragmatic guidelines?

What LBG Will Sell:
Lloyds branches in Scotland
Cheltenham & Gloucester sites
Intelligent Finance online business

What LBG Will Get:
Additional GBP5.7billion (on top of the GBP17billion already received)

Other Plans:
GBP13.5billion rights issue as part of a GBP21billion fundraising plan (thus avoiding using the Asset Protection Scheme which would increase the UK taxpayer's 43% stake in LBG).
Will raise additional funds by swapping GBP7.7billion in existing debt into contingent capital

Other Fees/Penalties:
Bonuses deferred.
GBP2.5 billion penalty for not taking part in the Asset Protection Scheme

What RBS Will Sell:
Branch network in England and Wales
NatWest sites in Scotland.
Global merchant services business
RBS Sempra Commodities.
Churchill Insurance
Direct Line Insurance

What RBS Will Get:
Additional GBP25.5billion (taxpayers' stake increases from 72% to 84%)
GBP8billion in contingency funding
GBP282billion of bad loans into the Asset Protection Scheme,

Other Fees/Penalties:
Bonuses deferred
Fee for joining the APS reduced from an upfront GBP6.5billion to GBP700million/year for three years and GBP500million thereafter (reduction of £2.5 billion)
RBS will bear the first GBP60billion for any first losses instead of GBP42billion

Other Plans:
Nil

The Post Office Strikes...

2009-09-29T08:04:00.000-07:00

The country's postal workers have come out on strike again against the "modernisation" currently being undertaken. Right or wrong?

Arguments are going back and forth about whose "fault" the current state of affairs is. It appears that management may have reneged on an agreement signed in 2007, in which the unions agreed to the loss of 40,000 jobs and management agreed modernisation, enhancement of pay and that future modernisation would be agreed with the unions.

Fast-forward two years and to where the UK is struggling to exit the worst recession for some time. No doubt, the 2007 agreement was negotiated in good faith, but as the recession took hold and demand for the Royal Mail's services plummeted, that agreement looks irrelevant. Most businesses are now fighting to survive, and frankly, an agreement negotiated under very different economic circumstances must be questioned, hard as that is.

Our postal system was designed when people and businesses communicated only by letter. This infrastructure still exists and is becoming more expensive as prices, wages, and the costs of regulation all rise. Management and workers both have a responsibility to recognise the ever-changing landscape and do their best to ensure that the service offered is both competitive and relevant to modern demand. The advent of fax, email and cheaper mobile phone tariffs have cut the need to send the good ole fashioned letter. In somes cases, the law requires that written notice is sent to a recipient, so we have no choice, but more and more people these days are making use of email.

Businesses rely heavily on the postal service. As we come into the Christmas season, internet gift catalogue companies must be worried that they will be unable to deliver on time. This must be of concern, as the UK struggles to tear itself free of a recession that has gripped us for almost two years.

Equally, bank and credit card statements may not be delivered, thus causing people to miss payments or to go overdrawn through no fault of their own. Notices of action required will be delayed (or never delivered) resulting in action not being taken, to the detriment of someone.

An efficient and relevant postal service is, like an efficient and relevant banking system and an efficient and relevant transport system, part and parcel of an efficient economy. Strikes help noone, and may even harm those whom they have been orchestrated to protect. Strike action, whilst effective in the short-term, results in disaster in the longer-term, as demonstrated by the miners, the car workers at British Leyland and the dockers at Southampton. These people refused to see that the world was changing and refused to adapt to the new reality. Where are they now?

Management and unions need to get round the table again and work things out. If the 2007 agreement is no longer relevant, a new agreement has to be signed. Understanding is needed on both sides, and a compromise (defined as an agreement acceptable to noone) will have to be reached. We are talking about having a first-class (excuse the pun) postal service that meets modern needs and is sufficiently flexible to change in the years ahead without resorting to agreements negotiated when circumstances were different. In the end, Royal Mail is run for the benefit of the users, not of the unions. The sooner they realise this, the better.

Regulating The City

2009-09-23T03:42:00.000-07:00

At last, some sensible comment on moving forward with regulation of the UK financial services sector.

The FT has at last pointed up where we should be heading in terms of regulating banking in the UK without the usual baying for blood that seems to accompany every other article or speech made by those who feel that they must be "seen to be doing something".

The FSA was established in 1997 by the then Chancellor of The Exchequer (Gordon Brown) with four statutory objectives:

•Market confidence: maintaining confidence in the financial system;
•Public awareness: promoting public understanding of the financial system;
•Consumer protection: securing the appropriate degree of protection for consumers;
•The reduction of financial crime: reducing the extent to which it is possible for a business to be used for a purpose connected with financial crime.

Recent events suggest that the first, second and third need more focus. Focus seems to have been mainly on the last in the wake of 9/11.

So why is it difficult to change at the FSA? The answer lies in the FSA's own website where, if you look closely, they state that their senior management are government appointees and that they are "accountable" to Treasury Ministers and to Parliament (i.e. to those who appointed them) but in the next sentence, they state that they are "operationally independent". They are "independent" in that their funding derives from those whom they regulate, rather than from the government but if they are government appointees, this will inevitably drive their actions. Equally, if the heads of the FSA were to be critiqued too much by their government masters, it would be tantamount to said masters admitting that they had got it wrong - something politically difficult to do.

On Friday 13th February (ironically), the FSA announced salary increases and bonuses, and yet there seemed to be little or no fuss made about this, in comparison to the hysteria that has surrounded compensation to the bankers who (single-handedly and without interference, connivance or encouragement from government, central banks, regulators or an over-spending public) caused this mess in the first place. In the past, when the FSA attempted to sound a warning, they were ignored by their masters as times were good, the boat shouldn't be rocked.

Lord Turner has suggested Tobin taxes on banks' transactions and caps on compensation to senior bankers as a means of regulating excessive behaviour. That there is a link between taking excessive risk and the "telephone-figure" bonuses of top bankers seems to be in little doubt. The "fiduciary" duty to banks' customers was swallowed by an avalanche of sales culture which demanded exponential yearly revenue increases across the board to satisfy shareholders and analysts. Credit was cheap, risk was lower, the chancellor had claimed to have "abolished boom and bust" so more risk was taken until...

So where do we start? As the Financial Times suggests, we recognise that the UK has both a domestic and foreign element to the financial system. The risks associated with domestic institutions' management of public funds, lending and payments are borne by the UK public and it is up to the FSA to ensure that those risks are properly managed. They have not been, and this is the fault both of bank management and those who regulated them (i.e. the FSA).

With regard to the "foreign" element of the UK financial sector, the FSA's role should be to ensure that foreign institutions operating here abide by international and UK rules, that any failure do do so should not harm the UK and that appropriate penalties are levied.

In short, the FSA's job is to represent and safeguard the public interest. To do this, it needs to understand the products/risks, devise rules to manage these, monitor their implementation, review their effectiveness and penalise transgressors (as recently happended with Barclays). It also needs to be taken seriously; it has notbeen in the past and this must change.

The FSA's role is not to make pronouncements on compensation or taxation, these being the purview of the market and of the Chancellor respectively. There are signs that bankers have woken up (belatedly) to the fact that high bonuses are politically unacceptable at the moment. Whether this will result in lower bonuses is for the market to decide. The fact is that "clever" people employed by the banks (who can afford to pay them) will devise ways around any restrictions that are imposed - so the compensation consultants, lawyers and accountants stand to do well as banks scramble to retain their top performers.

The FSA's regulatory tools are: to ensure that banks maintain suitable capital in relation to the risks undertaken, that suitable regulations are in place and enforced and that transgressions are penalised. The FSA is not here to be popular. It is here to protect the public.

This means that the FSA charges appropriately for banks to operate in the UK and if this means charges rise, so be it. Call it the cost of financial security. Those who take the higher risks should pay more for supervision than those who don't. Equally, those who are seen as riskier due to inherent lack of adequate controls or management weakness should also pay more.

The UK needs to remain competitive and a world leader in financial services. Has the recent crisis had a serious impact on our reputation as a quality financial services centre? Yes, it should have. Our bankers, regulators, government and the general public have all fallen down on the job. The lessons of excess must now be learnt.

The EU Steps In

2009-09-16T09:19:00.000-07:00

The Times has reported that the EU Commission is likely to insist that Lloyds Banking Group hive off HBOS, which it rescued at great cost to the taxpayer. Should we be surprised?

There has been much discussion of Lloyds' takeover of HBOS with government support. Whatever one's views, this was a deal conceived under pressure and driven by forces of which we have yet to hear a full account. In "normal" circumstances, it would have never been allowed on competition grounds. However, with the government keen to avoid a repetition of Northern Rock-like queues with the attendant damage to Britain's reputation as a financial centre and beset by the worst economic and crisis for at least 20 years, it is little surprise that the deal was "waved through".

Prior to this, there were hints that Lloyds Banking Group would have to restructure to avoid accusations of being in a dominant position. Indeed, LBG announced on 18 May that the EU COmmission woudl be taking a close interest so the latest rumours should not come as any great surprise. What will be more difficult now is to unravel the work done and to manage the uncertainty that a disposal may create for both customers and staff. The EU needs to take here that it does not make the situation worse...

Whatever happens, assuming that HBOS can be spun off as a separate unit, any buyer will also have to repay the UK taxpayer's "investment" in it. This will already make it less attractive, but this is not to say that it might not attract buyers looking to build a long-term stake in the UK high street banking market. Already, Tesco has been named as a possible interested party, and it would indeed be a feather in Gordon Brown's cap if he could negotiate a sale at a profit to the taxpayer before the next General Election.

The EU Commission has one month left before it changes personnel, and there must be some question over whether it will manage to put anything through in this time. What is clear, however, is that LBG will have to shrink in order to avoid accusations of using government funds to gain a dominant market position. What this "shrinkage" will look like has yet to be decided, however, and we do not want to end up with the split costing even more than the merger!

I Went Sailing...

2009-09-09T10:08:00.000-07:00

This is not a rip-off of the Rod Stewart classic, but rather a review of a valuable learning experience.

Toward the end of last month, I had the chance to go for a weekend's sailing instruction thanks to a good friend and former colleague.

Sailing is not something that you can learn only from a book or from a course filled with lectures, debate, syndicate work and dissertation. I found it a remarkable parallel to business life and realised how far we have moved from "hands on" experience to theory being the current driver.

If you want to be a competent yachtsman/woman, you will have to read books and go to classes as well as pass exams on the subject. However, you must actually get out, learn and practice before being allowed to take the helm on your own.

You need to understand how wind, tide and weather affect your proposed course. You need to understand what to do when the unexpected happens (man overboard) as well as how to avoid other craft on the high seas. There are "rules" of the sea that you have to obey to ensure that fatalities do not occur.

You also need to learn a new language (a "sheet" is not something you sleep on/under on a yacht, for example) and to be able to communicate effectively otherwise you may well end up with a big problem...

We left home with what we thought was plenty of time to get to our start point - and took two hours more than expected because of holiday traffic (it was a Saturday morning) and by the end, I was fuming! Thanks to the miracles of modern technology (mobile phones), we were at least able to let our hosts know of the problem.

We finally arrived and were given a quick safety talk, followed by a discussion of the plan for the weekend, and then we set off. All the way, we had to change course (literally) and even our destination in the end thanks to lack of available mooring there, but we were aware of the constraints and all were able to agree an alternative. Had we had more time/better weather/better luck with finding berths I have no doubt that the weekend would have turned out differently.

The lesson was simple: the sea, wind and weather (as well as weekend traffic) are not under our control and we can either fume about it or change course. Of course, we can do our research and prepare for problems (we had wet weather gear, lifejackets, etc), but in the end, it may take us longer to get where we want to go, we may have to divert along the way and we may have to change the original plan quite a bit to get there. No amount of fuming or criticism will change that simple fact.

Now contrast this with landlocked corporate life where you are expected to plan in detail and deliver without fail - otherwise there is something wrong with you. Insisting on all "deliverables" being met on time/budget without reference to external circumstances is simply unrealistic. However much you try to predit what will happen, you need to accept that your predictions could be rendered invalid by anything and that you will then depend on your natural experience and ability to get through. In the end, we end up "fudging" the results to make it look like we got it right.

I am not saying that we shouldn't plan - we need direction and measures to tell us if we are going off course. However, we need to understand that things can change very dramatically on the economic, regulatory and competitive landscape to force a major change in course (the present crisis is proof of this). As long as we know our direction, we may just take longer to get there, and there is nothing we can do about it. We plan for contingencies and this helps keep us more on course than if we had blindly hoped that all would go "according to plan", but in the end, experience and savvy will also play their part when the unexpected happens.

I know that I am not capable of getting a Feeling 39 from Dartmouth to Brixham on my own after one weekend's instruction. I have an appreciation of what it takes, but I would never have the temerity to tell an experienced yachtsman/woman how to do it, or to analyse their performance after so little time (no matter how many books I had read). However, current culture today suggests that a theoretical knowledge backed by case study has all the answers. It doesn't.

Yachtsmen (not the racers) have a lot to teach us, and I would certainly recommend a sailing course as part of any team-building exercise (starting at the top).

Bang Go The Bonuses??

2009-09-09T09:51:00.001-07:00

Today's Financial Times reported that JPMorgan have produced a piece of research which states that investment banks will become less profitable due to the impact of new regulation. About time...

... that the regulators got a grip and that the investment banks (some of whom were responsible for the present crisis) also realised that stellar profits come at the expense of something else. If the extra costs of being regulated go direct to the regulators to pay for increased oversight, this must be a good thing. Sadly, it is not the case. By the look of it, the reason for reduced profitability is that banks will have to raise more capital as a buffer against further crises, thereby reducing their return on equity. In other words, regulators can remain less competent, bankers "may" be able to take the same risks, and we can bet that someone will find a way around the new capital rules.

Surely the simple answer is to reduce expectations all round? People borrow less, banks lend less, bankers rememebr their "fiduciary duty", shareholders and analysts lower their expectations in the hope that reduced profitability results in steadier economies, dividend streams and share price increases, and everyone is happy! This will require a massive "paradigm shift", but still lets central banks, governments and regulators off the proverbial hook.

We will still need competent regulators, and governments who are willing to do the "right" thing as opposed to the "politically expedient" thing. Central banks will have to look more closely at the results of credit being too cheap - a major cause of the current scenario thanks to the Fed flooding the market with cheap liquidity in the wake of 9/11.

Even more interesting was the report that various bankers are suing for bonuses that they claim they are owed... One wonders how much they can spend (or how much they have committed to spend). Surely this is the attitude that caused the trouble in the first place?

The New "City Tax"

2009-08-27T00:43:00.000-07:00

Lord Turner has joined the bandwagon of those baying for The City's blood. Essentially, he proposes a tax on City activities.Again, this is part of the post-crisis knee-jerk reaction and will serve little purpose. The article to which I have provided the link above postulates that certain financial activities are useless (questionable),that The City has attracted the brightest talent at the expense of industry (true) and that the City needs to be "cut down to size" (probably). The comments that follow the article suggest that a number of people are "with" Lord Turner in his views and that activites such as fixed income trading, hedge fund management and securities trading add no value.

Where were all these dissenters when times were good? What was the FSA doing at the time? Empty rhetoric like this is no doubt popular, but has anyone really looked at the FSA's role in the failure to contain the financial crisis that started in the US and spread like a contagion throughout the rest of the world? If we were to discourage the better traders from working in the UK, they would simply take their talents elsewhere with the resultant loss of income and skills (and growth) to the UK economy. Equally, is the FSA's role to set tax policy, or does this belong to the Treasury?

Another fact that seems to have escaped the worthy peer is that banks pay "indirect taxes" in the form of sports sponsorships, charity donations and community initiatives. Tax them more, and perhaps the "Natwest Trophy" or the "Barclays Premier League" to name but two will suddenly disappear with the resultant impact on UK sport. Additionally, if not allowed to keep profits, where will banks find the cash to invest in the increasingly expensive and complex systems required by today's financial markets to ensure that economies run smoothly?

Lord Turner should look more to see what the FSA should be doing in terms of regulating activity (i.e. its job) effectively rather than handing over skills and revenues to other countries in a misguided attempt to be seen to be "doing something".

What's The Point?

2009-08-12T03:51:00.000-07:00

A fascinating letter by Michael Heppell has just appeared - well worth reading.

Michael's concept is not difficult - if you have a purpose in life, you will be motivated. The problem is how many people really have a purpose in which they truly believe and which stretches them to display their ingenuity and resourcefulness.

For the majority of corporate workers in large organisations, their purpose is usually set from the top. The goals are often not set with the company's true position or capabilities in mind and simply reflect a set "formula" - i.e. achieve x% revenue increase/cost reduction/productivity improvement/staff performance and so on.

Of course, there are exceptions to this and companies who really "get it right", but for the majority, goal-setting and performance appraisal are usually another "box ticking" exercise completed by harried managers based on scant information/observation. As a result, people do not "buy in" to the process and live their corporate lives finding ways to "get around" the system.

Ram Charan in his book Know-How discusses the art of goal-setting and of aligning everyone's interests so that all know what must be done, what resources and are available and what must be achieved by when. Charan also illustrates how to ensure that things are kept on track and/or changed if need be.

Have you thought of what your copmpany's and your mission really are? How will you achieve them and how will you help others achieve theirs? Is your process meaningful and embraced by all or is it just "box-ticking" to keep HR happy? If the latter, you are probably keeping someone in a job who doesn't deserve it...

Back From The Brink?

2009-08-12T00:49:00.000-07:00

Just over a month ago, I commented on the latest proposals for the FSA to regulate top bankers' pay. The FSA now seems to be making a u-turn.

The Financial Times has announced that the FSA is backing away from specific recommendations on the structure of top bankers' pay as there is a concern that it will undermine the competitiveness of UK banks. In other words, they won't be able to hire the top talent necessary to manage banks out of the current crisis.

This was, perhaps, predictable in today's markets where labour can move freely, but also understandable when the political pressure was on to be seen to be "doing something" and knee-jerk reactions were all the fashion, depsite the fact that this might be counter-productive. Stephen Hester, the new head of RBS, has also had his say about making sure that capable people were retained recently when he spoke about the RBS results.

The Times of Friday 13th February 2009 announced that the FSA were paying bonuses and increasing salaries - we were told to make them competitive with the market - so why did it take them so long to realise that to limit top executive compensation in the financial services industry might also cause a problem? It is good to see that the FSA still want compensation to reflect risk, but to re-hash my previous point, they need to realise that the interests of banks' shareholders, employees and customers are difficult to manage at the best of times, let alone the worst. Less risk means lower revenues and therefore lower bonuses, taxes, sponsorship, investment in innovative products and processes, but perhaps also less potential for catastrophic and systemic failure. If other countries (the US and European Union are mentioned) do not impose the Draconian measures proposed by the UK, we clearly have an unlevel playing field.

Hector Sants - head of the FSA - proposes that higher salaries/bonuses should be controlled by "appropriate methods such as taxation". This implies that a banker who took less risk would be taxed at a higher rate on a bonus deservedly earned in the same way that a bonus earned through unjustified risk-taking. Where is the logic in that?

The long and short of it is that current public ire at high bonuses paid to top bankers (who are seen as the architects of the current financial crisis and whose banks have possibly also been bailed out by the taxpayer) is resulting in ill-thought out solutions to a very thorny problem. If this indeed the quality of leadership we can expect from the FSA, perhaps it is as well that the Bank of England takes it back under its wing.

How To Distinguish Swine Flu

2009-07-27T01:11:00.000-07:00

The following advice has been circulated around the staff of one of the world's largest pharmaceutical companies to aid in distinguishing flu from the common cold. Read it carefully so that you know when you should be calling an NHS helpline. Remember, you may only have a cold, and not Swine Flu.

What are the symptoms of flu?
Symptoms of flu are a fever (>38°C) or a history of fever, and TWO or MORE of the following symptoms: cough, sore throat, runny nose, sneezing, limb / joint pain, headache, vomiting / diarrhoea.

You can obtain flu advice and additional information as follows:

National Pandemic Flu Service (England): 0800 1 513 513
www.pandemicflu.direct.gov.uk

NHS Direct: 0845 46 47 : www.nhsdirect.nhs.uk

NHS24 (Scotland): 08454 24 24 24

NHS Info Line: 0800 22 44 88

Department of Health www.dh.gov.uk/pandemicflu

Directgov www.direct.gov.uk

The Cost of Capital

2009-07-24T01:26:00.000-07:00

Discussions are now under way to make "systemically important" banks hold more capital as a cushion against losses in another financial crisis. What does this mean?

The question of capital has been raging since the beginnings of the current recession - the idea being that banks should hold more capital to cover losses during bad times. Having plenty of reserves to tide one over in times of crisis is common sense, but will the proposals in their current form create an "unlevel playing field"?

The main "targets" of this would be the large international banks which have multiple lines of business (retail, corporate, investment banking). If the cost of their continuing to do business was to increase, the effect would be either to see them pass this cost on to customers, or to absorb it if they could, or perhaps a combination of the two. Whatever happened, it would result in them being less competitive and/or profitable than their smaller rivals.

The target is the investment banking business which is generally the one that tends to make huge profits (and equally huge losses) so the only other option is to spin off the investment banking arm and capitalise that separately. However, the "cross-subsidisation" of invesment banks by their commercial arms has been one of the reasons banks have been profitable. Remove this profitability and (apart from hefty bonuses) you risk removing/reducing:

- Tax revenues to the exchequer;
- Sponsorship of sporting and cultural events;
- Finance to needy businesses at competitive prices;
- Dividend streams to pension funds;
- Jobs as customers desert to "cheaper" rivals.

There is no easy answer, but should we be making our banking industry less competitive at a time when we need it most? Discipline those likely to cause problems again, rather than punishing the industry as a whole for the misdeeds of the minority.

"Wither" Now The FSA?

2009-07-20T05:16:00.000-07:00

The Conservative Party want to move responsibility for oversight of the UK financial system's stability back to the Bank of England. Is this the right course of action?

There is a high level of suspicion that the UK Financial Services Authority (created in 1997 by then-Chancellor Gordon Brown) "fell down on the job" and "didn't see the crisis coming" - along with the Bank of England, HM Treasury and various other regulators and central banks around the world. The Conservatives feel that the answer is to take away its powers and return them to the Bank of England which was previously responsible for overseeing the UK financial services sector. I would be reluctant to see this for several reasons:

Confusion:
There would be a period of transition when, for all we know, we would not know who was responsible for regulation. What would this do to confidence in the UK financial system? At a time when we are all struggling, should we be giving away one of our comparative advantages?

Cost:
There will be a cost to the taxpayer of changing things back to the way they were 10 years ago. This is not what we need now.

Continuity of Markets:
One of the reasons that the FSA was created was to allow the BoE to concentrate on monetary policy in the face of the increasingly complex financial services sector that was evolving. Moving back to the status quo ante risks reducing the levels of supervision needed.

Conflict (of Interest):
The BoE is there to supervise monetary policy and could be influenced by those whom it seeks to regulate.

More appropriate would be to review whether the FSA had the right rules and processes in place to start with, then whether it has sufficient "teeth" in terms of policy and remit as well as staff qualified to do the job. In the case of the latter, this means hiring people with industry experience. As it is, those currently employed by the FSA would most likely be shifted back under BoE contracts (as they were originally shifted out under FSA contracts when the latter was created). In the end, what would we achieve, apart from the equivalent of re-arranging the deck chairs on the Titanic? Previous "banking crises" have seen the BoE in charge of regulation, and how much did that help?

Choosing Your Employees

2009-07-09T11:04:00.000-07:00

The current economic recession has resulted in rumours of employers sacking staff to "upskill" their workforce.

Any employer worth should always be looking for any opportunity to "upskill" and increase their product quality. In theory this should result in better service, better product, and happier customers. The reality may be different, however.

Firstly, assuming that employers have made others redundant to bring on the "better" staff, there will have been an interval during which customers will have noticed the disappearance of the "old" staff whom they knew and who knew them. The duties of those who left will either not have been carried out, or else passed on to over-worked colleagues, resulting in reduced standards, reduced morale and increased resentment on the part of the "survivors". The resulting loss of staff and customer trust and goodwill will take time to repair.

Secondly, the new arrivals will take time to settle in and get to know the company's systems, procedures and their new co-workers. Team-work and efficiency will need to be monitored by senior management, especially as the new recruits will be the objects of suspicion and distrust by their colleagues.

The other factor to consider is the cost of firing any previous workers and then of hiring the "better" ones. Redundancy payments and management time in managing those staff out are the main ingredients of the former, whilst advertising fees, headhunter fees (perhaps) and management time spent interviewing the potential recruits as well as potential union issues will all add up. In the end, is it all worth it?

One option to consider is additional training for those viewed as less productive. Not only will this maintain continuity, it will also increase morale and commitment amongst employees, as well as maintain continuity for customers.

Of course, if there are staff who are not pulling their weight despite all best efforts, they should be subject to normal sanctions and procedures. This will be seen by others as fair and part of the course of business. Beware, however, of using the current recession as an excuse to replace headcount because there is a "natural" reason to do so. Reducing to cut costs is one thing. Replacing because of current circumstances may cost more than it saves.

Bashing The Bankers, Again...

2009-07-08T11:24:00.001-07:00

Almost two years after the current crisis began, we continue to tinker with the system. Why is it taking so long to fix?

The UK government has announced that the FSA will now monitor remuneration packages to ensure that they do not encourage "excessive risk-taking". So the FSA has now become the remuneration committee of the UK financial system in addition to its remit of ensuring financial stability and prudence. The report is short on detail of how this will be achieved, however, as it is difficult to tell where a package that rewards a CEO for good stewardship begins and ends. The whole raison d'etre for banks is taking risk. Some of them just did it better (or were luckier) than others.

We are now at a stage where it is socially (and, it would seem, morally) reprehensible for a CEO charged with sorting out the problems in a government-rescued bank to be rewarded for his efforts. I am talking here about the anger over the GBP9.6million package of Stephen Hester who has stepped into the thankless role of Chief Executive at RBS. Would things be the same if he had stepped into rescue a large UK corporate other than a bank? The question is more, is GBP9.6million too much? If he saves the UK government (and, by extension, the taxpayer) billions, this may be a small price to pay. The labourer is worthy of his hire... Much of Mr. Hester's package is actually in the form of deferred share options, meaning that he doesn't get them unless certain conditions are met.

The general thrust is right in that the Chancellor is trying to return to the concept of "fiduciary" duty of bankers toward their clients. This means that a "good" banker may have to decline to sell a product to a client if it is not in their best interests. However, that same banker should not be held accountable for meeting ever-increasing profit growth targets as these may be diametrically opposed to what constitutes "good" banking. Here is where the interests of shareholders (who want capital appreciation and dividends) and customers (who want safety) differ. It is this difference which needs to be managed carefully. We have seen top management have their rewards cut for their role in getting RBS into its current mess, but shouldn't the person who gets it out deserve to be rewarded for that as well?

We need to change expectations right down the line and this involves a serious re-think of what CEOs are for. Senior management run a company for the benefit of the shareholders who want a return (dividends) on their investment and for the value of that investment to grow (capital apreciation). The shareholders are the ones who vote the top management in (and out), and therefore their wishes are paramount. Shareholders who wield the most influence these days are the large institutional fund managers - pension funds, insurance companies for example - who own billions of shares and therefore have a major say. Is it not up to them to reign in errant CEOs? Of course, their comment would be that they trusted the CEO and Board... The 2007 Annual Report of RBS details major shareholders and makes for interesting reading, as some would definitely have had the expertise to question RBS' strategy.

Banks are different to other industries, as they are the bedrock on which confidence in the financial system is based. If that confidence is lost, chaos ensues (as we saw with Northern Rock). Banks are there to take deposits, to lend to those in need, to sponsor sporting events, to sponsor charity events, to provide safe and stable employment. The number of comments on what is expected of Mr. Hester in the article above just shows how many different stakeholder interests there are in RBS.

Perhaps banks cannot be trustworthy guardians of our financial safety and hugely profitable if the latter depends on taking huge risks. Once this is understood, we have a basis on which to begin. Similarly, it may mean that they will no longer lend to those who cannot repay. This will mean lower profit margins, lower deposit rates, and people who can no longer purchase goods and services on credit, with its attendant impact on the economy. For higher-risk lending, higher rewards and higher capital are the only way to go.

Banks embarked on one of the most ill-advised personal lending sprees during the first few years of the millenium, and the global economy and the taxpayer will be paying for this for many years to come. Banks were turned into "financial supermarkets" run by people who were in some cases not themselves financiers by training. There is little doubt, however, that a lot of the growth that the global economy saw during the same period was also due to the banks being prepared to take risks - and noone saw fit to complain whilst the going was good. Whether the organisation charged with maintaining confidence in the UK financial markets should get into the details of their compensation is a different matter.

The FSA Sharpens Its Claws

2009-07-07T10:50:00.000-07:00

In my blog "The New Two-Speed Financial System" in April 2009, I commented on the risks of a financial system composed of government and non-government owned banks. Recent announcements of more hefty fines by the FSA have just appeared, so what does this mean?

The way I see the FSA's task, there are a number of stages: first, it needs to review itself and understand why it may not have been as effective as it could have been. This has been done.

Second, it needs to be staffed by the right people - those who actually understand the risks being measured and monitored. For this, it needs people who understand the banking system and its products - i.e. bankers. That needs to change and may well be now. The FSA is recruiting again, and bankers are going in.

Third, it needs to be respected by those whom it regulates and by the government. Previous fines have been insufficient to deter what is essentially irresponsible (and, at times, criminal) behaviour on the part of those working in the financial system. The focus on "hitting them where it hurts" (i.e. their pocket books) is long overdue and will also help keep levies down on those who act as good corporate citizens.

Fourth, penalties must also extend to individuals more rather than letting them hide behind the company. Again, this is changing with heavier fines and harsher punishment for those who tempt fate...

Finally, it would be good to see the good citizens mentioned above being rewarded with lower charges for their good behaviour, lower capital costs or even (heresy!) taxes. Admittedly, this would need some thought on how to implement, but what better way of encouraging good behaviour than showing that "virtue has its own rewards"? The concept of fiduciary duty has been all but lost in recent years - this is what British bankers were once famous for. How much would it really take to return to those days?

Swine Flu - Now It's Real

2009-07-04T04:23:00.000-07:00

In April I posted several articles on action to be taken in the event that Swine Flu (its less dramatic name is A H1N1) spread. The UK government has now announced that it has moved from a containment to a treatment phase. If you don't have any contingency plans, now is the time to make them.

Firstly, look at what I wrote in April. I am not an expert on Swine Flu, and much of my advice centres around consulting your GP and medical advisers. This still holds true. YOU will be the expert on what will happen to your business if things do go wrong and staff do not turn up to work.

The UK government has reported nearly 8,000 cases of infection so far, and expects 100,000 per day by the end of August. The focus has moved from prevention now to cure. With the holiday season upon us, people will be moving around more - going away or coming back from overseas and the risk of transmission is higher. If you can, restrict your own movements and follow the "Catch It, Bin It, Kill It" mantra.

Do plan now for your business and what happens to it should you be unable to have all your team present. Get informed through the NHS, your GP and/or medical adviser. Speak to your team, voice your concerns and listen to theirs. Agree plans. If people can work from home (and so minimise their risk of being infected through crowded workplaces), consider making more use of this.

There seems to be no reason for panic. Swine Flu is not a killer of itself yet and those who have died have been the very young, the elderly or those with pre-existing health complications. The risk profile of the virus is still being studied but the NHS advises that the following people are particularly vulnerable:

•People with:
- chronic lung disease,
- chronic heart disease,
- chronic kidney disease,
- chronic liver disease,
- chronic neurological disease,
- immunosuppression (whether caused by disease or treatment), and
- diabetes mellitus,
•Patients who have had drug treatment for asthma in the past three years,
•Pregnant women,
•People aged 65 years and older, and
•Children under five years old.

Be aware, be informed and be careful!

Lloyds And The "Death Of A Thousand Cuts"

2009-06-11T04:00:00.000-07:00

Lloyds Banking Group has appeared again with the latest announcement of job cuts. The press and unions describe the latter as the "death of a thousand cuts", but is this fair?

Another 1,660 job losses were recently announced due to the closure of all the Cheltenham & Gloucester (C&G) Building Society's 164 branches now owned by Lloyds Banking Group (LBG). About 930 will go from C&G itself, with the rest from the Black Horse Personal Loan Division. This is bad news, but there needs to be a sense of perspective on the situation. In particular, three things spring to mind.

Firstly, the takeover of HBOS was conceived and executed in haste and (as Lloyds admitted) without proper due diligence. Can senior Lloyds management be entirely blamed for this, or was there considerable government pressure to step in to avoid another Northern Rock scenario?

The due diligence is happening now as senior management try to work out what to do with the myriad of brands that now form LBG. Simply put, they have too many brands doing similar things. Inevitably, cuts have to be made, especially if LBG are to pay off the taxpayer funds that have been poured in. The question is, how many of these jobs can go due to "natural wastage".

Secondly, there have been questions over the new market position that this gives LBG. According to The Times, LBG has a number of brands in the home loans market following their takeover of HBOS. These include Halifax, Bank of Scotland, Intelligent Finance, Lloyds and Scottish Widows Bank. In the buy-to-let market, LBG has Bank of Scotland, C&G and BM Solutions.

The new LBG controls 30 per cent of the mortgage market, and will certainly come under pressure to shrink (especially as it repays government funding). However, if it reduces its number of brands, it will be more difficult for politicians to press for a reduction in LBG's dominance. Before the recession, such a merger would never have been allowed. In short, LBG need to shed something to reduce the potential for accusations of government funding backing a dominant position. Why keep costly C&G branches open when there may be HBOS and/or Lloyds TSB branches in the same areas? Ultimately, it would be the taxpayer footing the bill for these.

Thirdly, the bad news is almost certainly not over. As management delve deeper into the new organisation, we should expect more cuts. How far these will go, one cannot say.

We don't know if LBG considered selling C&G - one hopes they did - in the hope that a buyer who wanted an "in" to the UK market could be found. However, such buyers at the moment are few and far between.

The effects of the Lloyds/HBOS takeover will take many years to truly come through, not just in terms of headcount, but also in terms of market position, products and systems. This is only the beginning.

A Night Sleeping Rough...

2009-05-18T07:47:00.000-07:00

On 15th May 2009, I joined 300 others to sleep rough in the grounds of Winchester Cathedral in support of the homeless. Here's what it taught me....

I survived the night, not least because the changeable weather forced the organisers to have Winchester Cathedral opened, so we could at least sleep “dry”. Some hardy souls did sleep out the whole night (and were rained on at 3.00am!).

What the experience taught me was that it takes very little to knock you off balance. I was fortunate to have a decent meal before I went to sleep on a dry stone floor, and although you can get a decent-ish night’s sleep if you are lucky enough to find shelter like the Cathedral, you still feel wretched the next day. In particular:

You get tired very quickly.

If you are going for a job interview, your mental faculties will be affected by a rough night out, so the chances of failing the interview (and therfore remaining jobless) are much higher.

Being homeless, you may not have been able to wash and brush up before the interview.

It just showed me how quickly the system can become stacked against you. We need to do more for those who have lost their homes, the numbers of which are increasing as houses are re-possessed, or landlords of property sell without giving tenants any time to find alternative accommodation. Being homeless can turn very rapidly into a downward spiral which leaves you feeling hopeless and puts more pressure on our social services.

One thought that struck me was that the Church complains of losing followers, but could be doing more at this stage by providing an alternative to the various nightshelters. After all, the nightshelters have limited space, but there are more churches and/or cathedrals. I know that this raises a host of security, Health & Safety, insurance and other issues, but surely these could be overcome with a bit of determination and pragmatism? Why not ask at your local church and get them thinking about this? Having a dry, sheltered place to sleep for the night really does make a difference.

One of my most inspiring moments was talking to Des (I have changed his name deliberately) – a recovering speed and crack cocaine addict. Des hit drugs for various reasons – peer pressure and personal problems. He has been off drugs now for 17 months and his ambition is to start his own rehabilitation centre for others. Des is a truly likeable person, has turned his life around, and has a goal in life. He is one of the lucky ones, and his determination and strength of character have a lot to do with this.

If offered the chance, I would do this again and hope that what I have said above gives you a brief idea of the challenges that we put in the way of our homeless through not realising what it is that they go through.

MPs' Expenses...

2009-05-12T05:16:00.000-07:00

We are seeing a huge furore on the expenses charged to taxpayers by MPs across the board. After the populist focus on the monarchy's costs and (more recently) bankers' remuneration, it was perhaps inevitable that those who made the fuss should expect to become the subject of public scrutiny themselves.

MPs who have been exposed claim that they were "following the rules". The rules, however, were written by MPs for MPs - a practice akin to company directors producing their own expense policy without independent review by the board and/or the auditors. No one would tolerate this in the private sector. Some of the claims definitely raise the odd eyebrow - pet food, swimming pool maintenance and, of course, the celebrated porn film claim!

In my view, this is a simple case of "compensation review". We need to re-define our expectations of what we require of our MPs and what it is reasonable to provide in order that they may discharge their duties effectively.

We start with the premise that MPs are employees of their constituencies (the taxpayer) in the same way that executives are employees of their companies. Where is their "office" - in London or in their constituency? My view is the latter, but MPs must also be "out of town" frequently to represent their employer effectively.

In the private sector, if someone has to travel frequently within the UK and/or overseas on company business, the employer meets the cost of being away from home (i.e. accommodation, meals, transport) within strict parameters. The same should hold true for MPs.

What constitutes a "legitimate" expense for an MP? The only way of defining this once and for all is to have an unbiased third party draw up a set of rules based on current private sector practice to fit the modern context. Chlorine for my MP's swimming pool, food for his/her pets and pornographic films are not "legitimate". Travelling up to London and staying there overnight to defend my/the country's interests are.

In the private sector, if my workload is such that I work ridiculous hours and it impacts my health/family life, I have the choice of: staying in a small flat/B&B close to my office from Monday - Friday, moving my whole family closer to my office (with the attendant upheaval this entails) or finding a job with better hours (and possibly less pay) closer to home. These are lifestyle choices that we all make. My employer would not however, be prepared to pay for a "second home" for me except in highly unusual circumstances. Some MPs do not have the choice of where their "office" is if they represent constituencies far from London and therefore need some leeway. Accommodation at taxpayer's expense is not unreasonable here.

Those who choose to serve the public should not be penalised for doing so (nor should their families). If we expect our MPs to be effective, they need a "reasonable" standard of living and of family life. We need to accept that there will perforce be more disruption to their lives and that they need to be compensated. One way forward would be to consider "zones" for MPs so that, the further from London their constituency is, the more travel and/or accommodation they may claim. Any MP living within an hour of London (by train) should not be entitled to a "second home", but to (say) travel expenses between London and their constituency and to hotel accommodation and meals when necessary. The latter should be rigorously scrutinised. Parliament should perhaps consider a "bloc" agreement with local London hotels, or leasing flats for MPs at a fixed rate.

Ministers may need different standards, as I expect the demands on them to be heavier.

Other expenses also need to be reviewed. Again, the only way to do this is through an independent third party who is accustomed to dealing with major corporates. To be sure, some items will need to disappear, and MPs' salaries may need adjustment in order to make them competitive (we want the "right" people in the job after all). However, when all is said and done, MPs need to remember that they are very much accountable to the taxpayer and that the latter is no longer prepared to overlook abuse.

Swine Flu - Services

2009-05-01T07:34:00.001-07:00

I have written so far about what business should be doing from an internally-focussed point of view. However, you need to think of the outside world as well. In particular:

Which essential services will you require to run your business and who provides them? This could be IT support, cleaning contractors, maintenance, inspectors, and (even) bankers! What precautions/plans do they have in place for a pandemic? Will they be able to continue servicing your business? If so, will it be full service, or "best efforts" as they may also be impacted by staff shortages? How will you handle visitors from companies where one (or more) of the staff have come down with flu? What will you do to compensate for a reduced service?

Equally, what is/are are the vital service/services that you provide to others? Will you be able to continue providing them if you have half your staff away due to illness, etc? What allowances will you need to make? What are your customers doing and what would their reaction be if they know that one of your staff had come down with the flu?

Cashflow will be critical. Is your business cyclical, with cash coming in only at certain times of year (and if so, is this the time when you are shortest)? Will your buyers be able to continue paying you? Will you need to make arrangements for extra finance with your bank (will they provide it, if not, what do you do)? Will your cash depend on your ability to honour contracts with clients? If so, will you be able to honour them?

There may be more issues to address, but this will (I hope) get you started!

An Umbrella On A Sunny Day?

2009-04-30T01:49:00.001-07:00

Western banks are reducing their overseas loans according to the Financial Times today. This comes as no surprise - it had been happening already, so quite why did they go into print today? Simple - the Bank for International Settlements published the "official" figures which showed that some USD4.8billion has been removed from the cross-border market.

What this means, though, is that recovery will slow down even more. Banks, whether you love 'em or hate 'em, provide the financial grease that every economy needs to grow. They provide companies with overdrafts, loans and trade finance facilities. All these go towards enabling companies to pay their employees to manufacture goods or deliver services and receive payment from consumers later. Their staff then spend their salaries (after tax) on other goods and services in their country which in turn pay others' salaries and so on. In other words, you create a "virtuous circle" of economic activity.

Remove the finance, and you remove the employees' ability to receive a salary and therefore to keep that virtuous circle going. Someone has to step in, and this time it will have to be governments, the IMF or the World Bank. At the last G20 meeting, additional funding was pledged to shore up the IMF and to provide trade finance. We now need this funding in place and to be disbursed pronto!

Economies most likely to suffer will be the emerging ones, where financing is coming up for rollover at this time as well (just to add to the problem).

So where does this leave us? Short-term, replacement finance needs to be put in place - IMF to the rescue? Secondly, the governments of those countries which have relied on cross-border finance will need to review their strategies and assess how to attract and retain this finance. With developments at the global level, it is possible that banks may be required to hold additional capital in their overseas locations, rather than in one "pot" centrally to be disbursed as they see fit. This will not appeal to banks and will probably result in pricing changing to reflect the additional cost of holding capital in certain countries, but will discourage withdrawals of the sort we have seen.

We are going through difficult economic times, but by withdrawing support to other countries, banks again risk being accused of being the "fair weather friends" that so many see them as. They need friends right now...

Swine Flu - Staff Issues

2009-04-29T07:36:00.000-07:00

Every business owner will have responsibilities and indeed liabilities towards their staff in the event of a pandemic. To really understand what these are, consult your GP/company medical adviser and your lawyer. It pays to know now.

Your employees are your most important resource during a pandemic and they will need to be looked after. You will need to plan for absences due to illness, having to look after loved ones who are ill, or to quarantine. You may be able to reduce these absences by taking appropriate hygiene precautions at the workplace, and to reduce the risk of transmission of virus by allowing those who can to work from home. Decide who is essential for the office versus who can work from home. This is your safest way of minimising risk of transmission.

Have a duty roster of those who need to be in, and make sure that they know who should be in and when. If necessary/possible, segregate critical teams (e.g. financial control). You will need to plan for "worst case" scenarios where only a bare minimum of staff can come in.

Communication is vital - make sure your employees know what is happening and why. Get their feedback and buy-in. A good idea would be to have a GP come in and talk to them about precautions to take at home and in the workplace. Have details of employees' phone numbers (home, mobile) and personal email addresses (data protection permitting - they are not obliged to give you this information in the UK). However, it is a good way of sharing information in the event that you have to go into "crisis mode". If they have company mobiles, you will have records of these numbers.

Delegate responsibility for planning and risk assessment to your team (if you have one). Have regular meetings and updates. The more information is shared, the less room there is for rumour and panic.

Swine Flu - Hygeine

2009-04-29T06:35:00.000-07:00

You need to have a number of precautions in place to make your workplace as hygienic as possible to reduce the risk of transmission of flu. Medical advice should be taken on what these are, but consider:

Having all members of staff wash their hands with anti-bacterial gel on entering and leaving the premises. Have a stock available at all times at entrances to premises and even departments.

Have them wear face masks (if you decide this is necessary) and again have a stock available at all times.

Encourage them to carry tissues at all times and use them to catch sneezes/coughs. Used tissues should be binned as soon as possible.

Work surfaces should be kept as clear as possible and wiped down at the end of the day with a suitable cleaner (seek medical advice as to what is appropriate).

Door handles, bannisters, railings, work surfaces, computer keboards, telephones and lift buttons are a particular source of infection - wipe them down every hour with a suitable cleaner (again seek medical advice - see above).

Make sure that corridors are mopped/vacuumed daily - particlarly in "high traffic" areas.

You will need to get medical advice on the most suitable products for the above activities, and to keep sufficient stocks available. Remember, in the event of a real pandemic, these may be difficult to obtain, so work out how much you need and acquire stocks while the going is good.

Have a local GP come in to speak to your staff on hygiene precautions. This shows that you are a responsible employer and may also be a legal obligation.

Swine Flu - Who Gets In?

2009-04-29T06:28:00.001-07:00

I started recently asking the question about how you run your business in the event of a pandemic hitting. My previous post raised the basic questions that you should ask about staffing and the vital areas of your business. This post covers access.

Most businesses do not operate in isolation. There is a constant stream of visitors - buyers, suppliers, bankers, contractors, inspectors, staff, supply deliveries, interviewees, etc. Under "normal" circumstances, this is part-and-parcel of day-to-day-business. If you have to "button down" your facility to reduce the risk of contamination from outside, you need to decide who gets in. Obviously, the staff necessary to run the business are a given, but who else?

You will not be able to bar access to the outside world completely. Something will break down and will need to be fixed, so decide now what is vital to the business and make allowances for the appropriate outside contractors to visit. Remember that your contractor may also have staff who are sick or otherwise impacted, so they may not be able to service you immediately (if at all). What equipment is vital? When was it last serviced/inspected? If it is not serviced/inspected regularly, does that mean that your business cannot function? What will be the impact on your customers? What actions do you need to take?

Similarly, who will you let your staff interact with? On the smallest scale, will certain departments or teams need to be kept isolated (can they be kept isolated) from each other? A moratorium on travel abroad makes sense, and only essential visits to other organisations should be allowed (you don't know what precautions, if any, they are taking and whether they are as thorough as you are).

Staff should also be encouraged to minimise visiting family, friends and crowded places. This is easier said than done, but make them aware of the risk of transmission if they maintain a high level of exposure to the outside world at a time when the threat of contamination is higher.

Check your child's school to see what precautions they are taking - children are very good at passing on "bugs" and schools are being closed. Does the school have plans to close if certain events occur? If so, what will this mean for you? Will you need to arrange child care (or look after the child yourself)? Will this impact your ability to go to work? What about your staff?

For those who do have to visit your business, have a set of hygiene precautions. Your GP can help here, but this can be what you want. You may want to include questions about whether they have recently met anyone who has/might have been exposed to the flu and/or whether they have recently been quarantined for suspected flu symptoms. Obtain contact details and an undertaking to inform you immediately if they should contract the flu. Have them wash their hands with an anti-bacterial gel (get medical advice on the most suitable one to use) and if you feel so inclined, make them wear a mask. You should have a stock of these and of hand wash at the entrance to the premises, along with your questionnaire. Make sure that they have contact only with those whom they have come to visit and record these details. You may decide to use one designated area only for meetings to help minimise the risk of transmission to others. Ideally, this should be a room with good ventilation that can be cleaned easily.

For essential deliveries of office supplies, etc, can they be delivered outside? Make arrangements with the supplier and explain why. It is for their protection as well as your own.

Where your business relies on a flow of customers (e.g. supermarket, restaurant), what can you do? What health advice is there from your GP? Will you have to change the way you operate, and if so, what is the impact?

Swine Flu

2009-04-29T06:03:00.000-07:00

It's still too early to know whether we have a genuine pandemic on our hands or whether we are seeing the usual media storm in a teacup with swine flu. Yes, some people have become infected, and tragically there have been deaths, but not all attributable to swine flu (yet). A sense of perspective is needed here and also some planning in case things get out of hand. The last time I did a plan for a pandemic was during the bird flu scare of 2006, and much of what I did there is relevant here.

You have a duty as a responsible business partner and employer. Get this right, and your business will benefit from your foresight. Get medical and legal advice as to your obligations.

The first thing is to know your enemy - so understand what Swine Flu is, how it spreads, what the current situation is and what precations to take. Wikipedia gives a good start here, as well as the UK government where you can find up to date information. The NHS also provides useful advice and answers to questions.

You should also speak to your local GP or company medical adviser. Basically if you have any doubts, get checked up, particularly if you have recently been abroad or in contact with someone who has. The good news at the moment is that we are only seeing mild discomfort occurring and that this can be treated successfully if caught early enough.

The problem with pandemics is that transmission of the disease often occurs before the carrier manifests any visible symptoms. They are thus likely to have infected others before they realise that they themselves are infected.

If things get serious, then you need to think about how this impacts your business and will need to develop plans. Remember that not only your staff will be impacted, but also your suppliers, buyers and others with whom you have to interact on a daily basis. This includes cleaning, maintenance, electrical contractors and even the forces of law and order and the health services. Will those on whom you depend have planned as well as you? If they haven't, what does this mean for you? Which vital services/supplies do you need to secure?

Be ready to lose staff who either contract the flu, who have to quarantine themselves because they may have been exposed to others with the flu, or who have to care for family members (children, partners, parents, etc). What are the vital areas that have to be manned? What is the minimum number of staff you need? Can people cover for each other? Which key staff need to be covered? Which staff are single parents and therefore possibly more at risk of being absent for longer? How long will they have to be out before they are "safe" again? Your GP/company medical advisor should be able to help here.

Can your business be shut down for up to two weeks without loss? If you are self-employed and need to work, will your clients want you to delay projects whilst they develop plans (or indeed, shut down themselves or ban all non-essential outsiders)? How much cash do you need to survive for two weeks (and how much do you have)? Assume that you will need to pay salaries, VAT, taxes, rent, etc as normal. Does your business rely on customers coming in to buy (e.g. supermarkets, department stores, restaurants)? How will you cope and what will you do to minimise risk? Again, speak to your GP. You may have to consider being forcibly shut down if the health authorities feel this is necessary - can you survive?

I will be writing more about how to look at the other parts of your business and basic hygiene precautions.

A Budget To Die For?

2009-04-24T02:19:00.000-07:00

There has been more analysis of Alastair Darling's latest budget than I care to examine in-depth. I do not usually comment on economic affairs, but thought I would put my ten pence worth in here...

These are extraordinary times, and to expect an extraordinary budget would have been perhaps asking too much. The Chancellor had little room to manoeuvre - falling markets, nothing left in the government coffers, and a need to support Britain in getting back on its feet. What he seems to have done is produced a budget that sort of encourages businesses, but disincentivises those who run them. I am focussing here on the proposed tax increases and allowance removals/decreases for those earning over GBP150,000 and GBP100,000 a year. Whilst hitting these would appeal to the majority (and indeed, the Times Populus Poll already suggests that this is the case), does the Chancellor really want to antagonise those who will (one hopes) drive Britain's recovery? He annouced an increase from 40% to 45% only last November, and now he has lumped another 5% on top within six months. This is going to produce a lot of uncertainty for our entrepreneurs and those who might have invested in/moved to Britain - is this a wise idea at this critical time? William Rees-Mogg doesn't think so...

Whatever the Chancellor thinks he will get in increased tax revenues from high earners, this will not happen. They will either leave, or re-structure their compensation. As for reducing allowances on their pension contributions, this seems to be a way of taxing those who save for their retirement (when they will then spend it!).

As for those who were looking to invest in Britain, they will now be turned off until at least the next general election.

Of course, the higher taxes appeal to the vast majority - only the top 1% of earners will pay them, so this is a cheap and populist way of garnering support. As businesses and/or wealth-creators relocate and take jobs with them, will people be so pleased?

We needed a budget to help us get out of recession. This needed to include support for businesses, wealth creators and cuts in some of our highly unnecessary public spending. We have support for businesses and cuts in public spending, but those who drive the future are being penalised in the name of short-term populism. Let's hope that they can re-structure their own packages to keep themselves where we need them!

Whither Risk & Regulation?

2009-04-14T06:38:00.000-07:00

I attended an interesting seminar last week on regulation by FRS Global. It turned into a bit of an advert for the company's product (well, they were sponsoring it and their staff were the speakers!), but some very interesting stuff came out of it.

Firstly, there is no doubt that we will have more requirement to manage risk, and can expect more regulation. The question is, will it all be better? Regulation should consist of three points of focus: assessment (where is our risk?), measurement (how much risk do we have and how much capital do we have?) and policies (how much risk and of what sort do we actually want and how much capital is needed?). It also needs to be "cycle-proof" (i.e. be capable of covering good times as well as bad). Raghuran Rajan in The Economist points out that we feel most need to regulate in times of crisis (witness Gramm-Rudmann and Sarbanes-Oxley), and this tends to result in more problems in the long run.

"Old" regulation consisted of the balance sheet ratios that we saw up until the 1980s, Risk Weighted Assets and Minimum Capital Requirements. Then along came Basel II which was meant to improve things with more sophisticated risk-weighting and taking guarantees and concentration risk into account. The shouting hasn't stopped on this...

The problem with all of this was that it was backward-looking - i.e. focusing on past performance. It was also book-value oriented, slow, expensive and inflexible. Regulators have also been accused of taking a too light touch approach in good times when things were already starting to go wrong.

The "New" regulation needs to encompass better coverage of risk exposure, the acquisition of better and higher quality capital, higher liquidity buffers, stronger risk management, more transparency of risk portfolios and stress-testing. It also needs to be enforced by regulators who are respected in markets and governments.

Interestingly, there was general agreement that we need to have more focus on system-wide supervision to include hedge funds, rating agencies and compensation for top executives as well as limiting the size of financial players. Rajan also argues for a system of capital infusion when institutions or the system are in trouble and for systemically important and leveraged firms to buy insurance (fully collateralised) to capitalise themselves when the system is in trouble.

In all, the "New" regulation has to be forward-looking and this will require comprehensive reform, but not reform that is overly burdensome and inflexible. In theory, we would have an ideal situation where there is no difference between regulation and risk management. We would have new rules which are simpler and more effectively enforced. I would also expect to see better cooperation on the international front, given the scope of the current crisis.

Will this come to pass? Who can say. There are any number of barriers, including sectoral self-interest, national self-interest and inevitably the argument of how much this will all cost to put in place. Even if it does happen, my greatest concern is that once the good times roll around again, those with wiser and more cautious heads will be ignored again as the sun shines....

And Now For Something Completely Different...

2009-04-08T08:35:00.000-07:00

All work and no play makes Jack a dull boy, as the saying goes. As a result, I felt I should let you in on a little secret for those on budgets. There are two sets of self-catering cottages that I have visited and can thoroughly recommend.

You will find them at La Croix in France and at Broadway.

They are run by my brother and a long-standing school friend respectively. La Croix is well-situated 2 hours from Bordeax or 45 minutes from Limoges. Broadway Manor Cottages are (as you would guess) in the Cotswolds. You will get a warm welcome from both and a great choice of activities. I will not, of course, guarantee the weather at either!

Maintain, Deepen and Niche

2009-04-07T05:00:00.000-07:00

This is worth a read for small businesses (and perhaps some of the not-so-small). I have been banging on about what to do during the recession. The attached link to briquesetclics makes great and easy reading.

The author - Richard Martin - is my brother. He has been in the consulting game for most of his life, has crossed China and Russia on the trans-Siberian armed only with a Swiss Army knife (the only management tool I ever lent him!) flies his own plane and rents out holiday cottages in France whilst looking after his family and assorted domestic pets.

Enjoy!

Will You Miss The Boat?

2009-04-06T12:03:00.000-07:00

It is still too early to say whether we have reached the trough of the current recession. The rate of layoffs seems to have slowed (despite RBS' recent efforts), the G20 have committed USD1.3trillion to re-boot the world economy, and there seems to be less bad news on the property front.

We can't expect industry to re-hire everyone who has been laid off immediately. My view is that now is the time for companies to start thinking (see my posting What Next? on 16 March) about their talent pool. Many will have pared staff down to the bare minimum to survive, but need to think about the future now. Some have offered reduced working weeks (on lower pay) or sabbaticals to staff, rather than incur the cost of firing and then re-hiring. These are the sensible ones.

The ones who risk oblivion are those who currently turn away people enquiring about opportunities, saying that there is a "hiring freeze" in place. By turning people away, these companies are putting themselves in a position where they will be at a fundamental hiring and cost disadvantage when the economy or their businesses turn.

When things do move again, the reaction of organisations will be to hire. Those who have continued to talk to candidates (and they are out here - I know) will have a pipeline of CVs and contact details, with the potential to proceed immediately to second-round interviews and hire at reasonable salaries. The others will be delaying their recovery and giving an advantage to competitors by playing catch-up in a market where demand for candidates is increasing and where they may have to pay more to attract good applicants.

It is early days yet, but you know what they say about the bird...

The New Two-Speed Financial System?

2009-04-05T13:01:00.000-07:00

Governments have moved to take control of banks deemed "too important to fail". What is this actually going to mean?

Essentially, we are seeing banks being nationalised in order to save them (and economies) from tumbling even further. Some banks, however have chosen not to rely on government stakeholdings to shore themselves up, preferring instead to raise new capital (HSBC) from investors or to sell assets (Barclays) to strengthen their capital base. This is likely to result (for the next few years anyway) in two different types of bank operating alongside each other: state-owned and private, with pros and cons for both sides. For the "state-owned" banks, the advantages will be:

* Implicit government guarantees;

* Access to further capital if needed (this may be politically unacceptable to taxpayers);

* Possible "first bite" at any lucrative government contracts (unlevel playing field?);

The disadvantages will be:

* The "stigma" of being nationalised;

* Possibly not being able to attract top talent needed to turn them around;

* Uncertainty over how overt government influence on management will be (potential for being asked to make loans to "politically sensitive" but economically unviable industries;

* Potential for increased bureaucracy;

* Potential for reduced innovation;

* Potential for compensation to be set at unrealistic levels.

The advantages for those banks that remain outside government hands will be the opposite of the disadvantages listed above. Similarly, the disadvantages will be the opposite of the advantages above. History tells us that non-government-owned banks generally fare better and can attract better management. Nationalisation or majority ownership should only be seen as a temporary solution and governments should rid themselves of their shareholdings as fast as possible to reimburse taxpayers who will have enough burden to carry for the foreseeable future. Equally, if the effect of nationalising is to stifle innovation and competition, this will ultimately harm consumers.

The secret in not letting such a problem arise again is firstly more effective regulation by regulators who understand the risks, are properly staffed by those with industry knowledge (who are paid accordingly), and are respected by those regulated and by government. This will cost more, and it is only fair that the institutions regulated pay the bulk of this. To make it fairer, institutions or those parts of their businesses classified as "higher risk" should pay more. If this risks making the UK market less attractive as a financial centre, then the taxpayer should be willing to shoulder a higher proportion of the regulator's cost as we have seen that the consequences of failure of regulation are much higher.

Secondly, we need to see a return to the concept of fiduciary duty imposed on those at the head of banks and other large financial institutions. There will still be a need to take higher risks, and for these the financial services industry needs to be properly re-structured and ring-fenced to prevent one bad apple spoiling the whole barrel. If capitalisation becomes an issue here, then either a new system of risk mitigation is needed, or riskier industries must be financed at government level. Until then, expect a two-speed system.

Frameworks For The Future?

2009-04-02T09:04:00.001-07:00

The Financial Stability Forum has, we are told, come up with a framework for the future to minimise the impact of crises in future. What does it mean for us?

The Financial Times reported that central banks and regulators are to draw up detailed plans for dealing with large international banks that get into trouble in an effort to limit the fallout from future crises. So far, only general details have been reported, but they include:

* The FSF meeting once/year to discuss what to do in the event of a large international bank getting into trouble;

* Revamping capital requirements to require banks to put away larger amounts during good times to draw down on in bad;

* More focus on risk;

* Global coordination amongst regulators;

* An overhaul of bonus systems to encourage longer-term thinking;

* A process on bailing out insolvent international banks.

Cynics would say "so what?" - this is merely shutting the stable door after the proverbial horses have bolted. I wrote a piece last month about regulation, and still want to see more detail. We do need a more robust global regulatory system to acknowledge that the financial system is now global. However, the trick will be to get countries to put national interests aside for global ones. Is it fair that a taxpayer in France, for example, should be expected to pay for the demise of an American bank?

The overhaul of risk monitoring also needs thought. So far, neither regulators nor senior bank management have covered themselves with glory here as Nouriel Roubini pointed out - what will change? Yes, set aside more capital in good times, but will bankers start to find ways round this after a few good years? How much needs to be set aside, and will there be a mechanism to release it to shareholders? What will be the impact on performance ratios? We have just seen that US banks are being given more flexibility on fair value accounting, the effect of which will be to allow them to re-state the value of certain assets. European banks, however, will not benefit, so what happens now?

Equally, the bonus system (as I wrote in March) will keep lawyers and compensation consultants busy for months (if not years). At least someone stands to make money out of this, if not the bankers themselves!

Tools For The Job

2009-04-01T10:11:00.000-07:00

Been watching some interesting debates on the sort of person needed for these turbulent times. Whilst individual views differ, the same broad trends emerge (in no particular order).

Adaptability: you must be able to think and move on your feet. Jacks-of-all-trade are likely to be more in demand as these people show flexibility and can react quickly to changing circumstances.

Thinking outside the box: specialists may not be able to "see the wood for the trees". What are needed now are solutions and "blue sky thinkers".

Leadership: people with a "can do" and "take charge" attitude.

Ruthlessness: well, not sure about this. Do you want someone who will alienate the workforce and/or customers? I would describe this more as "focus".

Revenue/Cost-Consciousness: you must have an eye on the bottom line. Will a proposed action make or save money?

Focus on Customer Satisfaction: if you depend on others buying your goods/services, you had better make sure you know what they want and deliver it immaculately. Unless you are a monopoly service provider, there's too much competition out there. Staying close and preserving that annuity income is probably more important than generating new sales (which will come of themselves anyway if you stay close enough). Have a look at what Michael Heppell has to say on the art of brilliant service.

Ability To Plan For Alternatives: many companies are having trouble forecasting what will happen in the next quarter, let alone year. Some have (sensibly) decided that the only way is to plan for different scenarios and to devise actions for each. Takes more time, but if it saves you...

Attention to Detail: it's no good having great plans if you can't work out how to implement them. Have the ability to delve into detail, or get someone on the team who can.

You won't necessarily find all the above in one person, but if you have these skills in the senior management team, you're off to a good start.