Superior Returns for Your Shareholders

WHAT HAVE YOU LOOKED AT MOST?

This blog series started in February 2009 - but which post has attracted the most visits since then? It was July 2010. So we wondered why? Is it because it contains the answer that MOST business leaders need to find?

So let us repeat the central message of that blog - 

If you want to generate superior returns for your shareholders, not just for this year or next but sustainably into the future, generation after generation then doing all the right things and doing them really well has to be at the core of your business philosophy and strategy. How can we make this assertion?

 

Well first from many years of business experience, including learning from our many mistakes in not doing all the right things and/or not doing them really well. Then nearly 20 years of working with clients as business coaches and learning what really enables sustainable, superior business performance and what does not. But it’s not just us; the research of several eminent business and economic experts backs up our experiential conclusions. For example:

• Professor Vinod Singhal of Georgia State Institute of Technology, whose extensive research into the effective implementation of TQM demonstrated that those businesses that achieved and sustained this were twice as profitable as the average business.
• Robert Buzzell & Bradley Gale whose work on the Profit Impact of Market Strategies identified the crucial importance of Relative Perceived Quality by the customer as a key driver of profitability, described in their book the PIMS Principles.
• The work of Robert Kaplan and David Norton on the development of Balanced Scorecard demonstrated clearly how financial performance is an outcome of the quality of everything that goes before.
• Jim Collins research on what makes a good company able to become a great company, described in his book “From Good to Great”.
• Michael Jarrett, Adjunct Professor of Organisational Behaviour at London Business School, whose work published in his book “Changeability” in 2009 confirmed our own work and experience when we first defined and publicised this new business culture criterion in our “Why Excellence” seminars in 2003.

So not only is it Common Sense but a lot of work and research by some really bright people says that common sense works and works better. To actually make it work in your business requires you to find the answer to two questions.

What are all the right things?

And

What does doing them really well actually mean?

What does this mean in real life for you?

Finding the answer to these two questions can be made very complicated and can produce very large and intricate action plans, policies or strategies – and that is what happens far too often.  Or it can be made very simple with clear expectations for everybody involved .  There is no doubt in our minds that the exceptionally successful companies are those that have learned how to make finding these answers very simple.

In other words, it is not what they are doing that is different.  It is how they think about what they are doing that is different and that is what makes the difference in the results that they obtain.

Capitalism or .... Common Sense is brought to you by Steve Goodman & Tony Ericson, partners in ChangeWORLD &Achievement Coaching International where we help businesses to learn different thinking to enable different actions that deliver the different results that Make a Big Difference. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish a new article on one of these blogs reguklarly using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at -Exceeding Expectations - You're having a laugh ... seriously-Business Bloop of the Month Award - and you can catch up with our weekly commentary on The Week before This Week

easyJet – showing the way?

More fun and games in the Boardroom at this iconic company.

Sir Stelios Haji-Ioannou with his family controls about 37 per cent of easyJet’s shares. He has just demanded a vote to remove Professor Rigas Doganis from the airline’s board of directors. He blames Doganis for allowing easyJet to buy new aircraft at the start of the year, shortly before it announced a steep increase in first-half losses.

Professor Doganis is the former chief executive of Greece’s Olympic Airways which, we might remember, was the subject of a lengthy and drama packed (it’s Greece!) closedown in 2009 after it became insolvent, several times over. Was the Professor invited onto the easyJet Board before or after that disaster – if before, what conflicts of interest were declared? - and if after, why on earth, why?

Stelios is right to want to purge this Board and re-direct this company towards solid Competitive Strength instead of the mindless and reckless expansion of capacity that seems to obsess The City, financial pundits and this company’s directors. He knows that simply Big is not necessarily Better. The last three years ought to have taught even the thickest of Market Analysts that sales expansion based on leveraged debt (such as purchases of rapidly depreciating assets) is suicidal.

The key to massive comparative Competitive Strength is simple, it is Excellence. In everyday language that means outstanding operational, behavioural and managerial competence. Perhaps that was why the easyJet Board recruited the Professor? Hang on, can anyone remember Olympic Airways’ customer service reputation? So that wasn’t the reason.

In 2001 Zook and Allen of Bain & Company published "Facts about Growth" in which they demonstrated that "only 1 in 7 companies generates sustained, profitable growth and creates long-term shareholder value". It is easy to see why this is true as long as this quality of non-executive director remains in influence. How and why such people are appointed is the big question. And that brings us to the key influencers and the fundamental structure of the Finance Industry as it currently exists. So long as the same closed community of people keep on giving each other jobs, subscribe to their “don’t rock the boat” Mutual Protection Club, and trade benefits and influence, to keep on doing that they have always done the way they have always done it – nothing will change.

If our economy and our way of life is to survive, we face a big choice - it is not Capitalism versus an alternative (a what? Socialism doesn’t work, Statism doesn’t work, Dictatorship can work but only as a temporary fix, and our way of life won’t survive any of them) – it is between Capitalism The City Way or Capitalism with Common Sense.

Stelios wants Common Sense – he is right, we all need it. And that means different thinking to enable different actions - and that is our special expertise.

Capitalism or .... Common Sense is brought to you by Steve Goodman & Tony Ericson, partners in ChangeWORLD & Achievement Coaching International where we help businesses to learn different thinking to enable different actions that deliver the different results that Make a Big Difference. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish a new article on one of these blogs every month or so using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at - Exceeding Expectations - You're having a laugh ... seriously-Business Bloop of the Month Award

Has Dawn broken in the Bank of England?

The Times

Sam Fleming Economics Editor Last updated September 3 2010 12:01AM

A senior Bank of England official reignited the debate over levies on financial transactions yesterday, saying that policymakers needed to address the “myopia and volatility” in the markets.

Andrew Haldane, executive director for financial stability at the Bank, said that disincentives may be needed to tackle endemic short-termism. They could include levies on investments to promote longer-term behaviour and discourage high-frequency churning, Mr Haldane said in a paper to be delivered at a Beijing conference.

It’s a bit like the moment when the little boy said “But the King has no clothes”. Finally, someone "inside the system" is questioning the prevailing mind-set. A senior member of the City’s establishment is beginning to wonder if keeping on doing what they have always done may not make anything different; you may remember Rita Mae Brown’s definition of Insanity?

The psychology of change tells us that the first reaction to the need for something to be different is Denial. We certainly have had years of that. The second reaction is Resistance that ranges from irritation to aggression, and we have heard plenty of that over the last two years, mostly in the form of elaborate self justification. (Yes, self justification is a known behaviour of those resisting unwelcome realities). The third reaction is Exploration, the urge to start to look for the possibility of making something different happen. Mr Haldane has just arrived, welcome.

We have written at length on this topic in this blog series starting with our August 2009 blog Cracking the Bonus Culture - Why Regulation cannot be the answer. In that post we drew attention to the lessons of Control Theory, understood by all engineers (who are trained in scientific thinking), and ignored by economists (who, sorry guys, do not understand it). We asked what effect some form of transaction damping (as now postulated by Mr Haldane, joining a small vanguard) could have. We opened up a question, that develops in later posts and is fundamentally germane to understanding the issues and behaviours, of what the real difference might be between money and true wealth.

So, it is Told You So, again. In which we take little satisfaction, except in the hope that Mr Haldane may have opened the door to a more informed debate and to the beginnings of effective change in the way that the people in the financial world think about what they do and how they do it. We know that changing the bad habits of ages is not easy, and that it can take many years. Indeed, the claim that it is so difficult and so slow as to be impossible is a common self justification (there it is again) by those resisting change.

This is our speciality. We have spent nearly 20 years developing, and proving in action, tools, techniques and skills that enable highly accelerated change to attitudes, values and behaviours. More important, since we are a very small partnership, we have invested massively in making these tools, techniques and skills both transferable and transportable. Any leadership can engage in the personal discovery and coaching programme that will enable it to create its own change leadership resources to deploy with its own employees to make the differences that they need.

Thank you, Mr Haldane, for bringing Common Sense to Capitalism. Can we help you make something different actually happen? It is what we do. There is much to discuss, there is so much that may seem impossible that is feasible, and so much more that can be achieved so much faster than might be imagined.

Capitalism or .... Common Sense is brought to you by Steve Goodman & Tony Ericson, partners in ChangeWORLD & Achievement Coaching International where we help businesses to learn different thinking to enable different actions that deliver the different results that Make a Big Difference. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish a new article on one of these blogs every month or so using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at - Exceeding Expectations - You're having a laugh ... seriously -Business Bloop of the Month Award .

CEO Makes Suicidal Announcement?

From The Times – 6^th August 2010

The culture of corporate short-termism was attacked by the chief executive of Unilever yesterday after the consumer products giant reported first-half results that failed to live up to City expectations.

Paul Polman said that the company had had to spend more on marketing in its fight to retain market share, with competitors cutting prices in a tough consumer environment. Against this backdrop, the company would have to pass on rising commodity costs.

The challenge will put profit margins under pressure, but Mr Polman indicated that he was not concerned if Unilever had a weak three months and margins fell, saying that, in an ideal world, the company would not even report quarterly figures.

“A lot of problems the world has found itself in are because people were chasing quarterly targets,” he said

He has scrapped profit forecasts and said that he has cared more about consumers than shareholders since starting his job about two years ago.

Mr Polman said that Unilever was making good progress on making the business more sustainable and environmentally sound, which he believes is starting to resonate with consumers, as well as motivating staff.

Mr Polman is right – but is this the best way for him to be communicating his message?.

And this difficulty in communication highlights what is wrong with the relationship between The City, and its following of financial journalists, and those that carry the responsibility for the actual stewardship of others’ fortunes.

What Mr Polman could have said is -

In the interest of shareholders, and all our stakeholders, we have managed to build a high level of Competitive Strength in our organisation. The resilience that this has delivered means that, despite the recent adverse external factors (as described above), we have maintained profitability and ensured both long term security, and the opportunity for future growth, of your investments.

In particular, we have set and maintained our sharp focus on our customers, one of the drivers of our Competitive Strength which has also enabled us to increase our environmental soundness, which I believe is starting to resonate with consumers, as well as motivating staff.

Our focus is on the long term generation of real wealth for our shareholders, employees, suppliers, customers, and communities. We will keep our eyes on this horizon knowing that, from time to time, short term reporting figures may not be welcomed by the tiny minority whose personal remuneration may depend on them. That is a problem for them to debate with their paymasters, and not to seek to disproportionately influence the fortunes of the other stakeholders in this and other vast enterprises. We are confident that our competence in the operation of our business is such that we will maintain and grow the Competitive Strength (profitability, market position, market leadership, growth and resilience) that will ensure the future, and not risk it by short term excursions from our path.

Unfortunately the concept of Competitive Strength is not widely understood.. If it were, then more CEO’s would be able to show the “Financial Experts” another, and perhaps less narrow, way of looking at their responsibilities. More plc leaders might then look upon their own role less as “Bookies’ Runner” for the instant profit seeking, greedy, gamblers in The City and more as “Bloodstock Breeders” of sustainable wealth for the communities and nations in which they trade.

Comparative Competitive Strength is the most certain indicator of long term financial success and sustainability. It can be measured rapidly and straightforwardly with less than two hours of working time and within a week.. The lessons and insights of that measurement can be understood and acted upon by a business leadership team within a working day. It really is that simple.

Possibly too simple for many who continue to rely on the Financial Analysis insights of those with strongly vested interests and short term objectives. Mr Polman is right. However, he should not expect those whose self importance he has so sharply punctured to be grateful – and it will be no consolation to him that many of them will not have understood what he is saying. Mr Polman, and other CEO's showing weak short term results, would have a stronger argument if they could objectively demonstrate long term Comparative Competitive Strength.

These are times that demand different thinking for different actions to get the different results that our economy so badly needs. Mr Polman has raised the banner – will others follow? Will the growth of outcome centred thinking start to over ride the task centred short termist attitudes that have limited business thinking and performance results for so long? Will Common Sense, as so elegantly embodied in the Achievement Process, cut through the tangles of managerial complexity that are frustrating excellence in so many organisations? It is time for a Revolution in UK Business. It is time for Simple Common Sense – the ideas are simple but the transition is not easy.

Capitalism or .... Common Sense is brought to you by Steve Goodman and Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. Each blog has a new article each month using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at “Exceeding Expectations","You're having a laugh ... Seriously?", "Business Bloop of the Month Award".

Stephen Green, HSBC Chairman, gets it!

Earlier this week Stephen Green, HSBC Chairman, challenged the free market economic guru Milton Friedman’s assertion that companies should focus on shareholder value above all other considerations. In a lecture on “Tomorrow’s Value”, an event organised by think tank Tomorrow’s Company and the Chartered Institute of Management Accountants, Mr Green said:

“What is the purpose of a business? Friedman says the social responsibility of a business is to make a profit. But that will no longer do. Plain common sense will tell you that that cannot do.” Plain common sense will tell you that you have to have a sustainable business model.”

So he gets it. It is not “Capitalism OR Common Sense” it is “Capitalism AND Common Sense”.

But does he get it all and can he explain it in ways that others, particularly the 300,000 people in HSBC can understand and actually implement? Not quite we think. He is still talking in terms of the need to earn a satisfactory return on shareholders’ risk capital but with some add ons like building lasting and sustainable relationships with other stakeholders and finding a real place for corporate philanthropy in business processes and activities.

All good stuff but it still misses the point; not by much but the margin is sufficient to confuse the thinking. The crucial point is that if:

“You do all the right things and you do them really well one of the results will be superior profitability and returns for shareholders.”

Profitability is an outcome which Mr Green sort of understands but when he describes profit as a “… by product, a hallmark of success. It is not the be all and end all. It is not the raison d’etre of business” you can see he hasn’t quite got it.

If you want to generate superior returns for your shareholders, not just for this year or next but sustainably into the future, generation after generation then doing all the right things and doing them really well has to be at the core of your business philosophy and strategy. How can we make this assertion?

Well first from many years of business experience, including learning from our many mistakes in not doing all the right things and/or not doing them really well. Then nearly 20 years of working with clients as business coaches and learning what really enables sustainable, superior business performance and what does not. But it’s not just us; the research of several eminent business and economic experts backs up our experiential conclusions. For example:

• Professor Vinod Singhal of Georgia State Institute of Technology, whose extensive research into the effective implementation of TQM demonstrated that those businesses that achieved and sustained this were twice as profitable as the average business.
• Robert Buzzell & Bradley Gale whose work on the Profit Impact of Market Strategies identified the crucial importance of Relative Perceived Quality by the customer as a key driver of profitability, described in their book the PIMS Principles.
• The work of Robert Kaplan and David Norton on the development of Balanced Scorecard demonstrated clearly how financial performance is an outcome of the quality of everything that goes before.
• Jim Collins research on what makes a good company able to become a great company, described in his book “From Good to Great”.
• Michael Jarrett, Adjunct Professor of Organisational Behaviour of at London Business School whose work published in his book “Changeability” in 2009 confirmed our own work and experience when we first defined and publicised this new business culture criterion in our “Why Excellence” seminars in 2003.

So not only is it Common Sense but a lot of work and research by some really bright people says that common sense works and works better. To actually make it work in your business requires you to find the answer to two questions.

What are all the right things?

And

What does doing them really well actually mean?

If you want to know more about how to find the anwers for you, your people and your business then give me a call, Steve Goodman, 07802 385586 and visit our change website at www.changeworld.co.uk and our Business Breakthrough Coaching website at www.achievementcoachinginternational.com

Capitalism or .... Common Sense is brought to you by Steve Goodman and Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. Each blog has a new article each month using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at “Exceeding Expectations","You're having a laugh ... Seriously?", "Business Bloop of the Month Award".

“We’ve kind of woken up” - Gosh

From The Times February 12, 2010

Private equity hit as Blackstone shelves Merlin IPO

Helen Power, Dominic Walsh and Marcus Leroux

Extract

“However, the shelving of the IPO plans will reinforce how hard it will be for private equity firms to convince sceptical institutional investors to subscribe to their issues.

Andy Brough, the manager of Schroders’ FTSE 250 fund, said: “Personally, I just wouldn’t buy anything off private equity — they’ve had their chance.”

Several other leading fund managers have said privately that they would not back private equity issues because of the “Debenhams effect”, a reference to the retailer that was taken private on the cheap by TPG and CVC, then refloated laden with debt.

Mr Brough said: “What does private equity do? They arbitrage the ignorance of fund managers. Well, we’ve kind of woken up.””

Gosh, “we’ve kind of woken up.”

Well, it’s all a little bit late, mate. Here you all are, very highly paid “expert fund managers”, in whose hands lie our pensions, savings and insurance funds, and you have “kind of woken up”. Our pensions, savings and insurance funds have all shrivelled under your expert care for which you continue to charge “management fees” even though, to judge from the results, there seems to have been precious little effective management going on. And now, you have woken up – and yet there is no evidence that you have understood the foolishness in which you have been such active participants. The only learning appears to be at the school playground level – “I shan’t trust little Jimmy any more”. Oh dear.

We told you so in this blog – nearly a year ago -

TUESDAY, 31 MARCH 2009

M&A thinking may still be common, but does it make sense?

So we will say it again -

The only way out from this shallow unthinking herd behaviour is to return to a solid focus on tangible wealth creation – to get back to Common Sense. The only reliable indicator of tangible wealth is deep underlying sustained long term profitability – the investment criteria upon which Warren Buffet patiently, steadily and lengthily, built his own and many other’s fortunes.

The most reliable determinant of massive financial strength, potentially solid wealth, is Excellence. Robust academic research has proved beyond reasonable doubt that the very best businesses in the world can deliver financial returns that are 50% to 100% better than the average.

All of this in the week in which, yet again, a massively debt laden corporation takes on even more debt, which will become secured against the assets of its target, to seize control of a healthy well run company. The same old “Big is Better” nonsense has been trotted out. The same old greedy “experts” have grabbed their millions. The same old workers face uncertainty and fear. There will be tears in the next few years. Great, and for what? Who is going to "have woken up" and when. this time?

Too many in the Financial World cannot tell the difference between Big and Excellent - and this is destroying capitalism.

If something does not change, then nothing will change.

If you want to know more about all this alternative point of view, how you can spot the tangible wealth creators in advance and why Common Sense pays off handsomely, please have a look at our website where you will find out about - Competitive Strength, what this is and why it is crucial to financial performance – and about Changeability, the essential attribute for Excellence.

Capitalism or .... Common Sense is brought to you by Steve Goodman and Tony Ericson. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. Each blog has a new article each month using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at “Exceeding Expectations", "You're having a laugh ... Seriously?", "Business Bloop of the Month Award".

Turning Forwards – Getting Back to Common Sense

Where does Capitalism stop being Common Sense?

In our last post “I’m Walking Backwards to Christmas …” we talked about wealth creation. And, being a bit ambitious, we offered a definition of real wealth . There was too much else to address in that post but we think we left some assumptions hanging. And we think that these assumptions are central to our Capitalism or Common Sense theme.

First and foremost, we assert that there is a fundamental difference between the creation of wealth and the acquisition of wealth.

§ The creation of wealth means that the sum total of real wealth is increased regardless of anything to do with possession.

§ The acquisition of wealth means that the sum total of real wealth is not increased, merely shifted from one possessor to another.

This reflects the Laws of Thermodynamics, the first of which states that a simple Perpetual Motion Machine is scientifically impossible. In other words, you cannot have Output without having Input – and that isn’t just science, it’s Common Sense. This principle is not limited to just physicists’ Energy; we can take the view that wealth is, in fact, the sum total of the economic energy within our eco-sphere. Extending the metaphor, wealth is what drives our economic world just as a battery can drive an electric circuit, and where scientists measure potential energy in Volts, the economic world uses units of exchange - currencies - money.

And this tells us quite simply that "money" is not wealth, it is just the numbers on the ruler.

Isn’t this all a bit obvious? We wish that we could believe that it was. We feel like the little boy watching the Emperor preening in his new clothes – are we alone in seeing the nakedness?

We argue that for decades a lack of intellectual rigour in financial, business, economic and political thinking has failed to distinguish between the acquisition of and the creation of wealth. We believe that this is a major contributor to the confusion, chaos, disasters and distress that are the outcomes of the Credit Crunch. It has all happened because so many of the people that matter, not least our Prime Minister and Chancellor, do not appear to have the slightest clue about real wealth – they really seem to think that it is money. Possibly this is because politicians’ only interest is spending other peoples’ money (they do not even bother to acquire it first, they merely borrow it regardless). The absence of adequate challenge to their impoverished and sloppy thinking is an indictment of the world of Finance, and all its acolytes, who have lost the ability to distinguish between the acquisition and the creation of real wealth. We wonder if the Opposition parties have too, we have heard little profound insight from any of them.

The sad reality is that a very high proportion of those that seek to become wealthy, or want to control wealth, understand only the acquisition of wealth – because they think that wealth is money. They have no idea where real wealth comes from, but they can be infinitely creative when it comes to grasping hold of someone else’s money. Many acquire large amounts of money to gain the power and influence that they are driven to pursue (no, it is not “a want”, it is more desperate and more dangerous than that) and they think that the result is “wealth”. And idiots fail to ask “Where does it all come from?”

If money isn’t wealth nor wealth, money – what is it?

We repeat, from Walking Backwards, our definition of real wealth is solid sustainable human, intellectual, technological, physical, market, and financial assets and resources that deliver benefit to the future of the whole community.

This single sentence contains a big load of ideas and to try to discuss them all here would need a book, and not a blog post, so let’s just highlight a few

solid sustainable = long lasting and robust

benefit for the future = not just today but tomorrow and next year

whole community = what it says on the tin – everybody, not just a few

The easiest way to illustrate the difference between wealth creation and wealth acquisition and its connection with our theme of Capitalism or Common Sense, is with this parable about a farming community –

The corn merchant sells seeds to the farmer who sows it in his land and tends the fields then pays the villagers to help harvest the crop. The farmer sells the grain to the corn merchant who sells portions from his granary to the miller who, in turn, sells flour to the baker who makes and sells the bread for the whole community to eat. The corn merchant sells the surplus grain to other customers outside the community.

If there are Good Harvests, then extra grain can be traded outside the community and the corn merchant obtains extra resources that he can choose how to use.

The effect on real wealth all depends on what the corn merchant really wants to achieve – let’s look at two alternative examples –

Edward who is determined to create wealth

Fred who is determined to acquire wealth

Edward could choose to use these extra resources to help the farmer to obtain more land and manure to grow a bigger and better crop, so he could build more cottages to house more villagers, generating more income for the miller, the baker and the villagers. The miller might mill more varieties of flour so that the baker could offer a choice of different loaves. Edward could then build the bigger granary they all would need. He might also be able to create new benefits for the community such as a school and a doctor. The community’s real wealth, the totality of tangible and intangible assets, would have increased. Everybody would enjoy increased personal choice. And, if all the villages in all the land had an Edward, the real wealth of the whole Nation would increase.

Fred could choose to use these extra resources to acquire assets in other communities – perhaps to buy out corn merchants in other villages - this would increase his acquired wealth. The overall wealth, the community’s totality of tangible and intangible assets, would not increase. If, in a short term rush to maximise the number of other corn merchants he can buy, he were to sell all the grain from his granary, the community’s totality of tangible assets, its real wealth, would have decreased. He might claim that stocks in his other granaries provide greater wealth for all. However, the majority in the village would have no gains in personal choice. And, in this case, if all the villages in all the land had a Fred, at best the real wealth of the whole Nation would remain unchanged, i.e. not increased.

As soon as there are one or more Bad Harvests, there will be a marked difference -

Edward would find that there was no surplus grain to trade and therefore no way to support the community’s next expansion. However, his good husbandry of granary stock would ensure that the farmer’s next sowing could proceed and the community did not starve. Its real wealth would not decrease in hard times. People would continue to have personal choice but would see that it was limited. If all the villages in all the land had an Edward, the Nation would remain steady on its feet, its real wealth undiminished.

Fred, who had not husbanded his stocks, would find that was not enough grain in his granaries for either the farmer’s next sowing or the community’s bread, and certainly none to sell elsewhere. The community would suffer real hardship, the farmer would have much less crop (if any), the miller might go out of business, and the baker and the villagers starve or migrate. Its real wealth would decrease in hard times. The people would find that they have no choice left, only survival. If all the villages in all the land had a Fred, the real wealth of the Nation would be reduced.

However, it can then get much worse.

Fred’s cousin, Shredder Fred, takes over and decides to “maximise quarterly returns” by selling all the remaining grain from all Fred’s multiple businesses. Then many communities would be left to die. Shredder Fred may then use his "acquired wealth” to buy up the now devalued assets of all the bankrupt farmers, millers, bakers and the cottages, in all the villages. He might then install overseers to drive the smallest possible number of villagers to work for the least possible amount of bread in order to create surpluses to enable him to acquire other assets. There will be no personal choices beyond survival left in these communities. There will be widespread human casualties and waste of resources.

And, if every village had a Shredder Fred, then after they had exhausted their resources trying to buy out each other, there would be little else left except a much smaller number of Shredder Freds, each using his own acquired wealth to try to obtain influence and power over the Nation. The real wealth of the Nation would be decimated.

So where does Capitalism stop being Common Sense and become Nonsense?

Here are our questions for you –

1) Looking at the quality of life for the Nation as a whole and for each community -

Who do you think

a) Improves it? b) Makes no difference? c) Ruins it?

2) Thinking about the "socially useless" argument about some banking activities –

Who do you think is

a) Socially useful? b) Socially useless? c) Socially destructive?

3) Looking at the real wealth of the Nation as a whole and for each community -

Which type of Capitalist, Edward, Fred or Shredder Fred, do you think is

a) Productive? b) Unproductive? c) Destructive?

Which choices are more likely to lead to long term prosperity, stability, security and a good quality of life for the most people in the Nation?

Final question -

Do you think that this parable supports our assertion that the lack of intellectual rigour in financial, business, economic and political thinking that has failed to distinguish for decades between the acquisition of and the creation of wealth is a major contributor to the confusion, chaos, disasters and distress that are the outcomes of the Credit Crunch?

Do you think that, very possibly, this may be one of the causes of the whole disaster?

Our Comparative Competitive Strength point of view is based on the robust research that has proved that businesses that achieve true Excellence generate real wealth and withstand setbacks better than others.

This is not just “an interesting fact”. It is important. If we are to truly prosper again as a Nation, then we need to outperform all others. And to do that we need all of our communities to fully understand and apply the lessons and insights of the Comparative Competitive Strength point of view and to become genuine creators of wealth. We need Capitalism with Common Sense.

How might we reconcile Capitalism with Common Sense?

We can start with wealth acquisition. This is where Common Sense is most commonly disregarded, because the focus is too often on short term and self, both of which prove not to be Common Sense in the longer term. We asked in August if the prohibition of any trading in assets which are not actually directly owned could remove unwanted speculation? Could market damping (also suggested in our August blog) by means of share transaction delays and/or voting rights time embargoes (as Sir Peter Cadbury has just now proposed), and/or transaction taxes (proposed by Sir Stelios Haji-Ioannou), make a significant difference? Can we change the quarterly performance obsession of so much of the financial and investment world that inevitably drives out Common Sense from management decisions under this pressure?

Do we need to reward wealth creation by more generously enabling added personal wealth for those that take the risks and effectively manage them to create wealth? Should we actively reward good husbandry and punish reckless exploitation? What might happen if we had a tax and financial regulation regime that favoured the Edwards, disadvantaged the Freds and actively proscribed and prosecuted the Shredder Freds?

Could the government/regulatory role in a free market change to rebalance the current implicit bias that favours short term wealth acquisition by introducing incentives towards long term wealth creation in the economy, with corresponding rewards for the effective long term risk takers who create wealth? The implications for fiscal and economic management are at least thought provoking. The storm of outrage from the Shredder Freds, the Freds, and all their many agents, would be deafening, even through they are such a tiny minority. As Winston Churchill never said, “Never have so many owed so much to so few with so little good reason”. A true test of our political classes would be the extent to which they could demonstrate through action that they are not “owned” by these manipulators of money and brokers of power.

If you were to be brutally honest with yourself – do you think you are an Edward or a Fred?

§ Have you been seeking to create wealth by adding to the nation and the community’s assets and resources?

§ Have you been seeking to acquire wealth by securing a greater share, either for yourself or others, from the community’s assets and resources?

R W Emerson said that we should be very careful about what we wish for because, more than likely, we are going to get it.

We state again that our Comparative Competitive Strength point of view is based on the robust research that has proved that businesses that achieve true Excellence generate real wealth and withstand setbacks better than others. If you would like to know more about these ideas please look here or contact us here.

Capitalism or .... Common Sense is brought to you by Steve Goodman & Tony Ericson, partners in ChangeWORLD & Achievement Coaching International. It is one of our "Excellence Quartet" of blogs promoting the cause of Excellence as the key to prosperity. We publish a new article on one of these blogs every month or so using a recent business/financial topic to highlight different perspectives and conclusions from those obtained using conventional thinking and techniques. You can read the other three blogs at - Exceeding Expectations - You're having a laugh ... seriously - Business Bloop of the Month Award .