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".