tag:blogger.com,1999:blog-65486745206247913472024-03-08T15:21:01.200-08:00Capitalism or .... Common SenseIs capitalism finished or has it just caught a nasty cold? This series of articles will argue the case for a different style of capitalism.Steve Goodmanhttp://www.blogger.com/profile/12614859380224442732noreply@blogger.comBlogger13125tag:blogger.com,1999:blog-6548674520624791347.post-72405437852056670132012-12-03T09:03:00.001-08:002012-12-03T09:03:24.570-08:00Superior Returns for Your Shareholders <span style="font-family: Arial, Helvetica, sans-serif; font-size: x-small;"><em><strong>WHAT HAVE YOU LOOKED AT MOST?</strong><br /><br />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?<br /><br />So let us repeat the central message of that blog - </em></span><div>
<strong>If you want to generate superior returns for your shareholders</strong>, 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?</div>
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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:</div>
<ul>
<li>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. </li>
<li>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. </li>
<li>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. </li>
<li>Jim Collins research on what makes a good company able to become a great company, described in his book “From Good to Great”. </li>
<li>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. </li>
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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.</div>
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<div class="MsoNormal" style="background: white; line-height: normal; margin: 0cm 0cm 6pt;">
<i><span style="color: #333333; font-family: "Georgia","serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">What are all the right things?</span></i></div>
<div class="MsoNormal" style="background: white; line-height: normal; margin: 0cm 0cm 6pt;">
<i><span style="color: #333333; font-family: "Georgia","serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"></span></i><span style="color: #333333; font-family: "Georgia","serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">And<o:p></o:p></span></div>
<i><span style="color: #333333; font-family: "Georgia","serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">What does doing them really well actually mean?</span></i><span style="color: #333333; font-family: "Georgia","serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><o:p></o:p></span><br />
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<span style="font-family: Arial, Helvetica, sans-serif;"><em><strong>What does this mean in real life for you?</strong></em></span><br />
<em><span style="font-family: Arial; font-size: x-small;"></span></em><br />
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<span style="color: #333333; font-family: "Georgia","serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">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.<span style="mso-spacerun: yes;"> </span>Or it can be made very
simple with clear expectations for everybody involved .<span style="mso-spacerun: yes;"> </span>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.<o:p></o:p></span></div>
<span style="color: #333333; font-family: "Georgia","serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;">In other words, it
is not what they are doing that is different.<span style="mso-spacerun: yes;">
</span>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.</span><br />
<span style="color: #333333; font-family: "Georgia","serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"></span><br />
<span style="color: #333333; font-family: "Georgia","serif"; font-size: 10pt; mso-fareast-font-family: "Times New Roman"; mso-fareast-language: EN-GB;"><o:p><span class="apple-style-span" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;">Capitalism or .... Common</span></i></span><span class="apple-converted-space" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;"><span class="Apple-converted-space"> </span></span></i></span><span class="apple-style-span" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;">Sense is brought to you by Steve Goodman & Tony Ericson, partners in</span></i></span><span class="apple-converted-space" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;"><span class="Apple-converted-space"> </span></span></i></span><span class="apple-style-span" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: Georgia; font-size: 10pt;"><a href="http://www.changeworld.co.uk/" style="color: #999999;"><span style="color: #5588aa; font-family: "Times New Roman"; font-size: 12pt;">ChangeWORLD</span></a></span></i></span><span class="apple-converted-space" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;"><span class="Apple-converted-space"> </span></span></i></span><span class="apple-style-span" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;">&</span></i></span><span class="apple-converted-space" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;"></span></i></span><span class="apple-style-span" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: Georgia; font-size: 10pt;"><a href="http://www.achievementcoachinginternational.com/" style="color: #999999;"><span style="color: #5588aa; font-family: "Times New Roman"; font-size: 12pt;">Achievement Coaching Internationa</span></a><a href="http://achievementcoachinginternational.com/" style="color: #999999;"><span style="color: #5588aa; font-family: "Times New Roman"; font-size: 12pt;">l</span></a></span></i></span><span class="apple-converted-space" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;"><span class="Apple-converted-space"> </span></span></i></span><span class="apple-style-span" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;">where</span></i></span><span class="apple-converted-space" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;"><span class="Apple-converted-space"> </span></span></i></span><span class="apple-style-span" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><b><i><span lang="EN-GB" style="background-color: white; color: #cc0000; font-family: "Times New Roman"; font-size: 12pt;">we help businesses to learn</span></i></b></span><span class="apple-converted-space" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><b><i><span lang="EN-GB" style="background-color: white; color: #cc0000; font-family: "Times New Roman"; font-size: 12pt;"><span class="Apple-converted-space"> </span></span></i></b></span><span class="apple-style-span" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><b><i><span lang="EN-GB" style="background-color: white; color: #cc0000; font-family: "Times New Roman"; font-size: 12pt;">different thinking to enable different actions that deliver the different</span></i></b></span><span class="apple-converted-space" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><b><i><span lang="EN-GB" style="background-color: white; color: #cc0000; font-family: "Times New Roman"; font-size: 12pt;"><span class="Apple-converted-space"> </span></span></i></b></span><span class="apple-style-span" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><b><i><span lang="EN-GB" style="background-color: white; color: #cc0000; font-family: "Times New Roman"; font-size: 12pt;">results that Make a Big Difference</span></i></b><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;">. 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 -</span></i></span><span class="apple-converted-space" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;"></span></i></span><span class="apple-style-span" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;"><a href="http://www.exceeding-expectations.blogspot.com/" style="color: #999999;"></a></span><span lang="EN-GB" style="background-color: white; color: #000066; font-family: Georgia; font-size: 10pt;"><a href="http://exceeding-expectations.blogspot.com/" style="color: #999999;"><span style="color: #999999; font-family: "Times New Roman"; font-size: 12pt;">Exceeding Expectations</span></a></span></i></span><span class="apple-converted-space" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;"><span class="Apple-converted-space"> </span></span></i></span><span class="apple-style-span" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;">-</span></i></span><span class="apple-converted-space" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;"><span class="Apple-converted-space"> </span></span></i></span><span class="apple-style-span" style="-webkit-text-size-adjust: auto; -webkit-text-stroke-width: 0px; background-color: white; color: #333333; font-size-adjust: none; font-stretch: normal; font: 13px/20.78px Georgia, serif; letter-spacing: normal; orphans: 2; text-align: left; text-indent: 0px; text-transform: none; white-space: normal; widows: 2; word-spacing: 0px;"><i><span lang="EN-GB" style="background-color: white; color: #000066; font-family: Georgia; font-size: 10pt;"><a href="http://yourehavingalaughseriously.blogspot.com/" style="color: #999999;"><span style="color: #5588aa; font-family: "Times New Roman"; font-size: 12pt;">You're having a laugh ... seriously</span></a></span><span lang="EN-GB" style="background-color: white; color: #000066; font-family: "Times New Roman"; font-size: 12pt;">-</span><span lang="EN-GB" style="background-color: white; color: #000066; font-family: Georgia; font-size: 10pt;"><a href="http://businessbloop.blogspot.com/" style="color: #999999;"><span style="color: #5588aa; font-family: "Times New Roman"; font-size: 12pt;">Business Bloop of the Month Award</span></a> - and you can catch up with our weekly commentary on <a href="http://theweekbeforethisweek.blogspot.co.uk/">The Week before This Week</a></span></i></span></o:p></span><br />
Steve Goodmanhttp://www.blogger.com/profile/12614859380224442732noreply@blogger.com0tag:blogger.com,1999:blog-6548674520624791347.post-4328111182837748862011-09-07T01:54:00.000-07:002011-09-08T02:21:11.176-07:00easyJet – showing the way?<p class="MsoNormal"><span class="apple-style-span"><span lang="EN-GB" style="font-size: 11.5pt; color: black; "><span class="Apple-style-span"><span class="Apple-style-span">More fun and games in the Boardroom at this iconic company.</span><o:p></o:p></span></span></span></p> <p class="MsoNormal"><span class="Apple-style-span">Sir Stelios Haji-Ioannou with his family controls about 37 per cent of easyJet’s shares.<span> </span>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.</span></p> <p class="MsoNormal"><span class="Apple-style-span">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.<span> </span>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?</span></p> <p class="pluck-comm-body" style="margin-top:10.5pt;margin-right:0cm;margin-bottom: 0cm;margin-left:0cm;margin-bottom:.0001pt;mso-line-height-alt:10.5pt; background:white"><span class="apple-style-span"><span lang="EN-GB" style="font-size: 11.5pt; "><span class="Apple-style-span">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<span> </span>capacity that seems to obsess The City, financial pundits and this company’s directors.<span> </span>He knows that simply Big is not necessarily Better.<span> </span>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.<o:p></o:p></span></span></span></p> <p class="pluck-comm-body" style="margin-top:10.5pt;margin-right:0cm;margin-bottom: 0cm;margin-left:0cm;margin-bottom:.0001pt;mso-line-height-alt:10.5pt; background:white"><span class="apple-style-span"><span lang="EN-GB" style="font-size: 11.5pt; "><span class="Apple-style-span"><span class="Apple-style-span">The key to massive comparative Competitive Strength is simple, it is Excellence.<span> </span>In everyday language that means outstanding operational, behavioural and managerial competence. Perhaps that was why the easyJet Board<span> </span>recruited the Professor?<span> </span>Hang on, can anyone remember Olympic Airways’ customer service reputation?<span> </span>So that wasn’t the reason.</span><o:p></o:p></span></span></span></p> <p class="pluck-comm-body" style="margin-top:10.5pt;margin-right:0cm;margin-bottom: 0cm;margin-left:0cm;margin-bottom:.0001pt;mso-line-height-alt:10.5pt; background:white"><span class="apple-style-span"><span lang="EN-GB" style="font-size: 11.5pt; "><span class="Apple-style-span">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".<span> </span>It is easy to see why this is true as long as this quality of non-executive director remains in influence.<span> </span>How and why such people are appointed is the big question.<span> </span>And that brings us to the key influencers and the fundamental structure of the Finance Industry as it currently exists.<span> </span>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.<o:p></o:p></span></span></span></p> <p class="pluck-comm-body" style="margin-top:10.5pt;margin-right:0cm;margin-bottom: 0cm;margin-left:0cm;margin-bottom:.0001pt;mso-line-height-alt:10.5pt; background:white"><span class="apple-style-span"><span lang="EN-GB" style="font-size: 11.5pt; "><span class="Apple-style-span">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.<o:p></o:p></span></span></span></p> <p class="pluck-comm-body" style="margin-top:10.5pt;margin-right:0cm;margin-bottom: 0cm;margin-left:0cm;margin-bottom:.0001pt;mso-line-height-alt:10.5pt; background:white"><span class="apple-style-span"><span lang="EN-GB" style="font-size: 11.5pt; "><span class="Apple-style-span">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.<o:p></o:p></span></span></span></p><p class="pluck-comm-body" style="margin-top:10.5pt;margin-right:0cm;margin-bottom: 0cm;margin-left:0cm;margin-bottom:.0001pt;mso-line-height-alt:10.5pt; background:white"><span class="apple-style-span"><span lang="EN-GB" style="font-size:11.5pt;font-family:Georgia;mso-ansi-language:EN-GB"><br /></span></span></p> <span class="apple-style-span"><i><span lang="EN-GB" style="font-size:12.0pt; font-family:"Times New Roman";mso-fareast-font-family:"Times New Roman"; color:#000066;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA">Capitalism or .... Common</span></i></span><span class="apple-converted-space"><i><span lang="EN-GB" style="font-size:12.0pt; font-family:"Times New Roman";mso-fareast-font-family:"Times New Roman"; color:#000066;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA"> </span></i></span><span class="apple-style-span"><i><span lang="EN-GB" style="font-size:12.0pt;font-family: "Times New Roman";mso-fareast-font-family:"Times New Roman";color:#000066; background:white;mso-ansi-language:EN-GB;mso-fareast-language:EN-US;mso-bidi-language: AR-SA">Sense is brought to you by Steve Goodman & Tony Ericson, partners in</span></i></span><span class="apple-converted-space"><i><span lang="EN-GB" style="font-size:12.0pt; font-family:"Times New Roman";mso-fareast-font-family:"Times New Roman"; color:#000066;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA"> </span></i></span><span class="apple-style-span"><i><span lang="EN-GB" style="font-size:10.0pt;font-family: Georgia;mso-fareast-font-family:"Times New Roman";mso-bidi-font-family:"Times New Roman"; color:#000066;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA"><a href="http://www.changeworld.co.uk/"><span style="font-size:12.0pt;font-family:"Times New Roman";color:#5588AA;text-decoration: none;text-underline:none">ChangeWORLD</span></a></span></i></span><span class="apple-converted-space"><i><span lang="EN-GB" style="font-size:12.0pt; font-family:"Times New Roman";mso-fareast-font-family:"Times New Roman"; color:#000066;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA"> </span></i></span><span class="apple-style-span"><i><span lang="EN-GB" style="font-size:12.0pt;font-family: "Times New Roman";mso-fareast-font-family:"Times New Roman";color:#000066; background:white;mso-ansi-language:EN-GB;mso-fareast-language:EN-US;mso-bidi-language: AR-SA">&</span></i></span><span class="apple-converted-space"><i><span lang="EN-GB" style="font-size:12.0pt;font-family:"Times New Roman";mso-fareast-font-family: "Times New Roman";color:#000066;background:white;mso-ansi-language:EN-GB; mso-fareast-language:EN-US;mso-bidi-language:AR-SA"> </span></i></span><span class="apple-style-span"><i><span lang="EN-GB" style="font-size:10.0pt;font-family: Georgia;mso-fareast-font-family:"Times New Roman";mso-bidi-font-family:"Times New Roman"; color:#000066;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA"><a href="http://www.achievementcoachinginternational.com/"><span style="font-size: 12.0pt;font-family:"Times New Roman";color:#5588AA;text-decoration:none; text-underline:none">Achievement Coaching Internationa</span></a><a href="http://achievementcoachinginternational.com/"><span style="font-size: 12.0pt;font-family:"Times New Roman";color:#5588AA;text-decoration:none; text-underline:none">l</span></a></span></i></span><span class="apple-converted-space"><i><span lang="EN-GB" style="font-size:12.0pt; font-family:"Times New Roman";mso-fareast-font-family:"Times New Roman"; color:#000066;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA"> </span></i></span><span class="apple-style-span"><i><span lang="EN-GB" style="font-size:12.0pt;font-family: "Times New Roman";mso-fareast-font-family:"Times New Roman";color:#000066; background:white;mso-ansi-language:EN-GB;mso-fareast-language:EN-US;mso-bidi-language: AR-SA">where</span></i></span><span class="apple-converted-space"><i><span lang="EN-GB" style="font-size:12.0pt;font-family:"Times New Roman";mso-fareast-font-family: "Times New Roman";color:#000066;background:white;mso-ansi-language:EN-GB; mso-fareast-language:EN-US;mso-bidi-language:AR-SA"> </span></i></span><span class="apple-style-span"><b><i><span lang="EN-GB" style="font-size:12.0pt; font-family:"Times New Roman";mso-fareast-font-family:"Times New Roman"; color:#CC0000;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA">we help businesses to learn</span></i></b></span><span class="apple-converted-space"><b><i><span lang="EN-GB" style="font-size:12.0pt; font-family:"Times New Roman";mso-fareast-font-family:"Times New Roman"; color:#CC0000;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA"> </span></i></b></span><span class="apple-style-span"><b><i><span lang="EN-GB" style="font-size:12.0pt; font-family:"Times New Roman";mso-fareast-font-family:"Times New Roman"; color:#CC0000;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA">different thinking to enable different actions that deliver the different</span></i></b></span><span class="apple-converted-space"><b><i><span lang="EN-GB" style="font-size:12.0pt; font-family:"Times New Roman";mso-fareast-font-family:"Times New Roman"; color:#CC0000;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA"> </span></i></b></span><span class="apple-style-span"><b><i><span lang="EN-GB" style="font-size:12.0pt; font-family:"Times New Roman";mso-fareast-font-family:"Times New Roman"; color:#CC0000;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA">results that Make a Big Difference</span></i></b><i><span lang="EN-GB" style="font-size:12.0pt;font-family:"Times New Roman";mso-fareast-font-family: "Times New Roman";color:#000066;background:white;mso-ansi-language:EN-GB; mso-fareast-language:EN-US;mso-bidi-language:AR-SA">. 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 -</span></i></span><span class="apple-converted-space"><i><span lang="EN-GB" style="font-size:12.0pt; font-family:"Times New Roman";mso-fareast-font-family:"Times New Roman"; color:#000066;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA"> </span></i></span><span class="apple-style-span"><i><span lang="EN-GB" style="font-size:12.0pt;font-family: "Times New Roman";mso-fareast-font-family:"Times New Roman";color:#000066; background:white;mso-ansi-language:EN-GB;mso-fareast-language:EN-US;mso-bidi-language: AR-SA"><a href="http://www.exceeding-expectations.blogspot.com/"></a></span><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;mso-fareast-font-family: "Times New Roman";mso-bidi-font-family:"Times New Roman";color:#000066; background:white;mso-ansi-language:EN-GB;mso-fareast-language:EN-US;mso-bidi-language: AR-SA"><a href="http://exceeding-expectations.blogspot.com/"><span style="font-size:12.0pt;font-family:"Times New Roman";color:#999999;text-decoration: none;text-underline:none">Exceeding Expectations</span></a></span></i></span><span class="apple-converted-space"><i><span lang="EN-GB" style="font-size:12.0pt; font-family:"Times New Roman";mso-fareast-font-family:"Times New Roman"; color:#000066;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA"> </span></i></span><span class="apple-style-span"><i><span lang="EN-GB" style="font-size:12.0pt;font-family: "Times New Roman";mso-fareast-font-family:"Times New Roman";color:#000066; background:white;mso-ansi-language:EN-GB;mso-fareast-language:EN-US;mso-bidi-language: AR-SA">-</span></i></span><span class="apple-converted-space"><i><span lang="EN-GB" style="font-size:12.0pt;font-family:"Times New Roman";mso-fareast-font-family: "Times New Roman";color:#000066;background:white;mso-ansi-language:EN-GB; mso-fareast-language:EN-US;mso-bidi-language:AR-SA"> </span></i></span><span class="apple-style-span"><i><span lang="EN-GB" style="font-size:10.0pt;font-family: Georgia;mso-fareast-font-family:"Times New Roman";mso-bidi-font-family:"Times New Roman"; color:#000066;background:white;mso-ansi-language:EN-GB;mso-fareast-language: EN-US;mso-bidi-language:AR-SA"><a href="http://yourehavingalaughseriously.blogspot.com/"><span style="font-size: 12.0pt;font-family:"Times New Roman";color:#5588AA;text-decoration:none; text-underline:none">You're having a laugh ... seriously</span></a></span><span lang="EN-GB" style="font-size:12.0pt;font-family:"Times New Roman";mso-fareast-font-family: "Times New Roman";color:#000066;background:white;mso-ansi-language:EN-GB; mso-fareast-language:EN-US;mso-bidi-language:AR-SA">-</span><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;mso-fareast-font-family:"Times New Roman"; mso-bidi-font-family:"Times New Roman";color:#000066;background:white; mso-ansi-language:EN-GB;mso-fareast-language:EN-US;mso-bidi-language:AR-SA"><a href="http://businessbloop.blogspot.com/"><span style="font-size:12.0pt; font-family:"Times New Roman";color:#5588AA;text-decoration:none;text-underline: none">Business Bloop of the Month Award</span></a></span></i></span>Steve Goodmanhttp://www.blogger.com/profile/12614859380224442732noreply@blogger.com0tag:blogger.com,1999:blog-6548674520624791347.post-24506100254669359932010-09-06T05:09:00.000-07:002010-09-06T06:32:04.555-07:00Has Dawn broken in the Bank of England?<p class="MsoNormal" style="margin-bottom:6.0pt"><strong><span lang="EN-GB" style=" ;font-family:Arial;color:black;"><span class="Apple-style-span" style="font-size:small;">The Times </span></span></strong></p><p class="MsoNormal" style="margin-bottom:6.0pt"><strong><span lang="EN-GB" style=" ;font-family:Arial;color:black;"><span class="Apple-style-span" style="font-size:x-small;">Sam Fleming</span></span></strong><span class="apple-converted-space"><span lang="EN-GB" style=" ;font-family:Georgia;color:black;"><span class="Apple-style-span" style="font-size:x-small;"> </span></span></span><span class="title"><span lang="EN-GB" style=" ;font-family:Arial;color:black;"><span class="Apple-style-span" style="font-size:x-small;">Economics Editor </span></span></span><span lang="EN-GB" style=" color: rgb(102, 102, 102); font-family:Arial;"><span class="Apple-style-span" style="font-size:x-small;">Last updated September 3 2010 12:01</span></span><span class="dateampm"><span lang="EN-GB" style=" color: rgb(102, 102, 102); font-family:Arial;"><span class="Apple-style-span" style="font-size:x-small;">AM</span></span></span></p> <p style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left:0cm; line-height:16.0pt"><span style="font-family:Arial;font-size:10.0pt;color:black;">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.<o:p></o:p></span></p> <p style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left:0cm; line-height:16.0pt"><span style="font-family:Arial;font-size:10.0pt;color:black;">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 <st1:city st="on"><st1:place st="on">Beijing</st1:place></st1:city> conference.<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><b><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size:medium;">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.</span></span></span><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size:medium;"> </span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size:medium;">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?</span></span></span></b></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-size:medium;"><b><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size:medium;">The psychology of change tells us that the first reaction to t</span>he need for something to be different</span></span><span class="Apple-style-span" style="font-family:'times new roman';"> </span></b><span class="Apple-style-span" style="font-family:'times new roman';">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.</span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:'times new roman';">We have written at length on this topic in this blog series starting with our August 2009 blog </span></span><b><i><a href="http://capitalismorcommonsense.blogspot.com/2009/08/cracking-bonus-culture-why-regulation.html"><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">Cracking the Bonus Culture - Why Regulation cannot be the answer</span></span></a></i></b><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">.</span></span><span class="Apple-style-span" style="font-family:'times new roman';"> 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.</span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:'times new roman';">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.</span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:'times new roman';">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.</span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-size:medium;"><span class="Apple-style-span" style="font-family:'times new roman';">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.</span></span></span></p><p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="color: rgb(51, 51, 51); line-height: 20px; "><span class="Apple-style-span" style="color: rgb(0, 0, 102); font-style: italic; line-height: 20px; "><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">Capitalism or .... Common </span></span></span><span class="Apple-style-span" style="color: rgb(0, 0, 102); font-style: italic; line-height: 20px; "><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">Sense is brought to you by Steve Goodman & Tony Ericson, partners in </span></span><a href="http://www.changeworld.co.uk/"><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">ChangeWORLD</span></span></a><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';"> & </span></span><a href="http://www.achievementcoachinginternational.com/"><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">Achievement Coaching Internationa</span></span></a><a href="http://achievementcoachinginternational.com/" style="color: rgb(85, 136, 170); text-decoration: none; "><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">l</span></span></a><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';"> where <b><span class="Apple-style-span" style="color:#CC0000;">we help businesses to learn </span></b></span></span><b><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="color:#CC0000;">different thinking to enable different actions that deliver the different </span></span></span></b><b><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="color:#CC0000;">results that Make a Big Difference</span></span></span></b><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">. 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 - <a href="http://www.exceeding-expectations.blogspot.com/" style="color: rgb(153, 153, 153); text-decoration: none; "></a></span></span><a href="http://exceeding-expectations.blogspot.com/" style="color: rgb(153, 153, 153); text-decoration: none; "><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">Exceeding Expectations</span></span></a><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';"> - </span></span><a href="http://yourehavingalaughseriously.blogspot.com/" style="color: rgb(85, 136, 170); text-decoration: none; "><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">You're having a laugh ... seriously</span></span></a><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';"> -</span></span><a href="http://businessbloop.blogspot.com/" style="color: rgb(85, 136, 170); text-decoration: none; "><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">Business Bloop of the Month Award</span></span></a><a href="http://www.capitalismorcommonsense.blogspot.com/" style="color: rgb(153, 153, 153); text-decoration: none; "><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';"> </span></span></a><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">.</span></span></span></span></span></p>Steve Goodmanhttp://www.blogger.com/profile/12614859380224442732noreply@blogger.com0tag:blogger.com,1999:blog-6548674520624791347.post-31616112202192019162010-08-09T02:50:00.000-07:002010-08-09T02:56:51.044-07:00CEO Makes Suicidal Announcement?<p style="margin:0cm;margin-bottom:.0001pt;line-height:13.5pt"><span style="font-family:Arial;font-size:9.0pt;color:black;">From The Times – 6<sup>th</sup> August 2010<o:p></o:p></span></p> <p style="margin:0cm;margin-bottom:.0001pt;line-height:13.5pt"><span style="font-family:Arial;font-size:9.0pt;color:black;">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.<o:p></o:p></span></p> <p style="margin:0cm;margin-bottom:.0001pt;line-height:13.5pt"><span style="font-family:Arial;font-size:9.0pt;color:black;">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.<o:p></o:p></span></p> <p style="margin:0cm;margin-bottom:.0001pt;line-height:13.5pt"><span style="font-family:Arial;font-size:9.0pt;color:black;">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.<o:p></o:p></span></p> <p style="margin:0cm;margin-bottom:.0001pt;line-height:13.5pt"><span style="font-family:Arial;font-size:9.0pt;color:black;">“A lot of problems the world has found itself in are because people were chasing quarterly targets,” he said<o:p></o:p></span></p> <p style="margin:0cm;margin-bottom:.0001pt;line-height:13.5pt"><span style="font-family:Arial;font-size:9.0pt;color:black;">He has scrapped profit forecasts and said that he has cared more about consumers than shareholders since starting his job about two years ago.<o:p></o:p></span></p> <p style="margin:0cm;margin-bottom:.0001pt;line-height:13.5pt"><span style="font-family:Arial;font-size:9.0pt;color:black;">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.<o:p></o:p></span></p> <p class="MsoNormal"><span class="Apple-style-span" style="font-size:small;"><b>Mr Polman is right</b> – but is this the best way for him to be communicating his message?.</span></p> <p class="MsoNormal"><span lang="EN-GB"><span class="Apple-style-span" style="font-size:small;">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.</span></span></p> <p class="MsoNormal"><span class="Apple-style-span" style="font-size:small;">What Mr Polman could have said is -</span></p> <p class="MsoNormal"><i><span lang="EN-GB" style=" ;font-family:Arial;"><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="color:#000099;">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.</span></span></span></i></p> <p class="MsoNormal"><i><span lang="EN-GB" style=" ;font-family:Arial;"><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="color:#000099;">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.<o:p></o:p></span></span></span></i></p> <p class="MsoNormal"><i><span lang="EN-GB" style=" ;font-family:Arial;"><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="color:#000099;">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.</span></span></span></i></p> <p class="MsoNormal"><span class="Apple-style-span" style="font-size:small;">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. </span></p> <p class="MsoNormal"><span class="Apple-style-span" style="font-size:small;">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.</span></p> <p class="MsoNormal"><span class="Apple-style-span" style="font-size:small;">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. </span></p><p class="MsoNormal"><span class="Apple-style-span" style="font-size:small;">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.</span></p> <p class="MsoNormal"><em><span lang="EN-GB" style=" color: rgb(51, 0, 153); font-size:10pt;"><span class="Apple-style-span" style="font-family:'times new roman';">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</span></span></em><span class="apple-converted-space"><i><span lang="EN-GB" style=" color: rgb(51, 0, 153); font-size:10pt;"><span class="Apple-style-span" style="font-family:'times new roman';"> </span></span></i></span><em><span lang="EN-GB" style="color: rgb(51, 0, 153); "><a href="http://exceeding-expectations.blogspot.com/"><span style=" text-decoration:none;text-underline:nonecolor:#999999;"><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">“Exceeding Expectations"</span></span></span></a><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">,</span></span><a href="http://yourehavingalaughseriously.blogspot.com/"><span style=" text-decoration:none;text-underline:nonecolor:#999999;"><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">"You're having a laugh ... Seriously?",</span></span></span><span class="apple-converted-space"><span style="text-decoration:none;text-underline:nonecolor:#999999;"><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';"> </span></span></span></span></a><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">"</span></span><a href="http://businessbloop.blogspot.com/"><span style=" text-decoration:none;text-underline:nonecolor:#5588AA;"><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">Business Bloop of the Month Award".</span></span></span></a></span></em></p>Steve Goodmanhttp://www.blogger.com/profile/12614859380224442732noreply@blogger.com0tag:blogger.com,1999:blog-6548674520624791347.post-8839894348404332522010-07-09T03:53:00.000-07:002010-07-09T04:05:12.185-07:00Stephen Green, HSBC Chairman, gets it!<p class="MsoNormal">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.<span style="mso-spacerun:yes"> </span>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:</p> <p class="MsoNormal"><i>“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. </i><b><i>Plain common sense</i></b><i> will tell you that that cannot do.” </i><b><i>Plain common sense</i></b><i> will tell you that you have to have a sustainable business model.”</i></p> <p class="MsoNormal">So he gets it.<span style="mso-spacerun:yes"> </span>It is not “Capitalism <b style="mso-bidi-font-weight:normal">OR</b> Common Sense” it is “Capitalism <b style="mso-bidi-font-weight:normal">AND</b> Common Sense”.</p> <p class="MsoNormal">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?<span style="mso-spacerun:yes"> </span>Not quite we think.<span style="mso-spacerun:yes"> </span>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.</p> <p class="MsoNormal">All good stuff but it still misses the point; not by much but the margin is sufficient to confuse the thinking.<span style="mso-spacerun:yes"> </span>The crucial point is that if:</p> <p class="MsoNormal"><i>“You do all the right things and you do them really well one of the results will be superior profitability and returns for shareholders.”</i></p> <p class="MsoNormal">Profitability is an outcome which Mr Green sort of understands but when he describes profit as a <i>“… by product, a hallmark of success. It is not the be all and end all. It is not the raison d’etre of business”</i> you can see he hasn’t quite got it.</p> <p class="MsoNormal">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 <i>doing all the right things and doing them really well</i> has to be at the core of your business philosophy and strategy.<span style="mso-spacerun:yes"> </span>How can we make this assertion?</p> <p class="MsoNormal">Well first from many years of business experience, including learning from our many mistakes in <i>not doing all the right things and/or not doing them really well</i>.<span style="mso-spacerun:yes"> </span>Then nearly 20 years of working with clients as business coaches and learning what really enables sustainable, superior business performance and what does not.<span style="mso-spacerun:yes"> </span>But it’s not just us; the research of several eminent business and economic experts backs up our experiential conclusions.<span style="mso-spacerun:yes"> </span>For example:</p> <p class="MsoNormal"></p><ul><li>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 <b style="mso-bidi-font-weight:normal">twice as profitable</b> as the average business.</li><li>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.</li><li>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.</li><li>Jim Collins research on what makes a good company able to become a great company, described in his book “From Good to Great”.</li><li>Michael Jarrett, Adjunct Professor of Organisational Behaviour of at <st1:place st="on"><st1:placename st="on">London</st1:placename> <st1:placename st="on">Business</st1:placename> <st1:placetype st="on">School</st1:placetype></st1:place> 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.</li></ul><p></p> <p class="MsoNormal" style="mso-layout-grid-align:none;text-autospace:none">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.<span style="mso-spacerun:yes"> </span>To actually make it work in your business requires you to find the answer to two questions.</p> <p class="MsoNormal"><i>What are all the right things?</i></p> <p class="MsoNormal" style="mso-layout-grid-align:none;text-autospace:none">And</p> <p class="MsoNormal"><i>What does doing them really well actually mean?</i></p> <p class="MsoNormal" style="mso-layout-grid-align:none;text-autospace:none">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 <a href="http://www.changeworld.co.uk/">www.changeworld.co.uk</a> and our Business Breakthrough Coaching website at <a href="http://www.achievementcoachinginternational.com/">www.achievementcoachinginternational.com</a> </p><p class="MsoNormal" style="mso-layout-grid-align:none;text-autospace:none"><em><span style="color:#330099;">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 <a href="http://exceeding-expectations.blogspot.com/">“Exceeding Expectations"</a>,<a href="http://yourehavingalaughseriously.blogspot.com/">"You're having a laugh ... Seriously?", </a>"<a href="http://businessbloop.blogspot.com/">Business Bloop of the Month Award". </a></span></em></p>Steve Goodmanhttp://www.blogger.com/profile/12614859380224442732noreply@blogger.com0tag:blogger.com,1999:blog-6548674520624791347.post-47969959424154154652010-02-12T01:50:00.000-08:002010-02-12T02:10:51.084-08:00“We’ve kind of woken up” - Gosh<p class="MsoNormal" style="line-height:8.25pt"><span class="small"><span lang="EN-GB" style="font-size:8.0pt;font-family:Arial;color:black"><o:p><span class="Apple-style-span" style="font-family: Georgia, serif; font-size: 16px; "><span class="small"><span lang="EN-GB" style="font-size:8.0pt;font-family:Arial;color:black">From</span></span><span class="apple-converted-space"><span lang="EN-GB" style="font-size:8.0pt;font-family: Arial;color:black"> </span></span><span class="byline"><span lang="EN-GB" style="font-size:8.0pt;font-family:Arial;color:#666666;background:#F8F1D8">The Times </span></span><span lang="EN-GB" style="font-size:8.0pt;font-family:Arial; color:#666666">February 12, 2010</span></span></o:p></span></span></p><p class="MsoNormal" style="line-height:8.25pt"><span class="Apple-style-span" style="font-family: georgia; line-height: 19px; font-weight: bold; ">Private equity hit as Blackstone shelves Merlin IPO </span></p><p class="MsoNormal" style="line-height:8.25pt"><span class="Apple-style-span" style="font-family: Arial; line-height: 19px; font-size: 11px; color: rgb(102, 102, 102); font-weight: bold; ">Helen Power, Dominic Walsh and Marcus Leroux</span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><b style="mso-bidi-font-weight: normal"><i style="mso-bidi-font-style:normal"><span lang="EN-GB" style="font-size:9.0pt">Extract<o:p></o:p></span></i></b></p> <p style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left:0cm"><span lang="EN-GB" style="font-size:9.0pt;font-family:Arial;color:black;mso-ansi-language: EN-GB"><span style="mso-spacerun:yes"> </span><span class="Apple-style-span" style="color:#333399;">“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.<o:p></o:p></span></span></p> <p style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left:0cm"><span lang="EN-GB" style="font-size: 9pt; font-family: Arial; "><span class="Apple-style-span" style="color:#333399;">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.”<o:p></o:p></span></span></p> <p style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left:0cm"><span lang="EN-GB" style="font-size: 9pt; font-family: Arial; "><span class="Apple-style-span" style="color:#333399;">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.<o:p></o:p></span></span></p> <p style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left:0cm"><span lang="EN-GB" style="font-size: 9pt; font-family: Arial; "><span class="Apple-style-span" style="color:#333399;">Mr Brough said: “What does private equity do? They arbitrage the ignorance of fund managers. Well, we’ve kind of woken up.””</span><o:p></o:p></span></p> <p class="MsoNormal" align="center" style="margin-bottom:6.0pt;text-align:center"><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333">Gosh, “we’ve kind of woken up.”<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333">Well, it’s all a little bit late, mate.<span style="mso-spacerun:yes"> </span>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”.<span style="mso-spacerun:yes"> </span>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.<span style="mso-spacerun:yes"> </span>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.<span style="mso-spacerun:yes"> </span>The only learning appears to be at the school playground level – “I shan’t trust little Jimmy any more”. Oh dear.<o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt;line-height:19.2pt"><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333">We told you so in this blog – nearly a year ago - <o:p></o:p></span></p> <h2 style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left: 0cm"><span lang="EN-GB" style="font-size:8.0pt;font-family:"Trebuchet MS"; color:#999999;text-transform:uppercase;letter-spacing:2.4pt;font-weight:normal">TUESDAY, 31 MARCH 2009<o:p></o:p></span></h2> <h3 style="margin-top:3.0pt;margin-right:0cm;margin-bottom:0cm;margin-left: 0cm;margin-bottom:.0001pt;line-height:16.8pt"><a name="8927990339791349499"></a><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#CC6600; font-weight:normal"><a href="http://capitalismorcommonsense.blogspot.com/2009/03/m-thinking-may-till-be-common-but-does.html"><span style="color:#CC6600">M&A thinking may still be common, but does it make sense?</span></a><o:p></o:p></span></h3> <p class="MsoNormal" style="margin-bottom:6.0pt;line-height:19.2pt"><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333">So we will say it again - <o:p></o:p></span></p> <p style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left:0cm; line-height:14.4pt"><span class="apple-style-span"><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333;mso-ansi-language: EN-GB">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. <o:p></o:p></span></span></p> <p style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left:0cm; line-height:14.4pt"><span class="apple-style-span"><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333;mso-ansi-language: EN-GB">The most reliable determinant of massive financial strength, potentially solid wealth, is</span></span><span class="apple-converted-space"><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333; mso-ansi-language:EN-GB"> </span></span><strong><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333;mso-ansi-language: EN-GB">Excellence</span></strong><span class="apple-style-span"><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333;mso-ansi-language: EN-GB">. 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. <o:p></o:p></span></span></p> <p style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left:0cm; line-height:14.4pt"><span class="apple-style-span"><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333;mso-ansi-language: EN-GB">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.<span style="mso-spacerun:yes"> </span>The same old “Big is Better” nonsense has been trotted out.<span style="mso-spacerun:yes"> </span>The same old greedy “experts” have grabbed their millions.<span style="mso-spacerun:yes"> </span>The same old workers<span style="mso-spacerun:yes"> </span>face uncertainty and fear.<span style="mso-spacerun:yes"> </span>There will be tears in the next few years.<span style="mso-spacerun:yes"> </span>Great, and for what?<span style="mso-spacerun:yes"> Who is going to "have woken up" and when. this time?</span></span></span></p><p style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left:0cm; line-height:14.4pt"><span class="apple-style-span"><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333;mso-ansi-language: EN-GB"><span style="mso-spacerun:yes"></span>Too many in the Financial World cannot tell the difference between Big and Excellent <span style="mso-spacerun:yes"> </span>- and this is destroying capitalism.<span style="mso-spacerun:yes"> </span><o:p></o:p></span></span></p> <p align="center" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:0cm;text-align:center;line-height:14.4pt"><span class="apple-style-span"><b style="mso-bidi-font-weight:normal"><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333;mso-ansi-language: EN-GB">If something does not change, then nothing will change.<o:p></o:p></span></b></span></p> <p style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left:0cm; line-height:14.4pt"><span class="apple-style-span"><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333;mso-ansi-language: EN-GB">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</span></span><span class="apple-converted-space"><span lang="EN-GB" style="font-size:10.0pt; font-family:Georgia;color:#333333;mso-ansi-language:EN-GB"> </span></span><strong><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333; mso-ansi-language:EN-GB">Common Sense </span></strong><span class="apple-style-span"><span lang="EN-GB" style="font-size:10.0pt;font-family: Georgia;color:#333333;mso-ansi-language:EN-GB">pays off handsomely, please have a look at our</span></span><span class="apple-converted-space"><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333;mso-ansi-language: EN-GB"> </span></span><span class="apple-style-span"><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333;mso-ansi-language: EN-GB"><a href="http://changeworld.co.uk/"><span style="color:#5588AA">website</span></a></span></span><span class="apple-converted-space"><span lang="EN-GB" style="font-size:10.0pt; font-family:Georgia;color:#333333;mso-ansi-language:EN-GB"> </span></span><span class="apple-style-span"><span lang="EN-GB" style="font-size:10.0pt;font-family: Georgia;color:#333333;mso-ansi-language:EN-GB">where you will find out about -</span></span><span class="apple-converted-space"><span lang="EN-GB" style="font-size:10.0pt; font-family:Georgia;color:#333333;mso-ansi-language:EN-GB"> </span></span><strong><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333; mso-ansi-language:EN-GB"><a href="http://changeworld.co.uk/competitivestrength.html"><span style="color:#5588AA">Competitive Strength</span></a></span></strong><span class="apple-style-span"><span lang="EN-GB" style="font-size:10.0pt;font-family: Georgia;color:#333333;mso-ansi-language:EN-GB">, what this is and why it is crucial to financial performance – and about</span></span><span class="apple-converted-space"><span lang="EN-GB" style="font-size:10.0pt; font-family:Georgia;color:#333333;mso-ansi-language:EN-GB"> </span></span><strong><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333; mso-ansi-language:EN-GB"><a href="http://changeworld.co.uk/changeability.html"><span style="color:#5588AA">Changeability</span></a></span></strong><span class="apple-style-span"><span lang="EN-GB" style="font-size:10.0pt;font-family: Georgia;color:#333333;mso-ansi-language:EN-GB">, the essential attribute for</span></span><span class="apple-converted-space"><span lang="EN-GB" style="font-size:10.0pt; font-family:Georgia;color:#333333;mso-ansi-language:EN-GB"> </span></span><strong><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333; mso-ansi-language:EN-GB"><a href="http://changeworld.co.uk/transformationofperformance.html"><span style="color:#5588AA">Excellence</span></a></span></strong><span class="apple-style-span"><span lang="EN-GB" style="font-size:10.0pt;font-family: Georgia;color:#333333;mso-ansi-language:EN-GB">.</span></span><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#333333;mso-ansi-language: EN-GB"><br /><br /></span><em><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia; color:#330099;mso-ansi-language:EN-GB">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</span></em><span class="apple-converted-space"><i><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#330099; mso-ansi-language:EN-GB"> </span></i></span><em><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#330099;mso-ansi-language: EN-GB"><a href="http://exceeding-expectations.blogspot.com/"><span style="color:#999999">“Exceeding Expectations"</span></a>,</span></em><span class="apple-converted-space"><i><span lang="EN-GB" style="font-size:10.0pt; font-family:Georgia;color:#330099;mso-ansi-language:EN-GB"> </span></i></span><em><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#330099; mso-ansi-language:EN-GB"><a href="http://yourehavingalaughseriously.blogspot.com/"><span style="color:#999999">"You're having a laugh ... Seriously?",</span><span class="apple-converted-space"><span style="color:#999999;text-decoration:none;text-underline:none"> </span></span></a>"<a href="http://businessbloop.blogspot.com/"><span style="color:#999999">Business Bloop of the Month Award".</span><span class="apple-converted-space"><span style="color:#999999;text-decoration:none;text-underline:none"> </span></span></a></span></em><i><span lang="EN-GB" style="font-size:10.0pt;font-family:Georgia;color:#330099; mso-ansi-language:EN-GB"><br /> <br /> </span></i><span lang="EN-GB" style="font-size:10.0pt;font-family:Arial; color:black;mso-ansi-language:EN-GB"><o:p></o:p></span></p> <p class="MsoNormal"><span lang="EN-GB"><o:p> </o:p></span></p>Steve Goodmanhttp://www.blogger.com/profile/12614859380224442732noreply@blogger.com0tag:blogger.com,1999:blog-6548674520624791347.post-91114831957743159282009-12-04T02:27:00.000-08:002009-12-04T07:11:00.499-08:00Turning Forwards – Getting Back to Common Sense<p class="MsoHeader"><b style="mso-bidi-font-weight:normal"><i style="mso-bidi-font-style: normal"><span lang="EN-GB">Where does Capitalism stop being Common Sense?<o:p></o:p></span></i></b></p><p class="MsoHeader"><b><i></i></b></p><b><i><p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">In our last post “I’m Walking Backwards to Christmas …” we talked about </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">wealth creation</span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">. And, being a bit ambitious, we offered a definition of </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> . 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.</span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">First and foremost, we assert that there is a fundamental difference between the </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">creation</span></span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"><b> </b>of wealth and <b>the </b></span></span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">acquisition</span></span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"><b> </b>of wealth. </span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:35.45pt;text-indent:-21.25pt;mso-list:l1 level1 lfo1"><span lang="EN-GB" style="font-family:Wingdings;mso-fareast-font-family:Wingdings; mso-bidi-font-family:Wingdings;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">§</span></span></span><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">The </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">creation of wealth</span></span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> means that the sum total of real wealth is increased regardless of anything to do with possession.</span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:35.45pt;text-indent:-21.25pt;mso-list:l1 level1 lfo1"><span lang="EN-GB" style="font-family:Wingdings;mso-fareast-font-family:Wingdings; mso-bidi-font-family:Wingdings;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">§</span></span></span><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">The </span></span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">acquisition of wealth</span></span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> means that the sum total of real wealth is not increased, merely shifted from one possessor to another.</span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">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.</span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">And this tells us quite simply that "money" is not wealth, it is just the numbers on the ruler.</span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">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? </span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">We argue that for decades a lack of intellectual rigour in financial, business, economic and political thinking has failed to distinguish between the <b>acquisition </b>of and the <b>creation </b>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 </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> – 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 </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">. We wonder if the Opposition parties have too, we have heard little profound insight from any of them.</span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">The sad reality is that a very high proportion of those that seek to become wealthy, or want to control wealth, understand only the <b><span class="Apple-style-span" style="color:#993300;">acquisition </span></b>of wealth – because they think that wealth is money. They have no idea where </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> 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?”</span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">If m</span><span class="Apple-style-span" style="font-size: small;">oney isn’t wealth nor wealth, m</span><span class="Apple-style-span" style="font-size: small;">oney – what is it? </span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">We repeat, from Walking Backwards, our definition of </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> is</span></span></span><span class="Apple-style-span" style="font-size: small;"> </span></span><b style="mso-bidi-font-weight: normal"><span lang="EN-GB" style="font-family:Arial;color:#003300;"><span class="Apple-style-span" style="font-size: small;">solid sustainable human, intellectual</span><span class="Apple-style-span" style="font-size: small;">, technological,</span></span><span lang="EN-GB" style="font-family:Arial;color:#003300;"><span class="Apple-style-span" style="font-size: small;"> </span></span><span lang="EN-GB" style="font-family:Arial;color:#003300;"><span class="Apple-style-span" style="font-size: small;">physical, market, and financial assets and resources that deliver benefit</span></span><span lang="EN-GB" style="font-family:Arial;color:#003300;"><span class="Apple-style-span" style="font-size: small;"> </span></span><span lang="EN-GB" style="font-family:Arial;color:#003300;"><span class="Apple-style-span" style="font-size: small;">to the</span><span class="Apple-style-span" style="font-size: small;"> future of the whole community</span></span></b><span lang="EN-GB"><span class="Apple-style-span" style="font-size: small;">.</span><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">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</span></span></span><o:p></o:p></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:36.0pt"><b><span lang="EN-GB" style="font-family:Arial;color:#003300;"><span class="Apple-style-span" style="font-size: small;">solid sustainable</span></span></b><span lang="EN-GB"><span class="Apple-style-span" style="font-size: small;"> = </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">long lasting and robust</span></span></span><o:p></o:p></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:36.0pt"><b><span lang="EN-GB" style="font-family:Arial;color:#003300;"><span class="Apple-style-span" style="font-size: small;">benefit for the future</span></span></b><span lang="EN-GB"><span class="Apple-style-span" style="font-size: small;"> = </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">n</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">ot just today but tomorrow and next year</span></span></span><o:p></o:p></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:36.0pt"><b><span lang="EN-GB" style="font-family:Arial;color:#003300;"><span class="Apple-style-span" style="font-size: small;">whole community</span></span></b><span lang="EN-GB" style="font-size:11.0pt;"><span class="Apple-style-span" style="font-size: small;"> = </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">what it says on the tin – ev</span><span class="Apple-style-span" style="font-size: small;">erybody, not just a few</span></span></span><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">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 – </span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB" style="font-family:Arial;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">The corn merchant sells s</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">eeds 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.</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB" style="font-family:Arial;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">If there are </span></span><span style="color:blue;"><span class="Apple-style-span" style="font-size: small;">Good Harvests</span></span><span class="Apple-style-span" style="font-size: small;">,</span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> then extra grain can be traded outside the community and the corn merchant obtains extra resources that he can choose how to use.</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB" style="font-family:Arial;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">The effect on </span></span><span style="color:green;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> all depends on what the corn merchant really wants to achieve – let’s look at two alternative examples – </span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" align="center" style="margin-bottom:6.0pt;text-align:center"><span lang="EN-GB" style="font-family:Arial;color:green;"><span class="Apple-style-span" style="font-size: small;">Edward</span></span><span lang="EN-GB" style="font-family:Arial;"><span class="Apple-style-span" style="font-size: small;"> </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">who is determined to </span></span><span style="color:green;"><span class="Apple-style-span" style="font-size: small;">create wealth</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" align="center" style="margin-bottom:6.0pt;text-align:center"><span lang="EN-GB" style="font-family:Arial;color:#993300;"><span class="Apple-style-span" style="font-size: small;">Fred</span></span><span lang="EN-GB" style="font-family:Arial;"><span class="Apple-style-span" style="font-size: small;"> </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">who is determined to </span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-size: small;">acquire wealth</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB" style="font-family:Arial;color:green;"><span class="Apple-style-span" style="font-size: small;">Edward</span></span><span lang="EN-GB" style="font-family:Arial;"><span class="Apple-style-span" style="font-size: small;"> </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">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. </span></span><span style="color:green;"><span class="Apple-style-span" style="font-size: small;">Edward</span></span><span class="Apple-style-span" style="font-size: small;"> </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">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 </span></span><span style="color:green;"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">, 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 </span></span><span style="color:green;"><span class="Apple-style-span" style="font-size: small;">Edward</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">, the </span></span><span style="color:green;"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> of the whole Nation would </span></span><span style="color:green;"><span class="Apple-style-span" style="font-size: small;">increase</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">.</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB" style="font-family:Arial;color:#993300;"><span class="Apple-style-span" style="font-size: small;">Fred</span></span><span lang="EN-GB" style="font-family:Arial;"><span class="Apple-style-span" style="font-size: small;"> </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">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 </span><b><span class="Apple-style-span" style="color:#990000;"><span class="Apple-style-span" style="font-size: small;">acquired wealth</span></span></b><span class="Apple-style-span" style="font-size: small;">. 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 </span></span><span style="color:green;"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span><span class="Apple-style-span" style="font-weight: normal; "><span class="Apple-style-span" style="font-size: small;">, would have </span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-size: small;">decreased</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">. 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 </span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-size: small;">Fred</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">, at best the </span></span><span style="color:green;"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> of the whole Nation would remain unchanged, i.e. </span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-size: small;">not increased</span></span><span class="Apple-style-span" style="font-size: small;">.</span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB" style="font-family:Arial;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">As soon as there are one or more </span></span><span class="Apple-style-span" style="color:#FF0000;"><span class="Apple-style-span" style="font-size: small;">Bad Harvests</span></span><span class="Apple-style-span" style="font-size: small;">,</span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> there will be a marked difference -</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB" style="font-family:Arial;color:green;"><span class="Apple-style-span" style="font-size: small;">Edward</span></span><span lang="EN-GB" style="font-family:Arial;"><span class="Apple-style-span" style="font-size: small;"> </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">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 </span></span><span style="color:green;"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span><span class="Apple-style-span" style="font-size: small;"> </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">would </span></span><span class="Apple-style-span" style="color:#009900;"><span class="Apple-style-span" style="font-size: small;">not decrease</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> 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 </span></span><span style="color:green;"><span class="Apple-style-span" style="font-size: small;">Edward</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">, the Nation would remain steady on its feet, its </span></span><span style="color:green;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">r</span></span><span class="Apple-style-span" style="font-size: small;">eal wealth</span></span><span class="Apple-style-span" style="font-size: small;"> </span><span style="color:green;"><span class="Apple-style-span" style="font-size: small;">undiminished</span></span><span class="Apple-style-span" style="font-size: small;">. </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB" style="font-family:Arial;color:#993300;"><span class="Apple-style-span" style="font-size: small;">Fred</span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">,</span></span></span><span lang="EN-GB" style="font-family:Arial;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> 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 </span></span><span style="color:green;"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> would </span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-size: small;">decrease</span></span><span class="Apple-style-span" style="font-size: small;"> </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">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 </span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-size: small;">Fred</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">, the </span></span><span style="color:green;"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span><span class="Apple-style-span" style="font-size: small;"> </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">of the Nation would be </span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-size: small;">reduced</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">.</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB" style="font-family:Arial;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">However, it can then get much worse. </span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB" style="font-family:Arial;color:#993300;"><span class="Apple-style-span" style="font-size: small;">Fred’s</span></span><span lang="EN-GB" style="font-family:Arial;"><span class="Apple-style-span" style="font-size: small;"> </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">cousin, </span></span><span style="color:red;"><span class="Apple-style-span" style="font-size: small;">Shredder Fred</span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">,</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> takes over and decides to “maximise quarterly returns” by selling all the remaining grain from all </span></span><span style="color:#993300;"><span class="Apple-style-span"><span class="Apple-style-span" style="font-size: small;">Fred’s</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"><b> </b>multiple businesses. Then many communities would be left to die. </span></span><span class="Apple-style-span" style="color:#FF0000;"><span class="Apple-style-span" style="font-size: small;">Shredder Fred</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;"> may then use his "</span></span><span class="Apple-style-span" style="color:#993300;"><span class="Apple-style-span" style="font-size: small;">acquired wealth</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">” 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.</span></span></span></p><p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB" style="font-family:Arial;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">And, if every village had a </span></span><span style="color:red;"><span class="Apple-style-span" style="font-size: small;">Shredder Fred</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">, 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 </span></span><span style="color:red;"><span class="Apple-style-span" style="font-size: small;">Shredder Freds</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">, each using his own <b><span class="Apple-style-span" style="color:#993300;">acquired wealth</span></b> to try to obtain influence and power over the Nation. The </span></span><span style="color:green;"><span class="Apple-style-span" style="font-size: small; ">real wealth</span></span><span class="Apple-style-span" style="font-size: small;"> </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">of the Nation would be </span></span><span style="color:red;"><span class="Apple-style-span" style="font-size: small;">decimated</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-size: small;">.</span></span><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">So where does Capitalism stop being Common Sense and become Nonsense?</span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Here are our questions for you – </span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:18.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">1) Looking at the quality of life for the Nation as a whole and for each community - </span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:36.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Who do you think </span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:36.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;"> a) Improves it? b) Makes no difference? c) Ruins it?</span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:49.65pt;text-indent:-31.65pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">2) Thinking about the "socially useless" argument about some banking activities – </span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:36.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Who do you think is</span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:36.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;"> a) Socially useful? b) Socially useless? c) Socially destructive?</span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:18.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">3) Looking at the </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;"> of the Nation as a whole and for each community - </span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:36.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Which type of Capitalist,</span></span></span><span class="Apple-style-span" style="font-size: small;"> </span></span><b><span lang="EN-GB" style="font-family:Arial;color:green;"><span class="Apple-style-span" style="font-size: small;">Edward</span></span></b><b><span lang="EN-GB" style="font-family:Arial;"><span class="Apple-style-span" style="font-size: small;">, </span><span style="color:#993300;"><span class="Apple-style-span" style="font-size: small;">Fred </span><span class="Apple-style-span" style="font-family:'times new roman';"><b><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="color:#000000;"><span class="Apple-style-span" style="font-size: small;">or</span></span></span></b></span></span><b><span class="Apple-style-span" style="font-family:'times new roman';"><span class="Apple-style-span" style="font-size: small;"> </span></span></b><span style="color:red;"><span class="Apple-style-span" style="font-size: small;">Shredder Fred</span></span></span></b><span lang="EN-GB"><span class="Apple-style-span" style="font-size: small;">, </span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">do you think is</span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:36.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;"> a) Productive? b) Unproductive? c) Destructive?</span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:36.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">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?</span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Final question -</span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:36.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">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? </span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:36.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Do you think that, very possibly, this may be one of the causes of the whole disaster?</span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Our <b><span class="Apple-style-span" style="color:#000066;">Comparative Competitive Strength</span></b> point of view is based on the robust research that has proved that </span><b><span class="Apple-style-span" style="color:#000099;"><span class="Apple-style-span" style="font-size: small;"><span class="Apple-style-span" style="color:#CC0000;">businesses that achieve true </span><span class="Apple-style-span" style="color:#006600;">Excellence</span><span class="Apple-style-span" style="color:#33CC00;"> </span><span class="Apple-style-span" style="color:#CC0000;">generate </span></span></span></b></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="color:#009900;"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><b><span class="Apple-style-span" style="color:#000099;"><span class="Apple-style-span" style="font-size: small;"> <span class="Apple-style-span" style="color:#CC0000;">and withstand setbacks better than others.</span></span></span></b><span class="Apple-style-span" style="color:#000099;"><span class="Apple-style-span" style="font-size: small;"> </span></span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">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 </span><b><span class="Apple-style-span" style="font-size: small;"><span class="Apple-style-span" style="color:#000066;">Comparative Competitive Strength</span></span></b><span class="Apple-style-span" style="font-size: small;"> point of view and to become genuine </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">creators of wealth</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">. We need Capitalism </span></span></span><u><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">with</span></span></span></u><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;"> Common Sense.</span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">How might we reconcile Capitalism with Common Sense?</span></span><span class="Apple-style-span" style="font-size: small;"><o:p></o:p></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">We can start with </span></span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">wealth acquisition</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">. 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),</span></span></span></span><span class="apple-converted-space"><span lang="EN-GB" style="font-family:Arial;color:black;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;"> </span></span></span></span></span><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">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?</span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Do we need to reward </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">wealth creation</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;"> by more generously enabling added personal wealth for those that take the risks and effectively manage them to </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">create wealth</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">? 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 </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Edwards</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">, disadvantaged the </span></span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Freds</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;"> and actively proscribed and prosecuted the </span></span></span><span style="color:red;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Shredder Freds</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">?</span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Could the government/regulatory role in a free market change to rebalance the current implicit bias that favours short term </span></span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">wealth acquisition</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><b><span class="Apple-style-span" style="font-size: small;"> </span></b><span class="Apple-style-span" style="font-size: small;">by introducing incentives towards long term </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">wealth creation</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;"> in the economy, with corresponding rewards for the effective long term risk takers who </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">create wealth</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">? The implications for fiscal and economic management are at least thought provoking. The storm of outrage from the </span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="color:#FF0000;"><span class="Apple-style-span" style="font-size: small;">Shredder Freds</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">, the </span></span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><b><span class="Apple-style-span" style="font-size: small;">Freds</span></b><span class="Apple-style-span" style="font-size: small;">,</span></span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;"> and all their many agents, would be deafening, even through they are such a tiny minority. As Winston Churchill never said, </span></span></span><span class="Apple-style-span" style="font-size: small;">“Never have so many owed so much to so few with so little good reason”</span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">. 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.</span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">If you were to be brutally honest with yourself – do you think you are an </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Edward</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;"> or a </span></span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Fred</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">?</span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:35.45pt;text-indent:-14.15pt;mso-list:l0 level1 lfo2"><span lang="EN-GB" style="font-family:Wingdings;mso-fareast-font-family:Wingdings; mso-bidi-font-family:Wingdings;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">§</span></span></span><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Have you been seeking to </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">c</span><b><span class="Apple-style-span" style="font-size: small;">reate wealth</span></b></span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><b><span class="Apple-style-span" style="font-size: small;"> </span></b><span class="Apple-style-span" style="font-size: small;">by adding to the nation and the community’s assets and resources?</span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:35.45pt;text-indent:-14.15pt;mso-list:l0 level1 lfo2"><span lang="EN-GB" style="font-family:Wingdings;mso-fareast-font-family:Wingdings; mso-bidi-font-family:Wingdings;"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">§</span></span></span><span style="font:7.0pt "Times New Roman""><span class="Apple-style-span" style="font-size: small;"> </span></span></span><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">Have you been seeking to </span></span></span><span style="color:#993300;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">acquire wealth</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;"> by securing a greater share, either for yourself or others, from the community’s assets and resources?</span></span></span></span></p> <p class="MsoNormal" align="center" style="margin-bottom:6.0pt;text-align:center"><span lang="EN-GB"><span class="Apple-style-span" style="font-size: small;">R W Emerson said that <span class="Apple-style-span" style="color:#FF0000;">we should be very careful about what we wish for because, more than likely, we are going to get it.</span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;"><o:p></o:p></span></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">We state again that our </span><b><span class="Apple-style-span" style="color:#3333FF;"><span class="Apple-style-span" style="font-size: small;">Comparative Competitive Strength </span></span></b><span class="Apple-style-span" style="font-size: small;">point of view is based on the robust research that has proved that businesses that achieve true Excellence generate </span></span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">real wealth</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;"> and withstand setbacks better than others. If you would like to know more about these ide</span></span></span><span class="Apple-style-span" style="font-weight: normal;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: small;">as please look </span><span class="Apple-style-span" style="font-size: small;"><a href="http://www.changeworld.co.uk/competitivestrength.html">here </a></span><span class="Apple-style-span" style="font-size: small;">or contact us </span><span class="Apple-style-span" style="font-size: small;"><a href="http://www.changeworld.co.uk/contactus.html">here</a></span><span class="Apple-style-span" style="font-size: small;">.</span></span></span></span></p><p class="MsoNormal" style="margin-bottom:6.0pt"><span class="Apple-style-span" style=" font-style: normal; font-weight: normal;"><span class="Apple-style-span" style=" border-collapse: collapse; color: rgb(51, 51, 51); line-height: 18px; -webkit-border-horizontal-spacing: 2px; -webkit-border-vertical-spacing: 2px; font-family:'trebuchet ms', verdana, arial, sans-serif;"><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="font-size: x-small;">Capitalism or .... Common Sense is brought to you by Steve Goodman & Tony Ericson, partners in </span></span><a href="http://changeworld.co.uk/" style="text-decoration: none; "><span class="Apple-style-span" style="font-family:verdana;"><b><span class="Apple-style-span" style="color:#006600;"><span class="Apple-style-span" style="font-size: x-small;">ChangeWORLD</span></span></b></span></a><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="font-size: x-small;"> & </span></span><a href="http://achievementcoachinginternational.com/" style="text-decoration: none; "><span class="Apple-style-span" style="font-family:verdana;"><b><span class="Apple-style-span" style="color:#CC0000;"><span class="Apple-style-span" style="font-size: x-small;">A</span></span><span class="Apple-style-span" style="color:#000000;"><span class="Apple-style-span" style="font-size: x-small;">chievement </span></span><span class="Apple-style-span" style="color:#CC0000;"><span class="Apple-style-span" style="font-size: x-small;">C</span></span><span class="Apple-style-span" style="color:#000000;"><span class="Apple-style-span" style="font-size: x-small;">oaching </span></span><span class="Apple-style-span" style="color:#CC0000;"><span class="Apple-style-span" style="font-size: x-small;">I</span></span><span class="Apple-style-span" style="color:#000000;"><span class="Apple-style-span" style="font-size: x-small;">nternational</span></span></b></span></a><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="color:#000000;"><span class="Apple-style-span" style="font-size: x-small;">.</span></span><span class="Apple-style-span" style="font-size: x-small;"> 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 - </span></span><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="color:#333399;"><a href="http://www.exceeding-expectations.blogspot.com/"><span class="Apple-style-span" style="font-size: x-small;">Exceeding Expectations</span></a></span></span><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="color:#333399;"><a href="http://www.exceeding-expectations.blogspot.com/"><span class="Apple-style-span" style="font-size: x-small;"> </span></a><span class="Apple-style-span" style="font-size: x-small;">- </span></span></span><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="color:#333399;"><a href="http://www.yourehavingalaughseriously.blogspot.com/"><span class="Apple-style-span" style="font-size: x-small;">You're having a laugh ... seriously</span></a></span></span><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="color:#333399;"><span class="Apple-style-span" style="font-size: x-small;"> - </span></span></span><span class="Apple-style-span" style="font-family:verdana;"><span class="Apple-style-span" style="color:#333399;"><a href="http://www.businessbloop.blogspot.com/"><span class="Apple-style-span" style="font-size: x-small;">Business Blo</span></a></span></span><span class="Apple-style-span" style="color:#333399;"><a href="http://www.businessbloop.blogspot.com/"><span class="Apple-style-span" style="font-size: x-small;">op of the Month Award</span></a></span><span class="Apple-style-span" style="color:#333399;"><span class="Apple-style-span" style="font-size: x-small;"> .</span></span></span></span></p> <p class="MsoNormal" style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt; margin-left:18.0pt"><span lang="EN-GB"><o:p> </o:p></span></p></i></b><p></p>Steve Goodmanhttp://www.blogger.com/profile/12614859380224442732noreply@blogger.com0tag:blogger.com,1999:blog-6548674520624791347.post-26241073557862258932009-11-20T07:06:00.000-08:002009-11-20T07:51:30.677-08:00I’m Looking Backwards to Christmas, across the ICA<i><span lang="EN-GB"><span class="Apple-style-span" style="font-size:small;"><span class="Apple-style-span" style="font-family:'times new roman';">(with apologies to the late Spike Milligan)</span></span></span></i><div><span class="Apple-style-span" style="font-family:'times new roman';"><span lang="EN-GB"></span></span><i><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';"><br /></span></span></i><div><span class="Apple-style-span" style=" font-style: italic; "><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">The </span></span></span><st1:place st="on"><st1:placetype st="on"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">Institute</span></span></span></st1:placetype><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';"> of </span></span></span><st1:placename st="on"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';">Chartered Accountants</span></span></span></st1:placename></st1:place><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><span class="Apple-style-span" style="font-family:'times new roman';"> is running an advertisement intended to recruit new entrants which states that</span></span></span></span></div><div><span class="Apple-style-span" style="font-family:'Times New Roman';"><i><span class="Apple-style-span" style="font-size: medium;"> </span><p class="MsoNormal" align="center" style="margin-bottom:6.0pt;text-align:center"><b><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">80% of FTSE 100 Companies have an </span></span><st1:city st="on"><st1:place st="on"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">ICA</span></span></st1:place></st1:city><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> member on their Board.</span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><o:p></o:p></span></span></span></b></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">How does this look from the </span></span><b><span style="color:navy;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">Comparative Competitive Strength</span></span></span></b><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> point of view? Do </span></span><st1:city st="on"><st1:place st="on"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">ICA</span></span></st1:place></st1:city><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> members actively contribute to performance that consistently exceeds expectations and generates world beating performance? Do they strengthen and reinforce outstanding business success and wealth generation? Or have they helped handicap the pursuit of excellence and been a contributory factor in potentially avoidable failures? Have they, perhaps, helped erode Capitalism by obscuring Common Sense?</span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">Only a very few companies achieve the highest level, </span></span><b><span style="color:green;"><span class="Apple-style-span" style="font-size: medium;">Free</span></span></b><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">, of </span></span><b><span style="color:navy;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">Comparative Competitive Strength</span></span></span></b><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> (i.e. are the Very Best in the World in their field). A high proportion of these businesses are privately owned by shareholders or proprietors who are focused on the future, who know how to take decisions about long term risks, who are not scrabbling around for short term “prizes” without heed for the consequences, and who have the operational flexibility and sustainability to continue to prosper in hard times. It may be no coincidence that this is also the profile that seems to attract Warren Buffet. These are the companies that generate</span></span><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> </span></span><b><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: large;">real wealth</span></span></b></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> – </span></span></span><b><span lang="EN-GB" style="color:#003300;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">solid sustainable human, intellectual, technological, physical, market, and financial assets and resources that deliver benefit to the future of the whole community</span></span></span></span></b><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">. One of the keys to their success is their relentless focus on the future – what we call “Forward Facing Thinking”.</span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">As we all can see, there is a continuing avalanche of business failures, of companies that are falling from the lowest level, </span></span><b><span style="color:red;"><span class="Apple-style-span" style="font-size: medium;">Constrained</span></span></b><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">, of </span></span><b><span style="color:navy;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">Comparative Competitive Strength</span></span></span></b><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> down into </span></span><b><span style="color:#CC0000;"><span class="Apple-style-span" style="font-size: medium;">The Abyss</span></span></b><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">. Do there really have to be so many? Have </span></span><st1:city st="on"><st1:place st="on"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">ICA</span></span></st1:place></st1:city><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> members contributed, perhaps unwittingly, to the scale and severity of this bloodbath?</span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">We have commented before in our “Excellence Quartet” blogs about the pernicious antics of the M&A “pirates” who, sometimes without permission, use their valuation of the assets of the purchased as collateral for the loans they need to complete their, often unwelcome, acquisition. A significant proportion of the continuing flood into </span></span><b><span style="color:#CC0000;"><span class="Apple-style-span" style="font-size: medium;">The Abyss</span></span></b><span class="Apple-style-span" style="font-size: medium;"> </span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">are companies that have been critically weakened by the debts incurred by such financial engineering. Many of these businesses were generators of real wealth and reservoirs of skills and knowledge vital to the future sustainability of our Nation State (such as nuclear power station design and manufacture). Far too many, especially in manufacturing and science based sectors, have been eviscerated by the decades of under-investment imposed by the muddled short term thinking and self-serving manipulation of numbers by their financial “experts” and bankers (now there’s a basis for comparison that might give the ICA serious pause for thought).</span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">The </span></span><st1:city st="on"><st1:place st="on"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">ICA</span></span></st1:place></st1:city><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> may trumpet the influence of their members. However, in the spectrum of </span></span><b><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: large;">real wealth</span><span class="Apple-style-span" style="font-size: medium;"> </span></span></span></b><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">generation (</span></span></span><b><span lang="EN-GB" style="color:#003300;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">solid sustainable human, intellectual, technological, physical, market, and financial assets and resources that deliver benefit to the future of the whole community</span></span></span></span></b><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">) they qualify to evaluate </span></span><u><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">only one</span></span></u><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> of those assets, the financial. Worse still the majority of their disciplines, and the primary basis upon which they seek to exercise influence on others, are based on looking backwards, “Backward Facing Reaction”. Sadly, too often they have been perceived “to know the price of everything and the value of nothing”. </span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">The tragic and scandalous question is whether, in too many circumstances, that narrowness of view and understanding has been all prevailing and used (or abused) for the acquisition of personal power? Has that in turn led to over active collaboration in the City’s desperate “games culture” of financial engineering, reckless M&A, and the overall collapse of intellectual rigour in financial and business thinking that has brought us all to the brink through the Credit Crunch?</span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">Sir John Rose of Rolls Royce, talking about the future needs of our economy in early November 2009, said there should be </span></span></span><b><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">“less emphasis on social engineering and more on wealth creation”.</span></span></span></span></b><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> We find ourselves “having a Heated Agreement” (to use the treasured words of the late Bill Carpenter, also of Rolls Royce) and paraphrasing those words as</span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" align="center" style="margin-bottom:6.0pt;text-align:center"><b><span lang="EN-GB" style="color:#CC0000;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">“less emphasis on </span></span></span><u><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;">financial</span></span></span></u><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-family:arial;"><span class="Apple-style-span" style="font-size: small;"> engineering and more on wealth creation”</span></span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><o:p></o:p></span></span></span></b></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">Is </span></span><st1:city st="on"><st1:place st="on"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">ICA</span></span></st1:place></st1:city><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> membership only about “What’s In It for Me?” Is, as the advert implies, the </span></span><st1:city st="on"><st1:place st="on"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">ICA</span></span></st1:place></st1:city><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> focused only on dangling the prospect of power and authority for its members? Is this the moral and ethical leadership we look for and expect from our professional classes? Are the </span></span><st1:city st="on"><st1:place st="on"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">ICA</span></span></st1:place></st1:city><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> really aligning themselves only with politicians, lawyers, bankers, financial advisors, estate agents and other perceived “professional” victims of public opprobrium? Or do the </span></span><st1:city st="on"><st1:place st="on"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">ICA</span></span></st1:place></st1:city><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> want to be seen as professionals who are more vocational in flavour, like the engineers, the scientists, and the medics, most of whom seek to add to the overall well being of the nation, not just to find out the best way to grab more for themselves?</span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><b><span lang="EN-GB" style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">Wealth creation</span></span></span></b><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> is driven by a focus on the future, not the past. It is centred in Forward Facing Thinking, not Backward Facing Reaction. We hope that </span></span><st1:city st="on"><st1:place st="on"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">ICA</span></span></st1:place></st1:city><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> members might want to competently add real value by helping to </span></span><b><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">generate </span><span class="Apple-style-span" style="font-size: large;">real wealth</span></span></span></b><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">, and not just manipulate numbers and words to serve either their own interests or those of close colleagues. If so, they will need to develop the ability to evaluate the future as rationally as the past and to articulate their understanding on a broader business basis than the judgement laden and perilously temporal fabrications of financial analysis. There has not been any truly objective tool to do this until recently. More often than not, the chosen solution has been a massive and time consuming investment in strategy management consultancy – perhaps even by a major accountancy company (more </span></span><st1:city st="on"><st1:place st="on"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">ICA</span></span></st1:place></st1:city><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> members?) and, by definition, never truly objective!. </span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">So how would it be if </span></span><st1:city st="on"><st1:place st="on"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">ICA</span></span></st1:place></st1:city><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> members had access to a powerful and genuinely objective evaluation of how a leadership and management culture compares with the very best performers in the world, where its main constraints lie and what choices it must make to secure the future? Would it be better still if that assessment delivers these outcomes </span><b><span class="Apple-style-span" style="font-size: medium;">better, faster</span></b><span class="Apple-style-span" style="font-size: medium;"> and </span><b><span class="Apple-style-span" style="font-size: medium;">cheaper </span></b><span class="Apple-style-span" style="font-size: medium;">than any other route? </span></span></span></p><p class="MsoNormal" style="margin-bottom:6.0pt"></p><ul><li><b><span class="Apple-style-span" style="font-size: small;">Cheaper</span></b><span class="Apple-style-span" style="font-size: small;">? – now there’s a word with nasty ambiguities – we mean something that takes much less of business leaders’ valuable time, as well also as being comparatively inexpensive. </span></li></ul><p></p><p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">Wouldn’t that just be an opportunity to help </span></span><b><span style="color:green;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: large;">create wealth</span></span></span></b><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">, instead of risking being seen to be party to its dissipation? Could it be their chance to strengthen Capitalism with Common Sense.</span></span><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"><o:p></o:p></span></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span lang="EN-GB"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">You can find out more about the </span></span><b><span style="color:navy;"><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;">Comparative Competitive Strength</span></span></span></b><span class="Apple-style-span" style="font-style: normal;"><span class="Apple-style-span" style="font-size: medium;"> point of view on our website </span><span class="Apple-style-span" style="font-size: medium;"><a href="http://www.changeworld.co.uk/competitivestrength.html">here </a></span><span class="Apple-style-span" style="font-size: medium;">or contact us </span><span class="Apple-style-span" style="font-size: medium;"><a href="http://www.changeworld.co.uk/contactus.html">here</a>.</span></span><o:p></o:p></span></p><p class="MsoNormal" style="margin-bottom:6.0pt"><span class="Apple-style-span" style="font-size: medium; font-style: normal;"><span class="Apple-style-span" style="border-collapse: collapse; color: rgb(51, 51, 51); font-family: 'trebuchet ms', verdana, arial, sans-serif; font-size: 13px; line-height: 18px; -webkit-border-horizontal-spacing: 2px; -webkit-border-vertical-spacing: 2px; ">Capitalism or .... Common Sense is brought to you by Steve Goodman & Tony Ericson, partners in <a href="http://changeworld.co.uk/" style="color: rgb(85, 136, 170); text-decoration: none; ">ChangeWORLD</a> & <a href="http://achievementcoachinginternational.com/" style="color: rgb(85, 136, 170); text-decoration: none; ">Achievement Coaching International</a>. 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 - <a href="http://exceeding-expectations.blogspot.com/" style="color: rgb(153, 153, 153); text-decoration: none; ">Exceeding Expectations</a> - <a href="http://yourehavingalaughseriously.blogspot.com/" style="color: rgb(153, 153, 153); text-decoration: none; ">You're having a laugh ... seriously</a> - <a href="http://businessbloop.blogspot.com/" style="color: rgb(153, 153, 153); text-decoration: none; ">Business Bloop of the Month Award</a> .</span></span></p></i></span></div></div>Steve Goodmanhttp://www.blogger.com/profile/12614859380224442732noreply@blogger.com0tag:blogger.com,1999:blog-6548674520624791347.post-29426217086137287942009-11-04T08:10:00.000-08:002009-11-04T08:28:11.031-08:00Loan to Lenders ratio<p class="MsoNormal">The big finance and business story on the Lloyds/RBS bailout and its consequences has rather overshadowed the intriguing story about Yell’s planned £500m rights issue.</p> <p class="MsoNormal">Yell, the publisher of Yellow Pages and yell.com is heavily indebted, to the tune of £3.8bn.<span style="mso-spacerun:yes"> </span>It urgently needed the rights issue and an extension of debt maturities to avoid the risk of a covenant breach.</p> <p class="MsoNormal">However what really caught our attention is that Yell’s debt involves over 1,000 lending commitments!<span style="mso-spacerun:yes"> </span>Can you believe that, over 1,000 for a business with current market capitalisation of just £390m!<span style="mso-spacerun:yes"> </span>However when you consider how the sum per lender looks so much smaller than the total indebtedness perhaps the rest of us are missing a trick here.</p> <p class="MsoNormal">There are a number of financial ratios used in the lending to assess the viability of a lending proposition, loan to valuation, multiples of earnings etc.<span style="mso-spacerun:yes"> </span>Yell seem to have come up with a new one here, loan to lenders ratio.<span style="mso-spacerun:yes"> </span>For example if you could achieve the same number of lenders as Yell on a mortgage of £100,000 you would only owe £100 per lender, hardly worth any of them asking you repay it!</p> <p class="MsoNormal">Or, taking the average unsecured loan figure (credit cards, overdraft etc) in the <st1:country-region st="on"><st1:place st="on">UK</st1:place></st1:country-region> of £3,000 this same ratio means you would only owe £3 per lender.<span style="mso-spacerun:yes"> </span>However carrying around 1,000 credit cards each with a credit limit of £3 would be a challenge.</p> <p class="MsoNormal">What also surprised us is that there was very little comment on the number of lenders, other than to give the figure of 1,000, in any of the articles we have read on this story.<span style="mso-spacerun:yes"> </span>Are we only ones to think this is all a bit odd, that it doesn’t make sense?<span style="mso-spacerun:yes"> </span>Did the lenders themselves not notice how the room was getting a bit crowded and was this such a good idea?</p> <p class="MsoNormal">What about Yell itself.<span style="mso-spacerun:yes"> </span>Did they wake up to just how many there were when they started the negotiations on the rights issue?<span style="mso-spacerun:yes"> </span>If they actually deliberately accumulated this number of different loan commitments what possible rational reason was there for doing so?<span style="mso-spacerun:yes"> </span>It not only complicated the rights issue process. - “ …. collecting their acceptances has been a huge logistical exercise” (John Davis Yell Financial Director) – it threatened to derail the issue completely and with it the company.</p> <p class="MsoNormal">So this may be an example of capitalism at work, but does it make sense?<span style="mso-spacerun:yes"> </span>Simple is always better but of course complicated demonstrates how clever you are.<span style="mso-spacerun:yes"> </span>A final thought though.</p> <p class="MsoNormal">Amazingly Yell have managed to gain 95% acceptance from their lenders of the terms they needed to allow the rights issue to proceed.<span style="mso-spacerun:yes"> </span>Whoever achieved this is wasted in a publisher of directories and should be transferred immediately to sort out the Israeli/Palestinian problem.<span style="mso-spacerun:yes"> </span>Move over Tony and let someone who really knows how to negotiate the impossible from the improbable take over!</p><p class="MsoNormal"><span class="Apple-style-span" style=" border-collapse: collapse; color: rgb(51, 51, 51); line-height: 18px; -webkit-border-horizontal-spacing: 2px; -webkit-border-vertical-spacing: 2px; font-family:'trebuchet ms', verdana, arial, sans-serif;font-size:13px;">Capitalism or .... Common Sense is brought to you by Steve Goodman & Tony Ericson, partners in <a href="http://changeworld.co.uk/">ChangeWORLD</a> &<a href="http://achievementcoachinginternational.com/">Achievement Coaching International</a>. 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 -<a href="http://exceeding-expectations.blogspot.com/">Exceeding Expectations</a> - <a href="http://yourehavingalaughseriously.blogspot.com/">You're having a laugh ... seriously</a> - <a href="http://businessbloop.blogspot.com/">Business Bloop of the Month Award</a> .</span></p>Steve Goodmanhttp://www.blogger.com/profile/12614859380224442732noreply@blogger.com0tag:blogger.com,1999:blog-6548674520624791347.post-16210617304822305972009-08-27T09:09:00.000-07:002009-08-27T09:31:19.240-07:00Cracking the Bonus Culture - Why Regulation cannot be the answer<p class="MsoNormal" style="margin-bottom:6.0pt"><b style="mso-bidi-font-weight: normal"><o:p><span class="Apple-style-span" style="font-weight: normal; ">Yesterday Lord Turner, Chairman of the Financial Services Authority proposed a tax on financial services transactions as a means of curbing excessive pay in the sector.<span style="mso-spacerun:yes"> </span>He said that the financial sector had grown “beyond a reasonable size” and accounted for too much of British output.<span style="mso-spacerun:yes"> </span><span class="apple-style-span">"I think some of it is socially useless activity," said Lord Turner, referring to the complex financial instruments that have largely been blamed for triggering the biggest global financial crisis in decades.<span style="mso-spacerun:yes"> </span></span></span></o:p></b></p> <p class="MsoNormal" style="margin-bottom:6.0pt">Whilst a relatively radical set of ideas, especially compared to Alistair Darling who is still “considering legislation”, this is just the latest utterance on the subject.<span style="mso-spacerun:yes"> </span>The general opinion is that one way or the other the financial sector globally is going to be more tightly regulated.<span style="mso-spacerun:yes"> </span>What is less certain is what form this regulation should take and how it can be applied and policed globally.</p> <p class="MsoNormal" style="margin-bottom:6.0pt">However our view is that if Capitalism, whether in the City or elsewhere is to prosper again, it will not be through Regulation.<span style="mso-spacerun:yes"> </span>Wherever there are rules, there will be opportunities for the unscrupulous to explore the fringes of definition, structure and enforcement.<span style="mso-spacerun:yes"> </span>Wherever there is wealth, you will find the unscrupulous “lingering with intent”, as they used to say.<span style="mso-spacerun:yes"> </span></p> <p class="MsoNormal" style="margin-bottom:6.0pt">They lingered long enough and close enough to take over much of the management of wealth and to wrap it all up in a bedazzling miasma of complexity and mis-direction.<span style="mso-spacerun:yes"> </span>The <st1:street st="on"><st1:address st="on">Magic Circle</st1:address></st1:street> should have been reeling in envy of these conjurors.<span style="mso-spacerun:yes"> </span>They cannot be regulated; they must be eliminated, made unable to function.</p> <p class="MsoNormal" style="margin-bottom:6.0pt">The potential for Capitalism to return to its former strength in the future will depend on Ethics – on the development and maintenance of Trust between individual stakeholders.<span style="mso-spacerun:yes"> </span>And, trust is the outcome of inter-personal relationships and transactions – it is earned by doing, not by promising nor, least of all, by certification or regulation.<span style="mso-spacerun:yes"> </span>And here we have the essence of the new future – a return to people dealing with people and trading based solely on tangible assets, and credit based on the lenders’ personal guarantees - the Restoration of Trust.<span style="mso-spacerun:yes"> </span>And nowhere is this needed more than in the Banking sector and The City.</p> <p class="MsoNormal" style="margin-bottom:6.0pt"><b style="mso-bidi-font-weight: normal">The Restoration of Trust<o:p></o:p></b></p> <p class="MsoNormal" style="margin-bottom:6.0pt">In order for this to be possible, much will have to change.<span style="mso-spacerun:yes"> </span>Will monolithic centralised organisations be unable to do business this way and be required to change how they operate?<span style="mso-spacerun:yes"> </span>Will decision making only between principals with local responsibility, local accountability and local authority become the norm?<span style="mso-spacerun:yes"> </span>Will large organisations be able to bring themselves to expect and allow local individuals to take risks?<span style="mso-spacerun:yes"> </span>Will financiers and lenders be able to adapt to the idea of actually holding personal title to the commodities and assets with which they seek to trade?<span style="mso-spacerun:yes"> </span>Will the principles of mutuality become much more widespread and overlap into the business to business commercial arrangements and relationships? Will performance related rewards reflect both gains and losses over extended time spans, or is this just trivial tinkering with a symptom?<span style="mso-spacerun:yes"> </span></p> <p class="MsoNormal" style="margin-bottom:6.0pt">How might we reflect this change in the “Global Marketplace”?<span style="mso-spacerun:yes"> </span>How might we inhibit or constrain the adverse effects of short term betting that have been so vividly demonstrated? Should short term performance measurement be banned from all performance related reward schemes – and from business accounting public reporting?<span style="mso-spacerun:yes"> </span>Should all periodic reporting be required to be historically smoothed?<span style="mso-spacerun:yes"> </span>Or will we, again, be putting salve on the symptoms and ignoring the disease?</p> <p class="MsoNormal" style="margin-bottom:6.0pt"><b style="mso-bidi-font-weight: normal">Control Theory – the solution that has never been considered?<o:p></o:p></b></p> <p class="MsoNormal" style="margin-bottom:6.0pt">Or should we recognise that these international financial marketplaces are just an enormous collection of massively complex closed loop control systems that are intrinsically unstable?<span style="mso-spacerun:yes"> </span>Should we perhaps think about other such mechanisms, such as “Galloping Gertie” the <st1:place st="on"><st1:placename st="on">Tacoma</st1:placename> <st1:placetype st="on">Narrows</st1:placetype> <st1:placetype st="on">Bridge</st1:placetype></st1:place> that collapsed spectacularly in 1940<span class="apple-style-span"><span style="color:black;">, or a motor car rendered uncontrollable by failed shock absorbers, or the ear piercing shriek of microphone feedback in a public address system?<span style="mso-spacerun:yes"> </span>All engineers know that undamped reactions can cause resonance, massive instability leading to self destruction, in all such mechanisms, or systems. Experienced control engineers know too that relatively tiny energy inputs are enough to stimulate such systems beyond control.<o:p></o:p></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span class="apple-style-span"><span style="color:black;">The financial<span style="mso-spacerun:yes"> </span>world is full of such potentially resonating systems, both human based (“market sentiment” - what a phrase) and technological (from Fund Trackers onwards) – and they are all undamped.<span style="mso-spacerun:yes"> </span>In 1969, an early experiment in <st1:place st="on"><st1:country-region st="on">Canada</st1:country-region></st1:place> using computer based share trading decisions generated extraordinary returns compared to the “normal” market.<span style="mso-spacerun:yes"> </span>A cursory analysis showed that, once more than 2% to 3% of the total market trades became based on such technology, then the overall rate of returns would then converge to that new rate.<span style="mso-spacerun:yes"> </span>That was 40 years ago, and the financial world has learned nothing.<o:p></o:p></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span class="apple-style-span"><span style="color:black;">If unstable mechanisms and systems are to made stable, they need to be damped – they need to have some of their energy “destroyed” to limit their intrinsic resonant feedback.<span style="mso-spacerun:yes"> </span>In mechanical devices, this is often achieved by friction, either mechanical or hydraulic.<span style="mso-spacerun:yes"> </span>In electronic systems energy absorption or time delay (e.g. “phase shifting”) commonly perform the role.<span style="mso-spacerun:yes"> </span>In human systems, e.g. “market sentiment”, historically the most common source of damping was the elapsed time it took news to travel – even so, this delay was not always enough e.g. the Tulip Boom and the South Sea Bubble.<span style="mso-spacerun:yes"> </span>In today’s electronic world, there is no delay at all, everybody knows everything while it is happening.<span style="mso-spacerun:yes"> </span>In today’s logical world of semi-automatic systems, there is no systematic damping at all – it is all virtually instantaneous.<span style="mso-spacerun:yes"> </span>Market prices swoop and dive, leap and tumble, in reaction to the tiniest of traded volumes and rumours.<span style="mso-spacerun:yes"> </span>And, in response, the surrounding human systems cease to be able to cope – there is an almost total loss of confidence - the markets and the economy collapses. </span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span class="apple-style-span"><b style="mso-bidi-font-weight:normal"><span style="color:black;">The solution is obvious<o:p></o:p></span></b></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span class="apple-style-span"><span style="color:black;">Almost certainly too obvious for comfort.<span style="mso-spacerun:yes"> </span>The answer to the problem of resonant instability is - Damping.<span style="mso-spacerun:yes"> </span>But how might this be achieved practically?<span style="mso-spacerun:yes"> </span>Certainly, there is no realistic prospect of converting all the world’s financial market control and analysis systems (even if we knew where they all were) to “add damping”.<span style="mso-spacerun:yes"> </span>Nor would “News Management” to delay all news be practicable (bad luck, Gordon). What might happen if we look beyond the systems to the events that are being reported – trading transactions?<o:p></o:p></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt">What would be the effect of creating a Deal Transaction Completion Delay into all stock, fund and loan deals, everywhere?<span style="mso-spacerun:yes"> </span>Since, by our already stipulated requirement that only tangible or personally underwritten, assets might be traded (thus eliminating all derivative trading), only tangible trades would be possible.<span style="mso-spacerun:yes"> </span>Perhaps, all such trades would require an elapsed time of 24 hours – instantaneous reaction would become impossible.</p> <p class="MsoNormal" style="margin-bottom:6.0pt">This would dampen markets – massively.<span style="mso-spacerun:yes"> </span>Additionally, thousands of financial intermediaries would become surplus to requirement removing the distorting effects of their expectations for “compensation”.<span style="mso-spacerun:yes"> </span>Enormously complex and opaque financial arrangements would become infinitely more difficult to “engineer”; even fraud might become more difficult, although the pool of less than scrupulous potentially credulous victims will not diminish, nor will the predators disappear.</p> <p class="MsoNormal" style="margin-bottom:6.0pt"><b style="mso-bidi-font-weight: normal">Local Leadership for World Recovery<o:p></o:p></b></p> <p class="MsoNormal" style="margin-bottom:6.0pt">Superficially, it appears that total International agreement would be needed for this to be possible – suggesting that the probable feasibility is minimal – although the “opportunities to strut” might appeal to our politicians.<span style="mso-spacerun:yes"> </span>Experienced deliverers of effective change know that major transformation of massive and complex systems is not achieved in a single stroke.<span style="mso-spacerun:yes"> </span>Effective transformation comes from demonstrated change leadership – and that is best achieved by local, concentrated, and different, actions, behaviours and values that produce different results. </p> <p class="MsoNormal" style="margin-bottom:6.0pt">On this basis, we can ask what might happen if just some of the world’s largest markets went this way – e.g. <st1:city st="on">London</st1:city>, <st1:state st="on">New York</st1:state>, Frankfurt and <st1:place st="on"><st1:city st="on">Tokyo</st1:city></st1:place>?<span style="mso-spacerun:yes"> </span>Would they become recognised fairly rapidly as the best places for solid, long term, wealth development?<span style="mso-spacerun:yes"> </span>Would that leave the get-rich-quick-regardless-sharks to have their feeding frenzies elsewhere in other, smaller, markets?<span style="mso-spacerun:yes"> </span>Would those central stock values be able to resist pricing ripple effects from the shark pools?<span style="mso-spacerun:yes"> </span>Would enough “investors” be able to recognise the difference in their risk-to-reward ratios to become more likely to invest in the damped and stable markets rather than the frothing shark pools?</p> <p class="MsoNormal" style="margin-bottom:6.0pt"><b style="mso-bidi-font-weight: normal">Can we return to the generation of Real Wealth?<o:p></o:p></b></p> <p class="MsoNormal">Will the stability of a damped market restore the capacity for consistent, long term, wealth increasing, business development by responsible business leaderships?<span style="mso-spacerun:yes"> </span>This is a result that would deliver the greatest possible value for all stakeholders, the same form of genuine generation of wealth upon which our Industrial Revolution was first founded.<span style="mso-spacerun:yes"> </span>This real wealth generation can be still be seen in many of those innovative market leaders, exhibitors of high Comparative Competitive Strength, that have eschewed public ownership whether through participative proprietors, private shareholders, or through employee ownership.<span style="mso-spacerun:yes"> </span>Maybe all our financial markets could become driven by true wealth creation and not by just a tiny incentive reward driven minority of data manipulators.<span style="mso-spacerun:yes"> </span>And then, but my hopes are not high, possibly even our Government may focus on actual wealth creation before it is too late.</p><p class="MsoNormal"><span class="Apple-style-span" style="color: rgb(0, 0, 102); font-style: italic; line-height: 20px; font-size:13px;"><span class="Apple-style-span" style="font-size: medium;">Capitalism or .... Common </span></span><span class="Apple-style-span" style="color: rgb(0, 0, 102); font-style: italic; line-height: 20px; "><span class="Apple-style-span" style="font-size: medium;">Sense is brought to you by Steve Goodman & Tony Ericson, partners in </span><a href="http://changeworld.co.uk/"><span class="Apple-style-span" style="font-size: medium;">ChangeWORLD</span></a><span class="Apple-style-span" style="font-size: medium;"> & </span><a href="http://achievementcoachinginternational.com/"><span class="Apple-style-span" style="font-size: medium;">Achievement Coaching International</span></a><span class="Apple-style-span" style="font-size: medium;">. 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 - </span><span class="Apple-style-span" style="font-size: medium;"><a href="http://www.exceeding-expectations.blogspot.com/" style="color: rgb(153, 153, 153); text-decoration: none; "></a></span><a href="http://exceeding-expectations.blogspot.com/"><span class="Apple-style-span" style="font-size: medium;">Exceeding Expectations</span></a><span class="Apple-style-span" style="font-size: medium;"> - </span><span class="Apple-style-span" style="font-size: medium;"><a href="http://yourehavingalaughseriously.blogspot.com">You're having a laugh ... seriously</a></span><span class="Apple-style-span" style="font-size: medium;"> - </span><a href="http://businessbloop.blogspot.com/"><span class="Apple-style-span" style="font-size: medium;">Business Bloop of the Month Award</span></a><a href="http://www.capitalismorcommonsense.blogspot.com/" style="color: rgb(153, 153, 153); text-decoration: none; "><span class="Apple-style-span" style="font-size: medium;"> </span></a><span class="Apple-style-span" style="font-size: medium;">.</span></span></p>Steve Goodmanhttp://www.blogger.com/profile/12614859380224442732noreply@blogger.com0tag:blogger.com,1999:blog-6548674520624791347.post-41445560797332638702009-05-18T01:13:00.000-07:002009-05-18T01:47:21.292-07:00HSBC and The Case of the Wrong Viewfinder<p class="MsoNormal" style="margin-bottom:6.0pt">The news from the retail sector has been a little better recently.<span style="mso-spacerun:yes"> </span>However the story is still one of winners and losers.<span style="mso-spacerun:yes"> </span>One retailer that has been losing steadily, even when most others were winning, is Jessops. We have highlighted their dismal prospects before in our <a href="http://exceeding-expectations.blogspot.com/">Exceeding Expectations</a> blog.</p> <p class="MsoNormal" style="margin-bottom:6.0pt">Apparently now they are fighting back. They were back in the news a few weeks ago with an interview with their Executive Chairman David Adams in the Telegraph, triggered by a reported £300,000 refit of their <st1:street st="on"><st1:address st="on">New Oxford Street</st1:address></st1:street> store described as:</p> <p class="MsoNormal" style="margin-bottom:6.0pt"><span class="Apple-style-span" style="font-size:medium;">“… </span><span class="apple-style-span"><span style=" color: rgb(64, 64, 64); font-family:Arial;"><span class="Apple-style-span" style="font-size:medium;">likely to be a blueprint for Jessops. The uncluttered store – sleek and black – has been designed to be a "house of brands" for all things camera-related”</span></span></span><span class="Apple-style-span" style="font-size:medium;">.</span></p> <p class="MsoNormal" style="margin-bottom:6.0pt">However, what really caught our attention were their reported negotiations with their bankers HSBC.<span style="mso-spacerun:yes"> </span>As stated by the Telegraph - </p> <p style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left:0cm"><span lang="EN-US"><span class="Apple-style-span" style="font-size:medium;">“</span></span><span lang="EN-US" style=" color: rgb(64, 64, 64); font-family:Arial;"><span class="Apple-style-span" style="font-size:medium;">Jessops are now "in a process" which is likely to end with a positive outcome. HSBC has appointed consultants to look at restructuring options, and is deciding – with the company's help – on the best capital structure and the level of debt.</span><span class="Apple-style-span" style="font-size:medium;"><o:p></o:p></span></span></p> <p style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left:0cm"><span lang="EN-US" style=" color: rgb(64, 64, 64); font-family:Arial;"><span class="Apple-style-span" style="font-size:medium;">Mr. Adams is coy about the options, but a debt-for-equity swap is an obvious, some say likely, option.”</span><o:p></o:p></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt">All our alarm bells rang.<span style="mso-spacerun:yes"> </span>Are HSBC seriously considering the possibility of debt-for-equity swap? That would mean making their own shareholders and stakeholders investors by proxy in Jessops!</p> <p class="MsoNormal" style="margin-bottom:6.0pt">Why would those investors and stakeholders want this?<span style="mso-spacerun:yes"> </span>Every <b style="mso-bidi-font-weight:normal"><i style="mso-bidi-font-style:normal">Competitive Strength</i></b> signal is, and has been for some considerable time, that Jessops is in a <b style="mso-bidi-font-weight:normal"><i style="mso-bidi-font-style: normal"><span style="color:red;">Constrained</span></i></b> condition, headed for <b style="mso-bidi-font-weight:normal"><span style="color:#CC0000;">The Abyss</span></b>.<span style="mso-spacerun:yes"> </span>What has changed that could possibly justify throwing good money after bad in this manner?<span style="mso-spacerun:yes"> </span>What are HSBC looking at, what level of understanding do they have of the risks they could be taking with other peoples’ wealth?</p><p class="MsoNormal" style="margin-bottom:6.0pt">Apparently, the report continues, it is all OK really - Jessops have a plan. First their offer is going to be as described by David Adams <span class="Apple-style-span" style=" color: rgb(64, 64, 64); font-family:Arial;">"… all about price, choice and service. On price, we will not be price leaders – we can't with our structure. But we can be competitive. Service is our big differentiator.” <span class="Apple-style-span" style="color: rgb(0, 0, 0); font-family:Georgia;">That is quite a challenge, considering that right now all the anecdotal evidence is that they are perceived as not being about any of those things, especially service. That's not just our opinion, just what Mary Portas had to say about them. <a href="http://www.telegraph.co.uk/fashion/shoppingandfashion/5050208/Mary-Portas-reviews-Jessops-Upper-Street-Islington-London.html">(Link to article)</a></span></span></p> <p class="MsoNormal" style="margin-bottom:6.0pt">Then they are going to re-model their stores!<span style="mso-spacerun:yes"> </span>This is the same “cunning plan” that is being pursued by the <b style="mso-bidi-font-weight:normal"><span style="color:#CC0000;">Abyss</span></b> bound <b style="mso-bidi-font-weight: normal">DSG</b>, also a regular subject within these blogs.<span style="mso-spacerun:yes"> </span>After the briefest of <st1:city st="on"><st1:place st="on">Hawthorne</st1:place></st1:city> effect rallies, Jessops is likely to exhibit the same slither back to doom.<span style="mso-spacerun:yes"> </span>Furthermore, even at half the cost of the <st1:street st="on"><st1:address st="on">Oxford Street</st1:address></st1:street> store it would cost over £30 million to refit all their 211 stores.</p> <p style="margin-top:0cm;margin-right:0cm;margin-bottom:6.0pt;margin-left:0cm"><span lang="EN-US">So whilst HSBC and their consultants deploy their undoubted expertise in the use of the resources and processes of capitalism to find <span class="Apple-style-span" style="font-size:medium;">“… </span></span><span lang="EN-US" style=" color: rgb(64, 64, 64); font-family:Arial;"><span class="Apple-style-span" style="font-size:medium;">the best capital structure and the level of debt”</span></span><span lang="EN-US"> for Jessops, we believe that what has been missing all along in the Jessops saga is “Common Sense”.<span style="mso-spacerun:yes"> </span>And for a retailer, one particular bit of Common Sense.</span></p> <p class="MsoNormal" style="margin-bottom:6.0pt">Let us explain.</p> <p class="MsoNormal" style="margin-bottom:6.0pt">Once upon a time, if you wanted a good photographic print service you could choose from many options, ranging from the cheap but slow postal services to speedy but expensive retailers – and of course, very expensive specialist processors.<span style="mso-spacerun:yes"> </span>Jessops had a special edge, their staff were really knowledgeable photographic enthusiasts, their quality and service compared very well with other retailers, and their prices were competitive.<span style="mso-spacerun:yes"> </span>So they had <u>footfall</u> and they had <u>customer relationships</u> - the first and best opportunity to sell other products and services; that was sharpened because the main drivers in the business were brilliant buying coupled with systems and financial policies that were totally focused on service.<span style="mso-spacerun:yes"> </span>Based on this, we customers upgraded cameras, bought accessories and sought advice.<span style="mso-spacerun:yes"> </span>This all “made sense” and at this point in its history, Jessops was exhibiting many aspects of the high <b style="mso-bidi-font-weight:normal"><i style="mso-bidi-font-style:normal">Competitive Strength</i></b> condition of <b style="mso-bidi-font-weight:normal"><i style="mso-bidi-font-style:normal"><span style="color:#3366FF;">Excellence</span></i></b>, with trading results to match.</p> <p class="MsoNormal" style="margin-bottom:6.0pt">By the time the Digital revolution arrived, Jessops had passed into other hands and “professional management”.<span style="mso-spacerun:yes"> </span>The logic for the venture capitalists that bought the business was simple.<span style="mso-spacerun:yes"> </span>Buy the market leader and then open more stores.<span style="mso-spacerun:yes"> </span>This would deliver sales and profit growth to ensure a successful flotation within a few years and a handsome profit to the investors.</p> <p class="MsoNormal" style="margin-bottom:6.0pt">As was usual, it was a geared deal where the “lucky” subject of the purchase effectively financed much of the cost of its own change of “ownership”.<span style="mso-spacerun:yes"> </span>Stocks were cut thus removing one of the key enablers of the previous exceptional customer service.<span style="mso-spacerun:yes"> </span>Payment times to suppliers were lengthened thus seriously weakening their ability to negotiate the low purchase prices that previously had enabled them to offer their customers outstanding value and still make good margins.<span style="mso-spacerun:yes"> </span>This converted the business almost instantaneously into a <b style="mso-bidi-font-weight:normal"><i style="mso-bidi-font-style: normal">Competitive Strength</i></b> level of <b style="mso-bidi-font-weight: normal"><i style="mso-bidi-font-style:normal"><span style="color:red;">Constrained</span></i></b>.</p> <p class="MsoNormal" style="margin-bottom:6.0pt">As they had paid the people who knew the secrets of Jessops’ success large amounts of money to go away there was no one to tell them that, whilst this might be conventional business practice, it “didn’t make sense”.<span style="mso-spacerun:yes"> </span>As the profits began to dwindle together with the prospects for flotation they set out to “cut costs” further by downgrading their quality of shop staff amongst other changes and further diluting their buying competence.<span style="mso-spacerun:yes"> </span>It was not long before Jessops ceased to be a reliable source of advice (customer relationships, remember?) – or anything much else.<span style="mso-spacerun:yes"> </span>One attempted flotation was pulled and then at the height of the bull market they managed to float at a deep discount and the shares have hardly been in sight of the flotation price since.</p> <p class="MsoNormal" style="margin-bottom:6.0pt">Now all this may be Capitalism but where is the Common Sense?<span style="mso-spacerun:yes"> </span>Still nowhere it seems.</p> <p class="MsoNormal" style="margin-bottom:6.0pt">The only maintained standard (which kept me as a customer) was the in-shop Print Service with its excellent link to Hewlett Packard’s online Snapfish ordering process which provided collection in the local store (equals <u>footfall</u>, remember?).<span style="mso-spacerun:yes"> </span></p> <p class="MsoNormal" style="margin-bottom:6.0pt">Jessops had been visibly slow to react to the Digital revolution – an inevitable consequence of their <b style="mso-bidi-font-weight:normal"><i style="mso-bidi-font-style:normal">Competitive Strength</i></b> weakness.<span style="mso-spacerun:yes"> </span>And so the spiral to today’s sad condition accelerated.<span style="mso-spacerun:yes"> </span>Now, we suspect driven by their desperation to cut costs, this business has achieved another large step to destroy itself.<span style="mso-spacerun:yes"> </span>They have replaced their own On-Line Photo-Print service linked with Snapfish, by a third party “partnership”.<span style="mso-spacerun:yes"> </span>It is slower, not noticeably cheaper, and the nearest collection point for me is now 20 miles further away in another town – and worse still, a retail area that no one around here would ever choose to shop in.<span style="mso-spacerun:yes"> </span>So now I am not a customer any more – me and the other 125,000 people in this borough.<span style="mso-spacerun:yes"> </span>So, at one unthinking stroke, Jessops’ management have succeeded in <b style="mso-bidi-font-weight:normal">reducing</b> <u>footfall</u>.<span style="mso-spacerun:yes"> </span>We wonder in how many other areas this pattern of folly is repeated?</p> <p class="MsoNormal" style="margin-bottom:6.0pt">So we ask HSBC – just what are you looking at – or peering through?<span style="mso-spacerun:yes"> </span>How much of all this have you understood before taking a potentially absurd risk with other people’s wealth?<span style="mso-spacerun:yes"> </span>We suspect that Bankers’ can get fascinated by the technicalities of financial engineering and can forget that other peoples’ shareholdings, savings, pension funds, insurances and security are at risk.<span style="mso-spacerun:yes"> </span></p> <p class="MsoNormal" style="margin-bottom:6.0pt">If there is one constantly trumpeted factor for the avoidance of failure in Retail, we are told that it is <u>footfall</u>.<span style="mso-spacerun:yes"> </span>In other words, if you have it, whilst other shortcomings might eventually cause you to fail – if you don’t have <u>footfall</u> then you are doomed to fail regardless, it’s just "Common Sense".<span style="mso-spacerun:yes"> </span>As a fact, Jessops have reduced their <u>footfall</u> and their operational management have shown that they are either so unaware or so arrogant that they have ignored this.<span style="mso-spacerun:yes"> </span>This seems to us to be basic – basic, basic, basic!<span style="mso-spacerun:yes"> </span>Unless there is a substantial hidden agenda, HSBC is starting to appear incompetent or desperate or possiby both!</p> <p class="MsoNormal" style="margin-bottom:6.0pt">We return to our constant cry – Bankers need to learn how to assess not just the accounts that their business customers’ provide (those can be sooooo creative!) but also the <b style="mso-bidi-font-weight:normal"><i style="mso-bidi-font-style:normal">Comparative Competitive Strength </i></b>of the enterprise.<span style="mso-spacerun:yes"> </span>They need to learn how to look <b><i>forwards</i></b> and not just backwards, it’s just common sense!<span style="mso-spacerun:yes"> </span></p> <p class="MsoNormal" style="margin-bottom:6.0pt">This means that they need to learn the language of <b style="mso-bidi-font-weight:normal"><i style="mso-bidi-font-style:normal">Competitive Strength</i></b> and the enormous differences (over 100%) in financial potential (that means future performance, folks) that exist between the <b style="mso-bidi-font-weight:normal"><i style="mso-bidi-font-style:normal"><span style="color:red;">Constrained</span></i></b> level and the <b style="mso-bidi-font-weight:normal"><i style="mso-bidi-font-style: normal"><span style="color:#3366FF;">Excellence</span></i></b> or <b style="mso-bidi-font-weight:normal"><i style="mso-bidi-font-style:normal"><span style="color:green;">Free</span></i></b> conditions. <span style="mso-spacerun:yes"> </span>They need, perhaps, to consider using our <b style="mso-bidi-font-weight:normal"><i style="mso-bidi-font-style:normal">Competitive Strength Report</i></b> and process to provide a more robust and structured approach to their assessment of the future prospects of potential investment and banking decisions.<span style="mso-spacerun:yes"> </span>And, since there seems to be so much that they can overlook in these matters, we suspect that they also need to transform their inter-personal communication skills to be able to conduct the level of penetrating conversation that would reveal key facts – e.g. in this case the <u>footfall</u> question.<span style="mso-spacerun:yes"> </span>We wonder if due Diligence would be much better executed if accompanied by much more due <b><i>Intelligence</i></b>? We think that they need to get much smarter at Finding Out.</p> <p class="MsoNormal" style="margin-bottom:6.0pt">You can find out more about all of this by looking at the <b><a href="http://changeworld.co.uk/">ChangeWORLD</a></b><b style="mso-bidi-font-weight:normal"> </b>web site here, and the <b><i><a href="http://www.changeworld.co.uk/competitivestrength.html">Competitive Strength</a></i></b><a href="http://www.changeworld.co.uk/competitivestrength.html"> </a>page here – and the <b style="mso-bidi-font-weight: normal"><i style="mso-bidi-font-style:normal">Finding Out</i></b> page too!</p><p class="MsoNormal" style="margin-bottom:6.0pt"><span class="Apple-style-span" style="color: rgb(51, 0, 153); font-style: italic; line-height: 20px; "><span class="Apple-style-span" style="font-size: medium;">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 </span><a href="http://exceeding-expectations.blogspot.com/" style="color: rgb(153, 153, 153); text-decoration: none; "><span class="Apple-style-span" style="font-size: medium;">“Exceeding Expectations"</span></a><span class="Apple-style-span" style="font-size: medium;">, </span><a href="http://yourehavingalaughseriously.blogspot.com/" style="color: rgb(85, 136, 170); text-decoration: none; "><span class="Apple-style-span" style="font-size: medium;">"You're having a laugh ... Seriously?", </span></a><span class="Apple-style-span" style="font-size: medium;">"</span><a href="http://businessbloop.blogspot.com/" style="color: rgb(85, 136, 170); text-decoration: none; "><span class="Apple-style-span" style="font-size: medium;">Business Bloop of the Month Award". </span></a></span></p>Steve Goodmanhttp://www.blogger.com/profile/12614859380224442732noreply@blogger.com0tag:blogger.com,1999:blog-6548674520624791347.post-89279903397913494992009-03-31T04:25:00.000-07:002009-03-31T05:24:58.855-07:00M&A thinking may still be common, but does it make sense?<div align="left">One of the principles of free market Capitalism is that the strong will devour the weak. And, in many cases this happens with a solid underlying financial and commercial logic. However, although the strong may devour the weak, this is no logical basis to infer that the mere act of devouring creates strength. Consequently, and all too often, Merger & Acquisition has been used by weak businesses to shore up or disguise their own lack of genuine strength.<br /><br />Let us look at the mega M&A deals in the pharmaceutical sector announced in early March.<br /><br /><span style="font-family:arial;font-size:85%;">From The Times March 10, 2009</span><br /><br /><span style="font-family:arial;"><span style="font-size:85%;"><strong>Takeovers rarely a tonic for pharmaceutical groups</strong></span></span><br /><span style="font-family:arial;font-size:85%;">Ian King: Business Commentary</span><br /><br /><span style="font-family:arial;font-size:85%;">Faced with some unpleasant ailments, the pharmaceutical industry's biggest players are reaching for a familiar old remedy in the medicine cabinet — M&A. In January Pfizer splashed out $68 billion for Wyeth, yesterday Merck agreed to pay $41.1 billion for Schering-Plough and last night Roche looked set to buy the 44 per cent of Genentech, the biotech giant, that it does not already own for $46.7 billion. ………</span><br /><span style="font-family:arial;font-size:85%;"><br />………….. The question is what happens next in the industry. With company values depressed, because of recent market falls, the <strong>big fear</strong> for executives is that they miss out on a wave of industry consolidation and, as a result, are pushed down the <strong>global pecking order</strong>.<br /><br />This is why shares in GlaxoSmithKline fell yesterday. As the industry's second-biggest player, it is under more pressure than most to do a big deal, despite the protests of Andrew Witty, its chief executive, that he is not interested in M&A. It is also why shares in AstraZeneca and Shire Pharmaceuticals rose sharply. They, with Bristol-Myers Squibb, are all possible targets in any round of deals taking place soon.<br /><br />Yet the scepticism of Mr Witty and others who are constantly being told that they need to do a deal, such as Novartis and Sanofi-Aventis, looks well-founded. <strong>The majority of mergers and takeovers destroy value</strong> and, in the case of the drugs industry, M&A activity has conspicuously failed to deliver the promised returns. This is because, more than most, pharmaceuticals is a “people” business, with scientists at its heart. Cost-cutting after a big merger or takeover, although giving earnings a short-term boost, is not compatible with research and development programmes stretching out over decades.<br /><br />In any case, many big drug companies are already incredibly bureaucratic. Making them even bigger will not solve this problem. For that reason, it is to be hoped that Mr Witty will stick to his guns, concentrating not on delivering a small number of highly profitable blockbusters but on a <strong>larger number of less profitable new products</strong>. In doing so, Mr Witty will, rather like users of GSK's Nicorette quit-smoking gum, need formidable powers of willpower. He will face<strong> intense pressure to do a deal from investment banking advisers in the next few months.<br /></strong><br /></span><em>Our emphasis in <strong>bold.</strong><br /></em><br />Ian King's inciteful article highlights once again how “investment banking advisers” are seen to be trying to steer company policies in directions for which the only certain benefit is to themselves. And, once again, some executives are described as being in fear of them, this time of being “pushed down the global pecking order”.<br /><br />GSK, under Andrew Witty’s predecessor, the gifted and radical leader Jean-Pierre Garnier, was transformed from a monolithic, over-centralised, bureaucratic, under-responsive battleship into its current form as a well co-ordinated fleet of highly responsive, flexible, agile, and enterprising, commercially acute, gun-boats. J P Garnier left GSK able to generate a consistent and sustained stream of new products and consequent profits – no longer gambling on occasional massive windfalls. His legacy, so well understood by Witty, is substantial <strong>Comparative Competitive Strength</strong>, with very high changeability embedded in both depth and spread. This is Common Sense – but anathema to the “me-first-get-rich-quick” mentality of the “investment banking advisers” – what a surprise.<br /><br />Why does anybody spend any time at all listening to people whose advice will deliver virtually guaranteed benefits to themselves but highly uncertain prospects for those acting on their advice?<br /><br /><em>Suppose a smartly dressed person turns up at your front door and tells you that they have an amazing and exclusive deal for you? They say that they are an Estate Agent (let’s forget any prejudices, please) and that because of their special and privileged relationship with a Mortgage Provider they can enable you to become wealthier by buying a bigger house whilst remaining within your current means – just like that!</em><br /><em><br />And you, like an idiot, agree.<br /><br />It seems reasonable that the house deals and the mortgage deal will be handled by the Estate Agent; that you pay some “arrangement fees”, and even that your payments although unchanged are now guaranteed only for a fixed period. And now you have a property that is “worth” 25% more than your previous home – you have become more wealthy!</em><br /><em><br />However, it may have escaped your attention that you now own only 20% of the apparent equity in your new house compared to the 35% you held in your old home. The good news is that should property values rise, your equity level will increase disproportionately – you have “leverage”. The bad news is should property prices fall, then you could end up right where you started, or worse. The very bad news is should interest rates rise, then after your fixed term expires, you may face payment levels you cannot sustain and disaster.<br /><br />The only certain winners in this scenario are the instigators, the Estate Agent, and their financial backers, the Mortgage Providers. The instigators take a slice of your money whilst ensuring that <strong>you</strong> take <strong>all </strong>the <strong>increased</strong> risk.</em><br /><br /><strong><em>Wouldn’t you have to be an idiot to fall for such a deal?<br />Can you imagine that anyone might be stupid enough to do that?<br />That cannot be Common Sense – can it?<br /></em></strong><br />Now if we substitute “Investment Banking Adviser” for the words “Estate Agent” and “Investment Funds” for “Mortgage Provider” we might recognize the story on a larger scale – and if we swap “executive” for “you”, we complete the match. The instigators take a slice of the Shareholder’s money whilst ensuring that the <strong>Shareholders</strong> take <strong>all</strong> the <strong>increased</strong> risk.<br /><br /></div><div align="left"><em><strong></strong></em></div><div align="left"><strong><em>Wouldn’t the executives have to be idiots to fall for such a deal?<br />Can you imagine that any shareholders might be stupid enough to support that?<br />That cannot be Common Sense – can it?</em></strong></div><br />Well – hundreds of them did – tens of thousands of you did.<br /><br /><strong>It was not Common Sense – commonality did not make it sensible – it never does.</strong><br /><br />The only way out from this madness 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. But, because history takes too long, you cannot spot the tangible wealth creators in advance – or can you?<br /><br />The most reliable determinant of massive financial strength, potentially solid wealth, is <strong>Excellence</strong>. 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. Take care here about which is the chicken and which is the egg – it is being the very best in every aspect of what they do that delivers the exceptional financial results of these businesses – it is not the money that makes them the very best, that is simply an outcome of <strong>being</strong> the very best.<br /><br />Whilst Excellence is a well researched concept its connection to superior financial performance and long-term business growth and sustainability is not widely understood, especially in the financial sector. Consequently the application of the thinking and disciplines needed for Excellence is patchy at best and far too many business leaders think that being Better than Average is good enough. Furthermore, many cannot tell the difference between Big and Excellent – maybe psychologists can help us understand whether these sad souls confuse “global pecking order” with “pecker order”?<br /><br />If you want to know more about all this, how you can spot the tangible wealth creators in advance and why <strong>Common Sense</strong> pays off handsomely, please have a look at our <a href="http://changeworld.co.uk/">website</a> where you will find out about - <strong><a href="http://changeworld.co.uk/competitivestrength.html">Competitive Strength</a></strong>, what this is and why it is crucial to financial performance – and about <strong><a href="http://changeworld.co.uk/changeability.html">Changeability</a></strong>, the essential attribute for <strong><a href="http://changeworld.co.uk/transformationofperformance.html">Excellence</a></strong>.<br /><br /><em><span style="color:#330099;">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 <a href="http://exceeding-expectations.blogspot.com/">“Exceeding Expectations"</a>, <a href="http://yourehavingalaughseriously.blogspot.com/">"You're having a laugh ... Seriously?", </a>"<a href="http://businessbloop.blogspot.com/">Business Bloop of the Month Award". </a><br /><br /></span></em><em><span style="color:#330099;"></span></em>Steve Goodmanhttp://www.blogger.com/profile/12614859380224442732noreply@blogger.com0tag:blogger.com,1999:blog-6548674520624791347.post-50815216609130677792009-02-20T09:55:00.000-08:002009-02-25T01:53:00.407-08:00It's so obvious<span style="font-size:78%;">From The Times February 19, 2009 </span><br /><strong><span style="font-family:georgia;">Toyota to seek voluntary redundancies in Britain</span><br /></strong><span style="font-size:85%;">Christine Buckley, Industrial Editor</span><br /><span style="font-family:arial;font-size:85%;"></span><br /><span style="font-family:arial;font-size:85%;">Toyota's British operations are to shed jobs and may implement a pay cut, a reduced working week and a temporary suspension of workers, the company said yesterday after meeting unions.</span><br /><span style="font-family:arial;font-size:85%;"><br />Toyota said that it would put no target figure on job cuts from a voluntary redundancy programme and that the scheme had been suggested by employee representatives rather than by the company. It said: “Our philosophy is to make every possible effort to secure permanent employment. However, our employee representatives requested that we consider the introduction of a voluntary release programme. We have taken this into consideration and provided this opportunity.”</span><br /><span style="font-family:Arial;font-size:85%;"></span><span style="font-family:arial;font-size:85%;"><br />Toyota said that it had been hit in Europe last year by the wind-down of some models and few launches. <strong>The company said that it would not mount heavy discounts to try to win back customers, as some of its competitors have done, especially in the fleet market.</strong> It said: “This is not Toyota's strategy, as we want to develop our business in a profitable and sustainable way, with a long-term perspective.”</span><br /><br />Now think about it, "develop our business in a profitable and sustainable way, with a long term perspective". Isn't this obvious, does it not make sense? The automotive sector has been one of the hardest hit by the recession. No company can be immune from the effects but let us contrast the prospects for Toyota with its competitors<br /><br />In 2008 all vehicle manufacturers suffered a significant drop in sales but GM sales fell by nearly three times that of Toyota's. Toyota has said it will make a loss this year, the first time for 70 years! GM, along with Ford and Chrysler has been losing money for so long we can't remember when they last made a profit. They are only held together now by massive government bailouts and they want more! Now ask yourself, in a down turn where would you rather be? The answer is obvious.<br /><br />That this would happen to the GMs of this world has been obvious for over 20 years, but apparently not to the Directors of GM, nor for that matter at Ford, Chrysler and now many others. Neither was it obvious apparently to their shareholders, investment analysts, bankers (well, what do we now expect of these?), rating agencies (well, what do we now expect of these?), HM Treasury (well, what do we now expect of this?), and, with a few honourable exceptions, financial journalists. All have bamboozled themselves by their specious fixation with sales volumes – “big is good” has been their idiotic mantra. Even now they continue to highlight the main benefit for the Lloyds TSB and HBOS merger as being the massive market share of the combined group in UK retail banking!<br /><br />And whilst their attention has been so misdirected, the executives of these companies, with the connivance of the banking and financial community have whisked the lack of profitability, the failures in investment, the profligate waste of resources, the poverty of innovation and the cynical manipulation of the communities upon which they leach, back up their sleeves with another slice of complex financial engineering (was there ever such a slur on the word engineering?). And why have they done this? In order to continue to award themselves handsomely for the “brilliant results” that emerge from the financial manipulations that they themselves control.<br /><br />None of this makes sense. Have they created genuine wealth? Probably not for 20 years or more, in most cases. Not for their shareholders nor their communities. What they have done is build an ever increasing sponge designed to soak up extra debt, more numbers to feed into their “financial engineering” to bamboozle more credulous Financial Industry “experts”. Where does this warped thinking come from when it is so obvious that it doesn't work? Here in the UK, we have to ask just how many of these experts are the result of the Scottish Education establishment – and given the moral intellectual and ethical quality of what we now see, HBOS, RBS, Numbers 10 and 11 Downing Street (both current and previous tenants) – what is wrong with it?<br /><br />Toyota, where is their place in all this? We know that they have never pursued the goal of being “Number One”. They have concentrated on building the best quality vehicles in the world, straining to match them to each of the market sectors in which they trade, innovating where it makes a difference- new technologies that enable new levels of performance (e.g. the hybrid vehicles) and not for the sake of change. They have pursued excellence in every aspect of their business – operational superiority – elimination of waste – flexible resources. Every major managerial innovation that becomes fashionable – be it TQM, Lean, Green Practice – is something that Toyota will be found to have been doing for some considerable time. When asked why, they will respond “Because it is obvious, it makes sense”.<br /><br />Toyota's strategy "to develop our business in a profitable and sustainable way, with a long term perspective" is more than a strategy, it is a <strong>philosophy</strong>. It this philosophy that drives the deep seated managerial values and behaviours throughout the company that have resulted in Toyota's superior Comparative Competitive Strength. Isn't it is obvious? The ability to beat seven bells out of your competition and to withstand setbacks better than anyone else are obvious indicators for long term financial prosperity - all without a single piece of "financial engineering" needed to achieve it.<br /><br />To achieve the highest level of this brings considerable freedom of strategic choice. The route to this does not always allow for short term unrealistic financial results, it may require tough disciplines on margins, rewards and profit distribution – and that is why so many otherwise potentially strong businesses become undermined by the hysterical betting shop mentality of the Financial Industry. The City of London used to be a byword for financial probity, soberness and integrity – is there anyone left in the square mile that could even spell those words?<br /><br />We need to get back to the basics of good business and wise investment – seek only excellence in every aspect of our operations, do the right things in the right way, love our customers to death, nurture our people, report our results honestly, borrow only the very minimum that we need, reward ourselves modestly and fairly, protect tomorrow and not just today and so much more. This is still C<strong>apitalism</strong> but it is also C<strong>ommon Sense</strong>. We need to concentrate on Comparative Competitive Strength because our competition is out there in the rest of the world and it will have different economic dynamics which we can outperform rather than seek to imitate. We can outperform the competition, there are examples here in the UK. What may be curious is how many of them are privately owned or led by majority shareholders – not a lot of The City here perhaps?<br /><br />The Competitive Strength Report will tell you how your business compares with the very best in the world. It will help you decide what you need to do to match that standard and how you will handle your major threats. It does this better, faster and cheaper than any other analytical process in the world – your management team will need 2 hours of homework and up to a day of decision workshop – all can be completed within 4 weeks.<br /><br />And, a message for all of the Financial Experts. Your credibility is at an all time low. The tools, techniques, values and processes that you have used have been found wanting – all look backwards. To be frank, you appear to have been judging the quality of the ship and its crew by looking at the wake – with no forward radar. The Competitive Strength Report is a forward looking tool - it will tell you whether or not your client, prospective borrower, potential merger partner, acquisition target is going to be a good bet.<br /><br />What is more, it will enable the understanding of how <strong>Capitalism</strong> founded on <strong>Common Sense</strong> will deliver greater financial success and long term value.<br /><br />If you would like to know more, please have a look at our <a href="http://changeworld.co.uk/">website</a> here.<br /><br /><em><span style="color:#000066;"><strong>Capitalism or .... Common Sense</strong> is brought to you by Steve Goodman & Tony Ericson. It is one of a 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 </span></em><a href="http://exceeding-expectations.blogspot.com/"><em><span style="color:#000066;">Exceeding Expectations</span></em></a><em><span style="color:#000066;">, </span></em><a href="http://yourehavingalaughseriously.blogspot.com/"><em><span style="color:#000066;">You're having a laugh ... Seriously?</span></em></a><em><span style="color:#000066;"> and </span></em><a href="http://businessbloop.blogspot.com/"><em><span style="color:#000066;">Business Bloop of the Month Award</span></em></a><em><span style="color:#000066;">.</span></em>Steve Goodmanhttp://www.blogger.com/profile/12614859380224442732noreply@blogger.com0