Do Our Financial Managers Have a Clue?

December 14, 2009 in Book | No comments

Last week we in the UK had our PBR (Pre-Budget Report), when the Chancellor of the Exchequer revisited his spending plans. I am sure it has a purpose but I am afraid I am just not smart enough to figure it out!

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On this occasion the Chancellor announced that government borrowing for the year would now be £176 BILLION, rather than the £178 billion previously stated. This negligible reduction will do absolutely nothing to reduce the highest level of peacetime debt in history – and remember:

  • It was only in the past eighteen months or so that Britain actually finished paying off her debts from the war.
  • The recession was caused by too much borrowing to begin with.

Even more frightening was that, at more-or-less the same time, it was announced Britain will be making the biggest contribution – £1.5 billion – to a new £ 6.0 billion European fund to help poorer countries deal with climate change. So Britain is effectively borrowing money to give it away!!

Now I am not for a moment denying that we need to do something to protect the world’s environment, but is giving £6.0 billion to poorer countries – ironically also announced on the same date as a news report that gift aid to Somalia to feed the starving people there is being openly traded in the market – really the best way to go about it? And, even allowing for the moment that it may be, should we really being going into debt to pay it?

There is a whole climate change conference going on in Copenhagen right now to discuss the subject of safeguarding our planet, and we can only hope that there is enough collective intelligence gathered there to develop a viable solution for us all. However, there are some important issues closer to home that need to be addressed.

Firstly,  as I argue in the book – paying for the environment is a consequence of inappropriate accounting and false profits in the past. Effectively, environmental costs are actually surcharges for past consumption. Rules of sound financial practice say that it is wise to borrow for investment and unwise to borrow for consumption. As the economic crisis proves, anything else is ultimately a recipe for disaster. Need I say more?

Secondly, it is all very well government being showing such largesse, but remember whose money it is they are actually spending. Government has no money of its own, but is ultimately just a redistribution channel for our money. So, if we would not borrow for consumption when managing our own affairs, why should we allow government to do so on our behalf now?

Thirdly, public finances should be governed by principle not policy! This means that it should not be subject to the vacillations of party politics as is presently the case. Britain is obliged to have a general election before May next year. There are critics who say that the PBR is a last effort by a desperate government, that polls indicate have very little chance of being re-elected, to win votes. This is invariably the situation at the end of any tenure, but surely you agree that national finances – decisions about how our hard-earned money is spent – should not even be open to such possible accusations? How can the Chancellor make announcements about what he is going to do to increase revenues and decrease borrowings in 2 years time when he won’t be in charge? Especially, when – as the current environment situation indicates – there are likely to be astronomical new costs in the future that we haven’t even begun to contemplate yet. How will we ever reduce debt and meet those costs?

It would be nice to think that the people managing our finances have the competence to manage it at least as well, if not better, than we would ourselves, wouldn’t it? Unfortunately the evidence suggests otherwise and we need to change this urgently if we are not to see our lives and livelihoods wasted along with those of future generations. If the model is not working we have to change the model, and unfortunately there is no indication – even now, as this PBR so clearly indicates – of anyone being willing or able to do this.

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This blog is one of several that I write, but is not regular and I only post to it when current events prompt me to make a comment and invite yours. I do hope you will contribute to the discussion and thus help to initiate and bring about the change that is so badly needed. Please click on the link on the top right of your screen to subscribe to a feed. My primary blog is my business one at Zealise but you can also connect to me at Facebook or Twitter

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Tax Deductible: What does that really mean?

October 20, 2009 in Book | No comments

Today I received an invitation to go on an Alaskan cruise. Cruise ship passes glacier within Glacier Bay National Park in A

 Nice!  However, all was not as it first appeared. It was not a generous invitation from a friend, but another attempt to part me from my hard-earned money. So it was hardly surprising that the person extending the invitation recognised the offer needed sweetening and also announced that it was tax deductible.

Now the idea of an Alaskan cruise appeals to me as much as to the next person. Throw in the idea of some training each day and there might even be a chance that I could delude myself that it was a brilliant way to kill two birds with one stone. So the fact that it is tax deductible could well be a clincher. So, apart from bad timing, why should I not even consider it?

The whole scenario illustrates precisely the nature of our flawed tax system. This is effectively a personal tax subsidy for my participation. After all, why should you pay for me to have a good time? Even worse, it effectively means that, by electing not to go, I am not only losing out on the experience, but also putting my business at a competitive disadvantage compared to my competitor who does decide to go, since he will now effectively pay less tax on his reduced profits.

Shakespeare was wrong when he wrote “The law is an ass.” It is the lawmakers who are asses!

How Reliable is Management Practice?

October 9, 2009 in Book | No comments

Reliability As I make clear in my book, the urge to publish became irresistible with the economic crisis of 2008 and the self-evident need for change. As far as possible, however, I tried to refrain from being critical of people or institutions. Two primary reasons for this are that I believe:

  • Criticism is counter-productive;
  • Change is going to depend significantly on business leadership and thus it is preferable to stimulate new ideas rather than stanch them by provoking self-defensive attitudes.

Thus the book is intended to be a book of ideas and a platform for new ways of thinking. In that vein, however, I would encourage readers to read this address to the US Congress by Jeffrey Pfeffer, Professor of Organisational Behaviour and Human Resource Management in the Graduate School of Business at Stanford University.

Although made in March 2007, before the economic crisis, those events clearly validate what he had to say. I was particularly struck by the statement, that, “The mere prevalence or persistence of some management practice is not evidence that it works – there are numerous examples (my emphasis) of widely diffused and quite persistent management practices, strongly advocated by practicing executives and consultants, where the systematic empirical evidence for their ineffectiveness is just overwhelming.” You probably cannot get more ‘overwhelming’ than the economic crisis that followed the crash of 2008.

Clearly there is a need for business leaders to take a good hard look at themselves and their practices and see what they can do to change. Professor Pfeffer draws the lovely parallel with the popularity of blood-letting. What practices are you following blindly, that will be looked at with incredulity in generations to come?

What is the Purpose of Business?

September 21, 2009 in Book | No comments

PurposeThere is no doubt that business is one of the biggest – if not the biggest – determinant of economic development, and hence one of the primary influences in everyday life. The current economic climate is sufficient evidence of that, as well as primary proof of the need for business to be properly, ethically and efficiently managed.

It is therefore self-evident that, if the world is to solve the challenges it currently faces, then business has to lead the way.

For it to do so, however, there needs to be a clear understanding of what business is and some consensus as to how it needs to change if the human race is not only stop the damage being done to our environment, but also to ameliorate the damage already done. The BE DO HAVE, Purpose, Vision and Mission model is thus just as important for business as it is for personal development.

Be Do Have 

This was brought home to me recently when I read that Peter Drucker had said, “The purpose of business is to create customers.” I don’t recall ever before disagreeing with anything Drucker said, but I really disagree strongly with that statement. Why? Because a business is created to meet a customer need. How it chooses to meet that need is a fundamental part of its strategy, but it exists ultimately only to meet a need. As soon as it looks to do anything else – when it starts to see itself as responsible for creating customers – it starts to create wants, and exacerbates risk, for there is no long-term viability in satisfying wants.

Thus Drucker’s statement could be said to be father to the conviction that profit is the be-all and end-all of business, which is itself a moderated version of the Machiavellian philosophy that, “The end justifies the means!”

Of course that is not to idealistically and naively claim that profit is evil. It is simply a caution against giving it too much emphasis, for it precisely this kind of thinking that fuels the kind of greed witnessed in the financial sector and that caused the 2008 economic crash. The wrong purpose clearly results in an undesirable outcome.  There has to be a counter-balance and that is all that my book argues – suggesting simply that we should:

  • Look far more at value than profit; and
  • Recognise that taxes on profits are not necessarily adequate compensation for allowing businesses to make their profits.

I have put forward some alternatives, but there may well be others. Please share any that you may have.

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Nature has no opposites

August 24, 2009 in Book | No comments

Tornado 1There are no opposites in nature. No matter how gross, revolting or undesirable something may seem,  everything has its place and fits together in one awesome scheme. Opposites are entirely a human concept.

I had this epiphany this past week when thinking about success and failure, prompted by the UK ‘A Level’ examination results, the pre-eminent requisite for students wishing to further their education at university. These showed an improvement for the 27th consecutive year and fuelled the inevitable, perennial debate afterwards about what this really meant and the extent to which standards are or are not being lowered.

Exams are a primary example of the dichotomy between success and failure. Someone who passes their exams is lauded as a success, while someone who doesn’t is literally said to have failed and carries the stigma of ‘failure’ with them for the rest of their lives. Not only are the terms seen as opposites, but they both are such definite, concrete terms conveying so much inherent emotion. Yet at the same time they are so abstract and subjective.

A student who gets only 3 “A Grades” instead of 4 may still consider themselves to be a failure, while someone who achieves 4 “C Grades” might be delighted and consider this a success beyond their wildest hopes. And all this is further complicated by the fact that no-one claims that exams are perfect, but simply, widely regarded as the best means yet devised to assess student capabilities – in this instance their basic preparedness to enter the workforce or go on to further academic learning to equip them for a career.

Perhaps in light of this, the consistent improvement in results may be a great step towards removing this artificial divide. Yet I doubt whether that has been the intention, and the consequences for our educational platform are in any case too serious for it to be deemed a success. They have rekindled my sense of the urgent need to reconfigure our educational system – not just for the sake of the students whose efforts are sadly undermined by the politics, but for society as a whole.

In the UK this political debate around education is exacerbated by decreasing social mobility and the fact that the ‘professions’ are increasingly dominated by the children of professionals, something attributed to the fact that professionals pay to educate their children outside the state system. Of course this is quite logical when statistics show that students at independent schools are more than twice as likely to do well in these exams than those from public, comprehensive schools. Arguments rage about why this is the case, and all pivot around questions of “success” and “failure.” Perhaps the focus needs to be less on policy and more on core values. Can we learn the lesson from nature and be less confrontational, rather looking at the big picture? I would suggest for starters:

  • Looking at life-long learning rather than an age-based, fixed-time approach.
  • Putting education into a context of a bigger purpose.
  • More emphasis on core, universal life-skills (language, communication, mathematics and science, logic, analysis, reasoning and problem solving.)
  • Better integration of core subjects around the ’softer’ life-skills subjects.
  • Increasing the sense of enjoyment and fun around lessons.
  • More stringent “capability assessments” but with less of a pass/fail approach and a greater sense of “let’s just see how good you are!”

I doubt that is everything, but it seems to be like a good, natural starting point. What do you think?

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Values, profits and ethics

August 5, 2009 in Book | No comments

In my book, I write about the need to move beyond profit as the basic measure of success and the driver of economic development. I recently came across a statement that convinces me even more.

“In order for a business to perform a societal value it must make a profit.”

Unquestionably this appears to make sense; after all, isn’t it business profit that has underpinned the rise of the western economies and secured our aspirational standards of living?

Yet, I would be tempted to argue that the statement is actually disengenuous and misleading. Why? Because it inverts fundamental principles. Business exists to provide a service and it only makes profits when those services deliver, or are perceived to deliver, value.  No value, no profit!

This is a very important distinction, because it is the quest for greater profits that subverted the finance industry and led to the near-collapse of the financial system and the current economic climate in which we all find ourselves. With more emphasis on value and less on profit, this whole sorry situation might have been avoided. It is hardly surprising that there is now an outcry and mass indignation and anger about the greed of the banking fraternity.

However, the bankers are not alone in this. You don’t have to look too far to find parallels in other walks of life, not least in sports, where the best way to beat the competiton is increasingly seen to be to take performance enhancing substances. Of course this is unethical behaviour and – if you think about it – the ultimate in self-deception. Yet it is vindicated by the delusional statement that “the only person may be hurting is myself”, and justified by position “that everyone else is doing it and I won’t be successful unless I do too!”

The problem is it doesn’t just harm the individual, it hurts everyone; it creates a contagion that breaks down the fundamental trust that makes participation worthwhile and that is necessary for a society to function. The failure of the big banks is a salutary lesson as to just how pervasive these attitudes have become and the damage that such moral decay can cause. We need to make a stand. That is why it is necessary to challenge conventional ‘wisdom’ and re-examine the fundamentals behind statements that profits are essential for business to create societal value. Rather now is the time for values based business!

Clearing the Education Bar

July 27, 2009 in Book | No comments

Clearing the barThe UK government is once again on the back foot. The latest crisis in confidence comes from reports last week about deteriorating social mobility and the extended middle class domination of the professions. This is not only contrary to stated government policy, but has happened despite all efforts to reverse the trend. So what has gone wrong?

Government concerns that jobs in the professions are increasingly held by the offspring of the more affluent simply because they are mainly the product of independent schools says it all. State schools are simply not teaching to a sufficiently high standard and as a result even those going on to university from there are either not interested in a professional career or not well-rounded enough to meet the requirements of employers. Failure to face up to this is to continue to look at the symptoms and not the causes of the problem, while attacking the independent schools for the problem would be politics of envy rather than aspiration and defeat the purpose entirely by eroding the quality of the professions.

Professionals, by very virtue of that designation, recognise the value of education and so make the commitment and sacrifices, and provide the support, to ensure that their children get the best education they possibly can. By contrast, those who don’t or who cannot, contribute to a trend of downward mobility that increasingly handicaps not only their own offspring but the wider economy.

Successive governments have contributed to this dichotomy by aiding and abetting lower standards. They have failed to understand that closing any gap between ‘the masses’ and ‘the elite’ is an extremely expensive business and requires a considerable investment. This is an investment that they have not really been willing or able to meet. Instead they have proclaimed the need to be economically competitive, and championed policies of increased graduate numbers, achieved by debasing standards to enable more people to go to university, and co-opting the universities into the scheme by creating more of them, who, in order to survive and compete, offer a broader and broader range of so-called degrees.

Now we have the evidence ,and can see the emperor in his true clothes and what a hollow sham it has all been. Awarding higher grade results and more degrees is the educational equivalent of printing money – it has not created more well-educated people but is rather an educational inflation that simply devalued what one already had. All that has been done is to create a type of educational ‘credit crunch’ that has inevitably resulted in an overall lowering of standards, which has had a recessionary effect in the job market and exacerbated the so-called ‘war for talent’.

There is, and always will be, a need for different talents and an education system should recognise and support this. In historical language, this entails distinguishing between ‘academic’ and ‘vocational’ abilities, and meeting the needs of both sectors. Any society looking to flourish in our increasingly competitive and inter-connected “global village” (and can any afford not to?) thus needs to:

  • Recognise the shifting skills requirements demanded by the workplace and provide an educational system – with the requisite balance – to meet that demand.
  • Invest in the educational platform to ensure that whatever route a student takes, he or she is properly equipped to meet the workplace demands, to the standard that the competitive market needs rather than to some arbitrary standard determined by the government and/or the educational institution.

Who is bold enough to recognise this and act accordingly? The problem is not unique to the UK.

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Book Review by Les Rees

June 30, 2009 in Book | No comments

Book Review If you are concerned with how society is changing then you should read this book. It contains some interesting insights into how society via government is being moulded, whether intentionally or not.

Bay lists some of the problem he sees with the way governments are governing and global challenges such as the current global recession. You may or may not agree with what he has written, however, it will make you think. Bay also provides solutions to the problems that he highlights.

This is a book that you may need to read twice to get the full benefit. I know I will be reading this again in twelve months time. I found this to be an interesting and worthwhile read.

Les Rees, Principle of Les Rees Ltd. Les is a Chartered Accountant specialising in S.M.E’s and start-ups, he has had nearly 20 years experience in assisting business owners to improve both their bottom line and lifestyle. His website is www.lesrees.co.nz
Book Review

If you are concerned with how society is changing then you should read this book. It contains some interesting insights into how society via government is being moulded, whether intentionally or not.

Bay lists some of the problem he sees with the way governments are governing and global challenges such as the current global recession. You may or may not agree with what he has written, however, it will make you think.

Bay also provides solutions to the problems that he highlights.
This is a book that you may need to read twice to get the full benefit. I know I will be reading this again in twelve months time.

I found this to be an interesting and worthwhile read.

Les Rees, Principle of Les Rees Ltd. Les is a Chartered Accountant specialising in S.M.E’s and start-ups, he has had nearly 20 years experience in assisting business owners to improve both their bottom line and lifestyle.

The Circle of Life!

June 24, 2009 in Book | No comments

Be Do Have Diagram (Original Alistair Lobo version)

Be Do Have Diagram (Original Alistair Lobo version)

As I explain in my introduction, this Be Do Have model is such an intuitive, natural concept that it helped me shape my life, even though I only formally learned about it in the past year.

Since publishing the book, however, I have realised that both this diagram and my supporting description are inadequate. Both make the elements appear sequential, with each step forming a precedent that determines the quality of the next. This is only partly true, because, as I have since realised, they are actually a behaviour continuum where each has an ongoing effect on the others. Therefore the concept can and should be more realistically portrayed as follows:

Be Do Have Diagram (Revised Bay Jordan Version)

Be Do Have Diagram (Revised Bay Jordan Version)

The distinction is important because it reinforces the progressive nature of life and helps illustrate why the outcomes we are currently experiencing are undermining our individual and collective sense of self-worth, and thus why we need to change. It is effectively a wider interpretation of Helen Douglas’ observation, “Character isn’t inherited. One builds it daily by the way one thinks and acts, thought by thought, action by action.” If we want a more stable, secure world, we have to go back to the highest concepts of who we are, in order to reverse the current outcomes that are moving us in the opposite direction and endangering the human race and the whole planet.

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A Lesson from Fleas and Fish

June 15, 2009 in Book, General | No comments

clearing-the-barIn their book “The Gorillas Want Bananas” Debbie Jenkins and Joe Gregory describe the once popular phenomenon of flea circuses and how, by putting a lid on the box so that they crashed into it whenever they jumped, fleas could be trained not to jump so high, until eventually they could be kept in the box with no lid at all. I had heard this before and forgotten it, but it also reminded me of a similar story about a glass sheet being put in a fish tank, preventing fish from using the whole tank. Eventually, when the glass is removed, the fish have become so used to the restricted space they make no attempt to swim beyond where the glass was.

As I reflected on both these examples of conditioned thinking, I realised that in “A Feeling of Worth” I am actually challenging the extent to which we, humankind, have allowed ourselves to be conditioned in the same way. To what extent is “tall poppy” syndrome – the tendency for the majority to try to cut down anybody who rises above the rest – inhibiting our ability to progress as a society?

Of course I don’t have any definitive answers, but I do sense that this is a major factor in modern western society, and that, in the name of equality, there is a tendency to lower standards to meet the average. My argument is not with the principle of equality, but simply that this should be equality of opportunity, and that once given the opportunity people should be judged on the use they make of that opportunity.

For example, compulsory universal education is a desirable standard and a principle to which we all happily subscribe. Modern technology even makes it easier to remove the inequities caused by varying standards of teaching (even if it does not eliminate them completely.) Effective use of these capabilities would minimise the historic ‘lottery’ associated with education that created the situation whereby the quality of education depends on social standing and residential location. Yet, even then, results will vary because abilities differ.

Unfortunately, educational effort seems to be focused more on equalising results than equalising opportunity. Consequently, while it is a worthy goal to make university education more accessible to all, this appears to be being achieved by promoting a general lowering of standards that:

  • Reduces the spread in results, and ensures that more students achieve the highest grades in their qualifying examinations.
  • Promotes university selection policies that are distorted by social considerations rather than pure academic achievements.
  • Reduces the calibre of the student intake which, inevitably, has to reduce the standard of the ultimate degree, and hence the graduate capability.
  • Proliferates a number of graduate qualifications that are not consistent with the standards normally associated with university degrees.

Some might argue that, precisely because abilities do vary, this ultimately is simply an alternative method of creating “a more level playing field” where more people have greater opportunities than they might otherwise have had. The problem is that it inhibits the capabilities of the more able, and thus, for the wider community, reduces the overall potential. In a world where we need to make better use of resources this is waste, and as such is unconscionable.

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