I have often thought that accountability is a term that executives love to brandish but yet which somehow do not seem to think applies to them. In 1992 when the company I worked for got into difficulties and had to be bailed out, most of the staff who were let go were awarded severance packages in line with legal requirements. Yet the CEO who oversaw the corporate failure was awarded a severance package that included the equivalent of a full salary for the 7 years until he would have retired.

He was also subsequently re-hired as a consultant. Now, maybe that was justified on the grounds that he had learned a lesson and would now be a better, more rounded professional. Let’s be generous and give him the benefit of the doubt.

Yet in total the story is just wrong. He was actually better off than he would have been if the company he led had not failed and he had kept his job!! There definitely seems to be a different law for the guys at the top of corporations and they do not seem suffer the same consequences as the rest of us.

I watched with some horror as this situation was repeated at the major financial institutions recently. Despite the big companies needing massive bailouts by the tax-payer because they were “too big to fail”, very few of the culprits at the top of these companies appeared to suffer any significant consequences. Take the case of Eric Daniels at Lloyds TSB. He not only kept his job, but is about to take a £2 million bonus before he heads off into retirement.

You cannot blame him: he is “entitled” to it and has waived similar amounts for the past two years. To give up over £4 million is one thing, but who in their right mind would expect him to make it £6 million? Especially when the bank is once again making profits. Going into retirement as he is, he would probably have to be a saint to forego it again. Yet the bank is still 41% owned by the tax-payer – who is being hit on all sides by the aftermath of the crisis that Mr Daniels and his ilk all contributed significantly to creating.

Then this past week I read a 2010 blog by Margaret Heffernan that talked about BP’s monstrous safety record. In 2005 15 people died and 170 were injured in an explosion in their Texas oil refinery. The company paid a $50 million fine to avoid criminal charges. Yet there were no consequences for any of the executives. The CEO Lord Browne retired early, but that was prompted by other circumstances which had damaged his reputation. Yet in 2009 BP apparently still faced 439 outstanding safety violations. And even after the Deep Horizon Oil Rig Disaster Tony Hayward only resigned because he was a PR disaster.

No, it definitely looks as different standards of accountability apply to people in high positions. But there are two questions that just have to be asked.

  1. How did we allow this to happen?
  2. Why have we done nothing to stop it?

Certainly, we will never be able to protect our planet if we cannot protect ourselves from those in authority who wield the commercial power. And unfortunately a few tree-hugging activists – even if they are morally right – won’t make any difference. We need new systems.

________________________________________________________________
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

Tags: , , , ,

Amidst all the brouhaha about the awarding of the 2018 soccer world cup and the allegations of bribery and corruption, very little has been said about the awarding of the 2022 World Cup to Qatar. In my opinion this is prima facie evidence of a corrupt process. Certainly if the process is not corrupt the people involved certainly need their intelligence checked.

Why?

There are a number of reasons. To begin with Qatar only has a population of 1.22 million per the 2009 census. A country of that size simply does not warrant hosting a world cup.

Certainly a population that size does not warrant the 12 stadiums that need to be built. Indeed the bid recognises this and states, “After the FIFA World Cup™ these stadiums will be partially deconstructed, allowing us to build 22 new stadiums in the developing world.” Forgive me for being unduly cynical but there is no indication of where exactly they will build these proposed new stadiums, and I very much doubt this promise will ever be kept. Nor does the bid explain “partially deconstructed” – there is no indication of whether this means 5% or 95%.

Secondly, temperatures at the time of the tournament will be about 50 degrees centigrade. This is too hot for players to actually play. To overcome this, the stadiums will be air-conditioned. This is all supposed to involve environmentally friendly, carbon-neutral technologies but, even so, is hardly conducive to an enjoyable spectator experience outside of the games themselves; something that the 2010 World Cup in South Africa proved was essential for a successful tournament.

Certainly such factors make it patently clear why the decision needs to be made 12 years before the event! Nevertheless, they also indicate a flawed thinking that makes the decision itself questionable. It is a very good example of what is referred to in this post that questions whether management thinking is an endangered skill. although perhaps the adjective “management” is unnecessary.

Clearly this project is not a good use of the earth’s natural resources and is thus not a “value-based” decision. My concern is, “How much longer can we go on making such decisions?” This is a question we should all be asking ourselves and is definitely an area where more thought is required. 

________________________________________________________________
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

It comes to something when even the head of the CBI calls for greater restraint in executive pay. Yet according to a report in The Sunday Times, Richard Lambert, Director-General of the CBI “warned before Easter: ‘If leaders of big companies seem to occupy a different galaxy from the rest of the community, they risk being treated as aliens.’” (“Bosses Clean Up”: Business Supplement 11/04/10).

It is questionable whether this threat even gives offenders any reason to pause to consider. Perhaps reminders about Marie Antoinette might be more pertinent. This is because Lambert, citing research from the Income Data Services, says that chief executive earnings for the top 100 UK comapnies are now 81 times the average earnings of their employees – up from 47 times in 2000. That is a 72% increase. And what is even more alarming is that the base from which they start is so much higher. It is hardly surprising that employee engagement is such an issue. It borders on lunacy that so much effort is expended to “win the hearts and minds of employees” when the fundamentals are so flawed and mean that their efforts are doomed.

What is even more insane, however, is the investors who let them get away with it. There seems to be no recognition of the damage they are doing to their business, or any concept that the rewards could be so much greater. At a time when the demand for better use of our global resources has never been greater, this seems little short of iniquitous, and – unless something is done to realign things – a recipe for disaster.

Certainly the recent lessons from the banking sector appear to have already been forgotten!

________________________________________________________________
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

Tags: , ,

I recently saw a further sign of the “delegation to government” that I describe in the book. On a TV report discussing the need for private citizens to do more to safeguard our environment, a panel of ordinary citizens all felt they needed government to legislate before they would take effective action. The amazing thing about this was that all these people had strong ‘green’ credentials and were passionate about the need to do something. Yet they still expected, and were waiting for, government to take the lead!

It thus appears that the principle of democracy has been lost and that instead of government being the servant of the people it is now the master. This is not good, but is made worse  by the fact it that is happening at a time when government is becoming is becoming inherently weaker and less well-placed to do anything, simply because declining revenues and maximised borrowings mean it cannot afford to.

A report in the 21 February edition of The Christian Science Monitor gave a clear indication of how government is growing. It stated, “The US now has fewer private sector jobs than it did a decade ago, even though the population has grown by more than 20 million.” So where are all the new jobs? The bulk of them have to be in government or quasi-government roles. This means that they are being funded by the taxpayer and clearly, if the tax-base is declining, this is a model that cannot be sustained.

And the US is not alone in this. Growing central government is a modern Tower of Babel and needs to be recognised as such. If we are serious about finding solutions to our challenges – national and global – we have to look to new ways of delivering them that are not dependent on an increasingly resource hungry government that adds no value.

                                                                                                                                                                                   

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

Banking bonuses were back in the headlines this last week-end. The Sunday Times Business Section had the banner headline, “Bonus Storm as losses hit £7bn at RBS.” According to the report it appears that the Treasury – representing taxpayers who currently have an 84% in the bank that they bailed out in 2008 – is expected to approve a bonus pool of £1.3 billion for 2009, despite the fact that the bank has forecast losses of £7 billion for the year.

Sounds appalling, doesn’t it? Perhaps, even more appalling (and certainly more galling) is the line in the report that, “The return of bonuses across the City in recent months … has heaped pressure on RBS to make big payouts to its investment bankers to stop them being poached by rivals.” This makes it appear that the whole “bonus culture” is ultimately nothing more than an excessive example of “keeping up with the Joneses.” It certainly works with the headline to give the appearance that the bonuses bear no correlation to the business results.

Yet, as ever, all is not quite what it seems. The text of the article also reveals that:-

  • The loss is the result of “a £14 billion hit” on bad debts, which “once exceptional items are taken into account, should be cut to $5 billion.”
  • The investment banking arm “is on track to make billons of pounds in profits.”

The net effect of this is to imply that the bonuses are actually justified. After all, investment banking is ‘doing well’ while the rest of operations would also be okay but for the unfortunate “hit” of the bad loans, the bulk of which are in any case “exceptional.” Certainly this seems to run counter to the secondary headline about Treasury approving payouts “despite bad debts driving state bank into red.” (My emphasis.) This sense is reinforced by the statement that bonuses will be “the minimum we can get away with” as well as the fact that “RBS is expected to pay 30% of its investment banking revenues to staff, compared with 36% at Goldman Sachs and 50% at many other banks.” (Again my emphasis.)

So what are you meant to conclude from this? You could perhaps argue that it is balanced reporting that simply presents the facts and leaves you to reach your own conclusion. That, however, does not fit with the headline which conveys a strong sense of disapproval. If that is the intention, then one can only say that the article is disappointing, as it clearly pulls its punches.

Maybe this is simply through the tacit belief that people who are performing well should not be penalised because others are not – or at least another part of the business is not. Yet, apart from challenging why bonuses should be awarded against revenue in the first place, the obvious question that follows is, “Why then are two businesses treated as one.” If investment banking and retail banking together make up RBS then bonuses have to be paid on RBS results. Don’t they?

If, as some say, the banking crisis was caused by excessive risks taken by investment banking there is no way that the investment banking fraternity should not contribute more significantly to the price of the recovery. If they did not and they are entitled to these disproportionate rewards, then they cannot be penalised by being treated as part of the same organisational entity.

Either way the solution is simple and obvious: separate investment and retail banking. Governments need to prohibit the combination of such services. This would make each more accountable. It would also open the activities of investment banks to greater public scrutiny and allow more reasonable assessment of the value of their services and the remuneration of their employees.

                                                                                                                                                                

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

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!

MPj04432080000[1]

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.

________________________________________________________________
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

Tags: , , , , , , ,

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!

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?

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.

Tags: , , ,

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?

Tags: , , , , ,

« Older entries