Distractions: The Penis, Steve Jobs and the statistician

Had to find some distractions this morning. Been left childminding two five-year olds so an escape from pretending to be a Springer Spaniel was in order. So here goes...The penis, Steve Jobs, religion and birth rates. Sorry.

Baring all: The second most popular article on The Economist website is headlined The penis: Cross to bare. Which goes some way to indicate what sells a story. I leave it to you to find out what it's about. Whoever said the Economist was stuffy? 
Click here.

Just the Jobs: The Harvard Business Review has listed the top one hundred CEOs in the world. No 1 is, of course, Steve Jobs - still being lauded after his death. I got his biography for Christmas. Here's a quote from a memo sent by Jef Raskin, a former colleague from way back in the day: "Very often, when told of a new idea, he will immediately attack it and say that it is worthless or even stupid, and tell you that it was a waste of time to work on it. This alone is bad management, but if the idea is a good one he will soon be telling people about it as though it was his own." Oh dear.
Click here.

Birth right: I was thinking about the real meaning of Christmas and ended up on a video of the Swedish statistician Hans Rosling talking about religion and birth rates. It was recorded in the middle of the year, but how christmassy can you get?
Click here

The Hobbit: An unmotivated employee

(Spoiler alert: this article contains details about the plot in The Hobbit movie)

At first Bilbo Baggins is reluctant to join in The Hobbit: An Unexpected Journey. Can workplace pyschology help explain what drives his motivation

"Still it is probable that Bilbo, her only son, although he looked and behaved exactly like a second edition of his solid and comfortable father, got something a bit queer in his make-up from the Took side, something that only waited for a chance to come out."

A Hobbit and the Progress Principle 
Bilbo Baggins is a stubborn Hobbit. Despite being the star of Peter Jackson’s latest installment in Tolkien’s Middle Earth saga, he steadfastly refuses to get on board when Gandalf the Wizard implores him to join a disgruntled band of 13 dwarves on a quest to reclaim their lost city under The Lonely Mountain. Can we therefore see his participation as a classic problem of workplace motivation? 

Fans will remember that in The Hobbit the dwarves have been expelled from their city by the ferocious and gold-obsessed dragon Smaug. And Bilbo, at first, doesn’t want any part of it. His trouble? Bilbo doesn’t really know Gandalf (except indirectly); is completely unfamiliar with, and somewhat offended by, the dwarves and has no direct connection or previous interest in their cause. Bilbo is also aware that the mission involves extreme peril, if not a grisly death, at the hands of goblins, orcs, wargs, trolls and, ultimately, Smaug him or herself (it’s not really clear). Why wouldn’t he stay at home in his comfy, well-appointed Hobbit hole with all its handicraft home comforts (Kirsty Allsop will shiver with longing when she sees it) and good food? Life, though sedentary, is good. In the film, Gandalf’s effort to persuade him to leave all that behind amounts to this: “The world is not in your books and maps - it’s out there.” It’s a no brainer. The dwarves can go where they like. Bilbo knows where he belongs.

In a review for entertainment website Total:Spec, I wrote that this was, “with all respect... why students go backpacking to Bali. It’s not a reason for facing down monsters and creatures from hell. And with no motivation Bilbo really has no story, no arc, other than he’s along for the ride - a troubling set of affairs for the movie’s central protagonist, and strangely unsatisfying once rendered in film.” But he does go. He packs his bags and runs off after the dwarves. Who would have guessed? What in all of Middle Earth is his motivation? And without one, how can we believe he will stay the course?

Where can we find an answer to this perplexing question? Last year saw the latest of many efforts to explain what motivates employees. This time it came from a professor at Harvard Business School, Teresa Amabile and her writing partner Steven Kramer, an independent researcher. The pair monitored 12,000 diary entries from 238 individuals working for 26 project teams across seven companies. The diaries detailed the workers’ feelings every day about work and whether it had gone well or badly. More importantly it also provided some insight into explaining their reactions. In short Amabile and Kramer concluded this: “We discovered the progress principle. Of all the things that can boost emotions, motivation, and perceptions during a workday, the single most important is making progress in meaningful work.”

The results were recorded in a book The Progress Principle: Using Small Wins to Ignite Joy, Engagement and Creativity at Work. Fortunately it was also captured in an article for the Harvard Business Review (HBR) more economically headlined The Power of Small Wins. Though Amabile and Kramer’s research centres on what they define as “creative teams,” its worth going over their findings because, like all good researchers, they set out to quantify the results (I write with no irony whatsoever). It might provide some insight into Bilbo’s joy at work too. What they found was that events that could be classified as “progress” or “steps forward” occurred on 76% of worker’s best mood days. “We found that the most common event triggering a ‘best day’ was any progress in the work by the individual in the team. The most common event triggering a “worst day” was a setback,” they wrote in HBR. The pair take care to say that they cannot claim causality, only a correlation, but write: “However, we do know from reading thousands of diary entries, that more positive perceptions, a sense of accomplishment, satisfaction, happiness, and even elation often followed progress.”

There are, however, other classes of event that can help give workers a buzz. Amabile and Kramer conclude that catalyst events - receiving help from team mates, or nourishing events - being shown respect or encouragement - also give workers a boost. Likewise, damaging events can put workers on a downer. They call these toxic - discouraging comments, or inhibitors - actions that block or undermine progress. To keep staff cheery and motivated to work, managers should, in short, master the art of encouraging progress and focus on catalyst and nourishing events.

Understanding Bilbo
Can this help us understand Bilbo Baggins? I don’t think it unreasonable to assume it might. Bilbo has thrown his lot in on a short-term project with an unfamiliar team of colleagues under the leadership of two individuals (Gandalf and the dwarf Prince Thorin). The end point is near term enough to keep everyone focused and yet there are travails-a-plenty to challenge the resilience of the team and its ability to collaborate on problem solving. Now, while this journey is somewhat more perilous than say developing a new bio-degradeable polymer or solving a glitch in the IT systems of an international hotel chain, they share these characteristics (workers in the plastics and hospitality industries rarely encounter orcs and goblins, though I have no doubt they think they do at times). Bilbo’s journey can be seen as a study in keeping stressed employees focused on their work.

But there is one thing worth noting. Amabile and Kramer were, in all honesty, not the first to come across the significance of “progress” to the psychology of workers (though they do appear to have been the first to put it to the test in such an extensive quantitative study). The US military has had psychologists looking at motivation among service personnel for some time. In 1996 a paper written by staff at the US Naval school, Monterey, identified what it called “intrinsic task motivation”. Servicemen experienced a sense of accomplishment, progress and meaningfulness if they were involved in decision making that included “committing to a meaningful purpose, choosing activities to accomplish this purpose, monitoring the quality/competence of one’s activities towards the purpose and monitoring one’s progress towards the purpose.” Written by Kenneth Thomas and Erik Jansen,the conclusions seem in tune with Amabile and Kramer whose diary research reveals the same task orientation among the project workers.

But though this seems sensible other researchers have implicitly questioned the “task” motivation. During the Iraq war researchers under the leadership of Leonard Wong, a professor at the Strategic Studies Institute of the US Army War College, interviewed 40 US servicemen in combat units. In a paper that caused what seemed like a minor stir, Wong and fellow writers concluded that the key motivating factor was “unit cohesion”. In short, servicemen fought for each other because they built strong “interpersonal bonds”. The priority in the psychology, therefore, is each other, not the job (task) at hand. The difference doesn’t seem like much but could be significant when formulating officer training and management techniques for the military (You have to wonder whether Wong questioned the motivation of the researchers sent into Iraq to interview the soldiers).

But why military psychology in an article about Bilbo Baggins? Well, another way of looking at the Unexpected Journey is as a military expedition. The dangers, methods and objectives are certainly comparable. The goal (for the dwarves, at least) is the physical removal of an enemy. The tool will be violence - in the extreme. In many respects this is a soldier’s story, as much as anything else. And in truth, business and military managers concerned about organizational behaviour have always made a point of looking at each other’s work. That they should converge on some of the same conclusions should not surprise us. The question here is what it can tell us about Bilbo’s motivation. Is Bilbo driven by interpersonal bonds with the dwarves, a la Wong? Or, is he “task” orientated, deriving meaning and personal satisfaction from incremental success at achieving his stated goal?

Nourishing Bilbo
Taking the film alone (Peter Jackson and his co-writers have reengineered the characters somewhat. There was clearly a belief that Tolkien’s source material was not enough on its own to serve character development) there are some specific events which might lead us to an answer. Though we need to understand some context first. When the dwarves meet at Bilbo’s house at the start of their adventure they express misgivings about his presence on their caper. These concerns are given voice through Thorin who, traumatised by the loss of his city, status and his father, is a dour, brooding, self-reliant character, quick to distrust and condemn. Once on board, Bilbo’s evolving mission appears to be to earn Thorin’s trust and respect. This tension between them appears from the time Hobbit first meets dwarves at Bilbo’s house.

This is also the first occasion on which we witness something to help us understand Bilbo’s motivation. To persuade the dwarves that Bilbo will be good to have around Gandalf insists that there is more about him than it seems and explains that he is a top burglar. Bilbo has so much as burgled a black bird’s nest but the claim does at least advocate for qualities in Bilbo that may be useful to the dwarves and constitutes the first vote of confidence in his character. Amabile and Kramer might describe this as a “nourishing” event. That is, Bilbo receives respect and encouragement from a superior in front of work mates. It should be noted that this comes after what we know would be “toxic” discouraging remarks. But Gandalf’s intervention goes a little further. In calling Bilbo a top rate Burglar, he gives him a purpose along with validation for his presence among the company. 

Let’s move on to another key event - the run-in with mountain trolls. In this sequence Bilbo attempts to put his stealth skills to work in freeing stolen ponies from three monsters. He must play his part as burglar. However, he is caught and worse when the dwarves attack they too are bagged, ready for the pot. When Gandalf arrives to the rescue enough time is involved for the sun to come up and turn the trolls to stone. However, when the dwarves complain about Bilbo’s part in this episode Gandalf speaks up for him pointing out that it was Bilbo’s own deliberate time wasting that diverted the trolls long enough to be destroyed by the sun. Indeed, even as the trolls were slow roasting a couple of dwarves Bilbo was attempting to dissemble over recipes and flavours. Gandalf’s support is, once again, nourishing (excuse, the pun). But this time it is based upon Bilbo’s own behaviour, which he can take as a job well done. Gandalf’s comments are not just distant support however. They are direct help in Bilbo’s relationship. This then, as Amabile and Kramer would point out it, is a catalyst event. Bilbo should be buoyed up. He has demonstrated some ability, his presence on the trip is meaningful. When the dwarves only had swords to offer, and then not very effectively, Bilbo turns out to have some savvy.

Strangely though Bilbo’s mood is not entirely lifted. This is perhaps where the film’s writers part company with the psychologists. The Hobbit has trouble escaping Thorin’s doubts which appear to be ever present and weigh on him even as he receives affirmation from Gandalf and creates small victories, such as with the trolls. It is this feeling that brings us to the next character building event.

The party travels into the mountains and takes refuge in a cave. As everyone sleeps Bilbo decides to give up on the quest and head for home. The journey through the mountains has been stressful and he is feeling alienated from the group. But one of the dwarves, Bofur, spots him and intervenes. Bilbo says he is no use and not really one of the group. Bofur contradicts him, and in a moving statement, insists Bilbo is one of them now. It is a moment which is clearly nourishing for Bilbo who stays with the dwarves following what is a clear statement that he has been embraced by his fellow travelers. 

Distractions: Cricket, obesity, Big Data and life in the circus

Today’s Distractions - keeping me from doing some proper work. Actually, I've filed copy this morning so feel fairly relaxed about killing time. But not entirely.

Fat chance: The Economist is this week talking about obesity and its implications. Seems like a good business opportunity, if you’re in the health sector. Or, selling food full of saturated fats.
To watch the video click here
Ringmaster: Jerry Cottle, the one-time circus impresario, talks about his business ups and downs. Out of one hole he’s now in another running the caves at Wookey Hole.
See the film here
Information age: Want more data about your clients and customers? A top ebay manager and the man behind the iPhone talk about Big Data and using design to persuade customers to give up more of their personal info.
Click here.
Howzat!: The architect of the Indian premier cricket league talks trade to London Business School.
Click here.

Distractions: Motivation, revamping X-Factor, Favela sales and cursing Mad Men

Today’s Distractions

Not sure there's a link between the following. But they've grabbed my attention and took it away from my paid work. Which is ironic given that one of them is all about motivating workers. Prof Teresa Amabile says small amounts of progress keeps workers focused and on the up. I can get behind that. Especially as I work from home and suffer from debilitating freelancer's lassitude. Means only small amounts of progress are ever possible.
One man who has just made big progress is James Arthur, winner of this year's X-Factor and, even though he looks chronically world-weary, he found time to get involved in the debate about the future of the show. This is essentially a business issue - its strategy needs a revamp after audiences and caller showed signs of falling. Is the product broken? Or is it simply a marketing issue? Put it another way where do you think X-Factor in the product life cycle? It's a big one for Simon Cowell to address.

Pity he's not in Brazil where incomes are rising prompting more door to door sales activity in the country's favelas, traditionally the venues for gun battles between police and drug gangs. Direct sales though are helping some businesses boom.

Lastly, what are the values that marketeers seek in the artists they choose to help promote their products? Singer songwriter Tom Waits gives a lesson in brand values and damns the marketeers at the same time. 
See below.

Progress Principle: Prof Teresa Amabile on motivating your workers. (What about the self employed)? Click here.

Biting the hand: X-Factor winner James Arthur mumbles agreement that the show needs a revamp. The artist makes a business case for “authenticity”. Listen carefully and click here.

Doormen: Brazil sees rise of direct sales as favela dwellers witness their incomes climb. Click here.

Curse the marketeers: Singer/songwriter Tom Waits on why companies can forget about using his songs in their ads. Precisely the reason why they may want to use his, ...well, songs in their ads. Click here.

The Professional: Interview with Sir Michael Snyder

I recently interviewed Sir Michael Snyder, head of accountancy firm Kingston Smith, for Economia, the ICAEW's magazine. 

You can read it here.

Starbucks' froth

The behaviour of Starbucks this week may have done more to intensify the debate over corporate tax and its relation to corporate ethics more than any other event over the past ten years.
To recap MPs on the House of Commons public accounts committee questioned executives from Starbucks, Google and Amazon over their tax affairs with the aim of exploring why they appeared to be paying so little. It’s clear now Starbucks was stung by the event. Reportedly, coffee drinkers began staying away from the company’s outlets in protest.
Now, the Seattle chain has volunteered to stump up an extra £20m in tax to the UK exchequer over the next couple of years by way of righting the situation. A managing director told the news that the chain had “listened to its customers”.
Starbucks are not in the clear, however, and all the big multi-nationals out there who have similar arrangements may well be feeling that Starbucks' reaction could have stimulated the debate over "exporting" tax slightly more than a double espresso.
Firstly, the terms of the debate. Over the past few days the press has been at pains to make clear that Starbucks, Google and Amazon have done nothing illegal. The rest of the commentary seemed to revolve around demands for the companies to sort their affairs out. But the British tax system allows them to make these arrangements. The debate has yet to settle on what will be done about the law. In the week of an autumn statement which revealed austerity will last longer than expected the government has been suspiciously quiet on the subject of corporate tax, except to say it would be cut again (what matter a cut if you’re not paying tax anyway?). Strange this because it is the government that makes the law and national tax policy. What will be interesting is whether the key campaigners can make the argument heard that it is government that needs to act. For their part the government could fall back on the argument that they cannot act without international cooperation on reform. Is that a compelling claim? If it is, then perhaps the Treasury should indicate where it is leading that discussion.
At the moment lots of people, supposedly in the know, are talking about companies paying their "fair" share. If you don't have a legal framework in place that makes it perfectly clear what a "fair" share is, the situation is unlikely to be resolved satisfactorily. Small business has no choice but to pay their corporation tax at the going rate and they compete with multi nationals like Starbucks. They deserve a better deal from government.

Ignoring the system

Next, so far Starbucks has been the lightening rod for this most recent installment in the tax debate. This is interesting because the coffee company has only been doing what countless other companies have done in the past. The debate this week even largely ignored Google and Amazon. It has yet to broaden properly to engage with the system. This is mostly a function of the news outlets - they seem surprisingly slow to shift focus from a single company to the broader issue.
Other companies are no doubt keeping their heads down hoping that Starbucks will take one for the team. But if the debate broadens (and one wonders whether there is enough energy in the issue to maintain the current momentum) we could see that tax has become a key issue of corporate ethics. Indeed, if it hasn't already, it could develop to become to be an area where a business has to be scrupulously clean in order to maintain a functioning reputation. Starbucks clearly felt some reputational strain. After all, it’s on our High Streets and high profile, it was vulnerable to boycott. MPs noted that the company’s move to cough up more was caused by public pressure. Other companies may yet come to feel this heat. That said Amazon and Google may yet feel that they are now so ingrained in our daily lives that their reputations are unassailable. 

I think it’s possible to set the tax issue in a wider context. Since the global financial crisis and the poor behaviour of financial institutions we have been living in the age of holding big business to account. Sub-prime, the Murdochs and phone hacking, Barclays and Libor and now tax - these are all part of a narrative in which politicians, pressure groups and the public are emboldened to challenge big business more than they have in perhaps two or three decades. Our trust in big business, our default assumption that only they can cope with necessary technological advancements, has been substantially shaken.
Politicians especially now feel released from having to keep big business happy. So far though, this narrative has produced a lot of noise, many complaints and a lot of soul searching. But it remains to be seen whether substantive measures will be taken in response. Will banks have to separate investment banking from retail banking? Will the press really instigate a radical new form of regulation? 

In business

Lastly, if you are in a business which partly sells on reputation the Starbucks problem will become a case study in managing a crisis. As better commentators have pointed out, in "volunteering" to pay extra Starbucks makes it look like corporation tax is an option. What the company hasn’t done is said that they will reorganise their affairs so that revenues raised in the UK will be liable to corporate tax every year going forward. Volunteering does not resolve what the 'fair" liability is. PR and marketing strategists might theorise that Starbucks has come up with only a partial solution. They listened to customers but did not really engage with the issue. The £20m will be a welcome contribution to government coffers, but it does not resolve the tax position.

Starbucks, though looking contrite has still to confront the real issue. But they are not alone. Their position is shared by Google, Amazon, the many other companies exporting their profits and a government not yet fully engaged or leading the debate on corporate tax. At the moment Starbuck's £20m may still end up looking like froth.

Postscript: (Sat 8 December, 2012).

I have not boycotted Starbucks. I feel perhaps I should, and I am in favour of consumer action, but I haven't. For a few reasons. I'm still using Google (a bit more Yahoo these days) and I have a lot of gifts enrolee from Amazon. How could of ditch one without ditching the others. But then there's the broader issue. If I boycott Starbucks, I should also boycott the government, which I can't do, sadly. Starbucks has exploited a tax system which they didn't make. We have our lawmakers to blame for that.

Energy prices? Epic fail on pricing strategy!

Pic By Thomas (ARRG.ch photostream Flikr)

This morning it’s become clear that the government intends to push ahead with forcing the energy companies to reform their tariff structures to help people ensure they are on the cheapest possible rate.
This is a major blow for the companies, a huge embarrassment and a counter intuitive PR victory for a governing party that is otherwise wedded to free market principles. Consumers will no doubt say this is long overdue, and for many this will be a relief.
For the energy companies this represents many things. But above all else for those that provide electricity and gas to our homes this will come to be viewed as a failure of pricing strategy.
Indeed for pricing experts, and this is turning into something of an industry here and in the US, the energy debacle will become a case study of a how the approach to pricing went disastrously wrong - so wrong in fact that a national government felt it had to intervene. Ouch!
It doesn’t help that the energy companies are selling an essential commodity. It didn’t help that on the back of constant price hikes, the companies kept making decent profits (they should, shouldn’t they?). It didn’t help that they became bogeymen for the media and consumer groups. But it would be a mistake for the energy providers to sit back and complain they are victims and that this was all out of their control. They and many other companies should take a long hard look at what happened with energy pricing and ask: why did it all go wrong?
It may be that the sector is poorly structured, and that’s a fundamental that may need addressing in some way. But my guess is that it will all come down to the way energy suppliers priced their products.
What happened? In short tariffs multiplied beyond most peoples’ understanding and ability to understand why gas and electricity was being priced the way it was. Consumers, I suspect, find the structure of the sector hard to grasp and their hold on why all the prices are the way they are is even less secure. That led to a widespread perception that people did not know exactly what they were paying for and if they don’t know that they simply couldn’t grasp the “value” they were receiving in return for hard earned money.
This haziness over the value was exacerbated even more when energy companies announced that prices had to rise (mostly across the board) because of rising wholesale prices, and yet continued to make big profits. Public perception inevitably gravitated toward the idea that something was wrong.

Executives, Patraeus their halos and indiscretion

“Who the fuck does Cox think he is? I never made a dime from public office! I’m honest.”

“They can’t impeach me for bombing Cambodia. The president can bomb anybody he wants.”

These are obviously the words of a leader concerned that his reputation should not be impugned. You will have guessed that the President concerned is Richard Nixon. These phrases though are taken from the Oliver Stone movie about the former president starring Anthony Hopkins in the title role. Though the film was extensively researched for reasons of legality and authenticity, I can’t tell you that they are actually Nixon’s words. But I think Stone was trying to capture something of the man.
The lines in the film come long after the Watergate scandal had broken and Nixon had devoted considerable effort to covering up. What do we understand from these quotes?
The first tells us that despite everything that went into the most notorious burglary of US political history, Nixon still saw himself as essentially an upright man doing right and serving the interests of the state. His exhortation that he was "honest" comes as something of a shock. The second gives us an idea of his warped sense of what the presidency and its powers meant - the president can literally do anything he wishes. Power is unlimited.

This week astonishing events saw General David Patraeus (pictured) resign his position as head of the Central Intelligence Agency following revelations of his affair with his official biographer Paula Broadwell. The affair has also raised questions of whether she had inappropriate access to state intelligence.
Coverage of whether he did or did not share sensitive information with Broadwell will rumble on for some time. But one of the first questions tackled by press, public, former soldiers and politicians alike is why a man vaunted for what are clearly considerable skills and intelligence should risk it all on an act of adultery.
Put aside the question whether he should have resigned. Patraeus obviously thought it was a resigning matter. The issue is why take the risk of embarking on what has turned out to be a catastrophic piece of behaviour? After all, this is a highly talented man who had achieved great success who potentially saw even more success out there in the future.

UK economy saves the living dead

You may remember that I recently wrote about zombie companies eating up vital financial resources when they should be dying off and making room for new thrusting more viable businesses
Well, the FT's Undercover Economist Tim Harford has turned his attention to the issue. His conclusion: in healthy economies companies die quickly. Sickly economies somehow enable the living dead to survive. See what you think - read his article here.
However, the policy implications are still difficult to divine. My article here.

Starbucks' CFO, tax and the riled up MPs

CFOs would have eagerly watched the performance of Starbucks' finance chief Troy Alstead in front of the House of Commons public accounts committee.
Alstead, along with other from Amazon and Google, was there to answer questions on their UK corporation tax contributions.
Branded: revealing the intellectual property that costs so much, Brompton Road, London

We know how this is done. Create a group structure with companies in different countries and have units in higher tax states make transfer payments to units in low tax nations for things like intellectual property. The scheme is as old as the hills, and perfectly legal.
The Financial Times concludes this:
The reality is that Starbucks is doing poorly in the UK. Local rival Costa Coffee is running (coffee) rings round it. And if some multinationals pay low levels of corporation tax in the UK and other markets, it is the fault of governments, not businesses. They talk up multilateral crackdowns on avoidance while individually trying to lure footloose company registrations with loopholes and low headline rates.
The operating loss stood at £28m, £25m accounted for by the payments mentioned above. Why wouldn't a company do that if it is legal? As the FT writes, it is not the companies that are the issue, it is why government continues to allow this situation to persist. Perhaps the public accounts committee should have called George Osborne to answer questions on why he has not instigated root and branch reform of the corporate tax system. Without that it's hard to see how things will change. In truth, as a result of the policy ambiguities highlighted by the FT, government is incoherent on the issue - sadly lacking in substance despite a lot of noise.
As for Alstead, he seemed well prepared and composed. Unlike his namesake city, he seemed unlikely to yield. Except the point that he wished Starbucks was making more money. But there was about as much froth as in a decaf flat white.

Economics and reading the runes

Though The Guardian does business reporting it rarely comes up with really thought provoking commentary on the subject.
This morning is different, however, as Simon Caulkin asks where management theory went wrong.
In short, for Caulkin, management theory became hijacked by the Chicago School of economics - you know that brand of economic theory dominated by Milton Friedman (rational choice theory leading to efficient markets). The point being that Chicago economics has been superseded but no one saw fit to feed that into management theory. This has therefore led to some dodgy corporate management and some poor corporate governance.
This is pretty much in tune with The Guardian's agenda. Sadly, I'm not well versed enough in economics to argue the pro and cons (I wish I was) but the idea that two fields of thought would cease to keep pace with each other is an interesting one. Economic theory raced on, management theory remained stuck at a certain point in time, is what Caulkin is saying.
More interesting is the way finance directors - de facto economists for their organisations - should regard this. I was reading the Secret FD column in Financial Director magazine who had this to say: "I have found advice from economists to be more ambiguous and open to contradiction than in almost all other areas."
FDs, perhaps, more readily question economic theory than anyone else. And yet if Caulkin is right, they did not question rational choice theory assumptions and efficient markets. They merely stuck to a particularly comfy set of theories and ignored everything else that came after.
I'm not sure that's correct. Though I do like this from Caulkin: "The irony is that we know what makes companies prosper in the long term. They manage themselves as whole systems, look after their people, use targets and incentives with extreme caution, keep pay differentials narrow (we really are in this together) and treat profits as the score rather than the game. And it's a given that in the long term companies can't thrive unless they have society's interests at heart along with their own."
But Caulkin's broader point would lead to the conclusion that FDs must get their underlying economic assumptions right. Which means enormous pressure on them. At a time when debate rages over economic theory it is perhaps harder than ever to pick the right camp. Caulkin's article is really an invitation to actively engage in that process. On top of everything else an FD does, like run the business.
But it does get at a fundamental point which I think the Secret FD is getting at too. If you are an FD you are relied upon for your ability to read the economic runes and the current circumstances we find ourselves in places a premium on that skill set. But there's a little bit more. It's the ability to take a step back and ask whether the old order was right. Call it "disassociation" if you like. You might do this about a product. Managers get wedded to old products - can't believe they could be wrong. Agile managers can disassociate themselves from the old product, have a clear vision of its future, or not, then switch to focus on something new. Likewise the FD might have to do the same thing with so called economic wisdom. But it's tough, perhaps bordering on traumatic. After all how can everything that came before be wrong. It's probably a mistake to see it as wrong. More "of it's time".
Certainly one worth discussing.

Earth tremors for IFRS

The world of accountancy was jolted by something of an earth tremor today as the UK’s chief supervisor of financial reporting, the FRC, revealed that it was considering a different set of accounting measures for banks.
The move will encourage those who have argued - in a debate growing increasingly vociferous - that banks should not have been using International Financial Reporting Standards (IFRS).
The FRC’s chief executive Stephen Haddrill (left) made the concession at a conference today staged by the accountancy firm Ernst & Young.
He is reported by Reuters to have said: “To what extent, for the purposes of our work, should banks be regarded differently?" He added: “"Should they have a separate code and their own accounting standards?" While not going so far as to emphatically say they should, Haddrill now has a working party examining the issue.
Haddrill is not the first to point at the growing disquiet with IFRS. Earlier this year Andy Haldane, a member of the board of the Bank of England, the new regulator of banks in the UK, said separate accounting standards were required for them.
The claim is that the current accounting precepts embodied in IFRS allow banks to indicate they are more healthy than they really are.
With the Bank of England is banging the drum, the FRC probably came to conclude it had little choice but to join in. It’s unlikely that its leadership could have seriously believed it could set itself in opposition. Things just don’t happen like that in the City.
Haddrill’s declaration was immediately welcomed in some quarters. PIRC, a lobby group for shareholders issued this uncompromising statement through a spokesman: “IFRS has been a fiasco since introduction. The French were consistently critical and warned of the implications for banking stability. The ability of IFRS to make any insolvent company appear solvent is deeply embedded in the philosophy of the IASB. Now is the time to ask, how on earth could it happen when these people were supposed to be experts. The IASB is about to embark on insurance, having so far left that sector to UK GAAP, heaven help what problems will lay in store there.”
The news will be a blow to the International Accounting Standards Board (IASB). Intriguingly its chairman, former Dutch finance minister Hans Hoogervorst, will be speaking tonight at the London School of Economics. His comments should attract much attention from the accounting world. He will certainly not concede that IFRS have been a fiasco (though he has been concerned about the body’s current work schedule). But could he even hint that bank’s may be a special case for accounting rules? There is some added pressure because the IASB is still working to converge its standards with the US. The FRC’s move may just give ammunition to those across the Atlantic who argue the country is fine with its own national rules.

Darwin and insolvency

The number of company failures is down for the second quarter running. Hurrah! We’re out of recession, apparently, and now the volume of businesses hearing the nails go in the coffin has dwindled. A bit.
Truth is though that many people are not convinced the company death rate falling is good news. Their view is that many are zombie companies - living dead corporates.
What’s keeping them alive? You know this better than I. Low interest rates, personal savings, deferred tax bills. Nick O’Reilly, an insolvency expert at HW Fisher says he’s routinely seeing companies taking on work at below cost rates, just to keep things ticking over.
In the summer I saw Jon Moulton, former head of Alchemy Partners and now running private equity outfit Better Capital, talk about the total absence of a "Darwinian" process killing off weak companies. Government policy and economic policy was artificially keeping them alive.
Of course, this is the great public policy conflict. Keep businesses alive and keep (some) people in work, garner positive headlines. Or, let nature, as it were, take it’s course.
Moulton’s point was that the current situation is only postponing the pain, plus it’s clogging up the country’s corporate arteries. The zombies are dominating energy, capital and resources that could otherwise be devoted to businesses with better prospects.
Maybe so, but it would be a near suicidal politician who said we needed a policy to kill off wounded businesses. The outcry would be deafening.

Obama, Sandy, business leadership and a confession

A week before the US presidential election, probably the most important decision for the future of the planet over the next four years and the incumbent, President Obama, is not campaigning. He’s not even talking about the election (except to say he’s not talking about the election).
No, what he’s doing is very obviously taking care of the crisis brought on by Hurricane Sandy. Now, there’s a lesson in leadership that businessmen would do well to remember.
From the Whitehouse website

It's personal (warning bad language on the way)
It brings to mind a personal story (former colleagues will remember this), please bear with me. It goes back to the time when the London tube network was attacked by a group of suicide bombers in July 2005. I was editing a magazine at the time and though the transport infrastructure and mobile phone network came to a grinding halt during morning rush hour I managed to get to work. What I did on arrival, the very first thing I did, was set my team to work on finding out whether there were angles we should be covering - what were the stories we should be writing then and there. As dazed as they looked, I demanded they hit the phones, start writing and posting online.
I thought this was our primary role. All I could see were the stories we should be writing, the narrative we should be crafting. I was driven, blinkered, and I thought my team should be too. I even called one of them at home to interview him about his experience of being terrifyingly close to one of the bombs. I was high on adrenaline, excited. I thought I was heroic.  
The next day, back at work, I overheard one of my team describing me as “a c**t.” This, as it turned out, was because I had failed to ask how any of the individuals in my team were. In all honesty, in the rush to do the story, I didn’t even give it a thought. I was caught up in the excitement, the rush. But on reflection the comment was quite right and I more than likely deserved such an epithet. Even now, some years on, the thought of my behaviour that day sends a shudder of embarrassment down my spine.

Obama and wellbeing
So what’s this got to do with Obama and business managers? In short you cannot afford to ignore the wellbeing of your people. They are the most important element to what you do. Without them, their goodwill and support, you will struggle to achieve your aims. Obama recognises this, I hope I do now, and business people need to keep it front of mind.
Senior business leaders all too often get caught up in their strategic objectives, the spreadsheets, the client meetings, boardroom intrigues, P&L predictions. Their people, their needs, especially in relation to how they do their jobs can come depressingly low on the priority list. Leadership should get your head out of those things to be concerned about the people who are delivering the products and services you sell.
Moreover Obama has been careful to be seen to do something else - ensuring that all the people that matter in dealing with the crisis are getting the support they need to do their jobs. This is not my observation but Eric McNulty in the Harvard Business Review. Obama is taking great care not to seem omnipotent. He can only control what he can control. McBulty's point is that it's taken a while for the President to understand that he used to over-estimate his ability to control things. He must therefore support others in their effort to deal with the disaster. He has not guaranteed that everything will be alright. He can’t. But if he supports well he will “share” in the credit (that’s already happening and could prove to be an election game changer). Others have written he has misunderstood America’s “can-do” approach to life. But to back-off and assume individuals can take care of themselves, even in such a crisis, is just bizarre.
Business leaders would do well to learn from this. Support your people well, pay attention to their needs,  and they may well deliver more reliably than if you are calling the shots from on high.

Even more personal
Personally, I forgot the support and I forgot that it wasn’t just about my intentions. I should have apologised to the team member who thought I was a “c**t”. If you're reading (I hope you are, I need the traffic) you got me bang to rights. Some might claim that I’ve never learned that lesson - they’re entitled to their opinion. I like to think I remember more often than not. Which is an improvement.

The finance director and diversification

I've been looking at the role of the finance director in diversification. Interesting to find that the FD has a critical role to play.

Much will depend on the position of the FD in relation to board decisions, but there is quite an involved role in putting together a structured view of diversification opportunities. This is, of course, where the finance chief becomes a real strategic player. This isn't the run of the mill compliance and reporting role.

I spoke to consultants and a former FD about how to organise your diversification approach. Carefully, seems to be the order of the day. Don't rush into anything. There's room for putting together tonnes of empirical research. This should be useful whether you're a big international player or an SME seeking new business opportunities.

But as finance chief this is where you make a difference to the business model and the future growth of a company. It's not easy though and there is still room for a big judgement call at the end of the day. How big the judgement is will depend on the preparation you do in advance (the empirical stuff), your experience and your intuition. But this element of the decision making is really where the finance director enters the realm of being a strategic player. Diversification is a key route to growth in the current economic circumstances which means, in turn, that the strategic skills for an FD are also at a premium.

Anyway, here's the article at Financial Director magazine. (Click here). And come back to let know what you think.

Barclays and its new finance director

It’s reported this morning that the new chairman of Barclays is to lunch a clear out of the board in a bid to get some fresh blood and fresh thinking at the top of what has become, perhaps, Britain’s new most notorious bank (the people at RBS must be relieved someone else is taking the flack).
The FT says its possible this round of recruitment could include a replacement for FD Chris Lucas, who has been unwell for a while and is due to retire next year in any case.

But who would want the job? Who would want to take the FD’s chair in what has been a calamitous time.
Timid men and women will steer clear. In fact they’ll run a mile. But for a hardy soul, a dynamic individual with balls and brains, this is a plumb job. And there is a model for this - Bruce Van Saun, the American who took over as the finance chief at RBS once the old guard had been cleared out. I interviewed him for Financial Director and this is the first thing I quoted: “I don’t think I’d be attracted to something that was a maintenance job, where it’s clipping coupons or without a lot of change agenda associated with it.”
Change? That was understating it slightly given the monumental deleveraging that’s been taking place at RBS and the further controversy it encountered (remember the bonuses ferago?).
CEO Stephen Hester apparently told Van Saun that RBS was the biggest turnaround job on the planet. He wasn’t kidding. But Barclays must have saddled itself with one some of the worst self-inflicted reputational damage, ever, after being found out in the Libor scandal. Which makes sorting out it’s mission and business model just as big a piece of work as RBS.

Barclays provides an interesting opportunity. Not just because it’s a big bank so will look good on the CV, or that it’s bound to be well paid (though care needed here that the cheques don’t look gratuitous). No, Barclays provides an interesting source of motivation, something I think I detected in Van Saun. It’s not just about doing your job well, earning the big bucks (he could have earned more elsewhere, I suspect) it’s about doing “good”. You can come at the Barclays role at least partially, if not wholly, spurred on by the belief that you could be part of fixing something in the public interest. Yep, that’s right, the public interest. For us, you, me and the rest of us, who rely upon financial institutions staying in one piece, having robust balance sheets, sensible business models and right-minded ambitions.
I know, I know, it should be about the shareholders, and their value, but I don’t think that’s the place where these large institutions are anymore. Barclays had a cultural issue. An environment in which people lost sight of what was honest and ethical. It’s that which needs rebuilding.
Sad to say it, we need financial institutions like Barclays. A fresh team at the bank could build a new organisation constructed on ethics and working practices that have integrity and a business model that embodies those values. 
If I think anything has changed in the past few years its that the public’s expectations of businesses has transformed. They want systemic stability, they demand integrity and businesses that are honest. Bankers are o loner the master of the universe. They nearly sunk us. A new Barclays FD would carry the burden of helping mend all that. This cries out not just for technical ability. Technicians need not apply. No, this needs that indefinable thing - leadership. Gravitas, authority, guts, strength of character, intelligence, unparalleled communication skills - all those things, plus a little bit more. For the right man or woman it will be a battle, but a glorious one.

To read the Bruce Van Saun interview click here.

Audit and the Competition Commission

Fascinating this week that the Competition Commission should reveal that its examination of the audit market has been delayed and we won't see a report emerge until January of next year. That's potentially another three months. And that's if it's sorted by then.
Naturally the speculating has begun about why this should be the case. One line of thought in the City is that the Competition Commission could be short of evidence of anything and needs more time to grub around. The other line is that it has a lot of evidence, bags of it, is attempting to make sense of it all and is currently being submitted to a heavy lobbying campaigns in the hope of swaying its opinion.
In the meantime the European Commission intends to push ahead with its own reform regardless of where the Competition Commission is. Could be convenient for CC if the EC gets there first to do all the heavy lifting. Certainly take some of the heat off.

And the record is...$104m.

I'm coming to this story late, I know, but here it is anyway. I'm researching a piece on whistleblowing for a magazine. Specifically I'm looking at the differences in approach between here and the US. The main difference I've found is that in the US whistleblowing can potentially turn you into a multi multi millionaire.
Bradley Birkenfeld earned himself a payout of $104m after spilling the inside story about tax evasion schemes at UBS. Yes that's right -$104m!
Some how this passed me by when the news emerged not too long ago (shame on me for not keeping up with the news).
Is it any wonder that the US perhaps sees a higher rate of whistleblowing than we do here in the UK? That's something to blow a whistle for.
Anyway, sorry if this isn't news to you but it impressed me.

Irish lay into international accounting standards

Astonishing article in the Irish Times today involving an attack on international standards. The City is already abuzz with speculation that it may be doing real damage to the reputation of IFRS. See what you think. Read it here...Questions over auditing profession's role in the crisis.
The article furthers the ongoing debate of whether auditors should have been paying attention to IFRS or Irish law,and its emphasis on a "true and fair view," when they were auditing banks. This argument won't go away and the Irish press has certainly got excited about it.

Finance directors: planning for a euro break-up

I’ve been doing some thinking and researching for CFOWorld magazine about what happens if the eurozone begins to come apart and countries start dropping out. Like Greece, to state the obvious.
What struck me was the very emphatic view from one finance director (I can’t reveal a name, sworn to secrecy) who told me he was about to drop his single British bank in favour of a syndicate of banking providers, perhaps three or even four, from around the world.
His hope? That he’d be spreading his risk of being badly hurt by eurozone fragmentation.
The concern, for the time being, seems to have receded, but it’s well worth thinking about corporate policy on dealing with such trouble. Not a pleasant thought experience - but necessary all the same.
Read my full article here... my CFWord article.