Chancellor's Autumn Statement: Why should 65 be sacrosanct as a retirement age?

by Julie Perigo
Member of the People Matters group of the CCEG, and Chair of The Henley Partnership


The issue of retirement and pensions, which has recently surged back on to the agenda, is not just about changing government financial support structures. It needs to be about changing mindsets within organisational employers and within individuals themselves as well.

I find it quite bizarre that the age of 65 seems to have been set in stone in the public imagination, and by the media when it is a purely arbitrary number.  As I highlight in my book, “Winners in the second Half” (Wiley 2008) Bismarck introduced it as the age for the Old Age Pension in Prussia back in the 1880s , allegedly basing it on the question, “By which age are most of them dead?”.  It meant that approximately only 2% of the population were alive to take advantage of it and because, of the health conditions at the time, were generally assumed to be disabled and therefore incapable of work. Others countries took it up as a norm as they introduced State benefits.

Lifespan and health remained fairly static until after the Second World War, so there was little cause to review pensionable age. Thereafter, growing prosperity in the Western world did lead to greater longevity and better health…. But the prosperity, economic growth and higher birth which increased the amount of contributing producers meant that supporting pensions for 65+s looked sustainable although, even then, recognised as generous.

In the 21st century, however, there is no reason not to question the pensionable age. Given the immense changes in our health, longevity and even type of work we do, it should be up for grabs. And it may possibly need to change again in 20 years time.  Concurrently, we need to facilitate greater national debate on what the Pension should be and whether there are other options to incentivise personal saving to support oneself in retirement, as in other countries such as Australia and NZ.

The fact that changes to the Pension still raise such knee-jerk opposition illustrates  just  how much misunderstanding there is about later-career issues, and how much personal and organisational change still needs to take place in our society. 


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[The views and opinions expressed in this blogs by guests or members of the CCEG are those of the author, and not of the CCEG or the University of Northampton Business School]

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A Tale of Two Complexities

By Tom Lloyd
Visiting Fellow to Northampton Business School


‘Managing complexity’ is the ‘next big thing’ in management. Books and articles on the subject are emerging almost daily, consultants are developing new complexity management offerings like there’s no tomorrow, and the challenge of ‘Managing Complexity’ is the theme of the Harvard Business Review’s fifth annual Global Drucker Forum in Vienna, next November.

Despite all the attention being paid to it, however, there remains considerable confusion about what ‘complexity’ is.

Some interpret it as the noun for the adjective ‘complicated’, and urge managers to do all they can to reduce it. One leading firm of consultants offering ‘to help companies manage complexity’ says that ‘too many products can create complexity and strangle growth’ and that ‘Unnecessary complexity cripples companies’. According to this view, complexity is like sclerosis - it clogs up the arteries and slows response times. Managers should seek it out, and weed it out.

But contrary to modern common usage, the noun for ‘complicated’ is ‘complication’. Complexity is the noun for ‘complex’, which is not at all the same thing as ‘complicated’.

A complicated system is ‘linear’: its chains of causes and effects are fixed and predictable. A complex system is ‘non-linear’; there are no definable logic paths linking causes to effects.

It was a realisation of the complexity of our weather systems that first alerted scientists to the complexity all around us.

To save time when he was using a computer model to rerun a weather forecast in 1961 Edward Lorenz entered a variable as 0.506 instead of the full 0.506127. The subtraction of 0.000127 caused a totally different weather pattern to emerge. In 1972 Lorenz gave a talk to the American Association for the Advancement of Science that began with the question: ‘Does the flap of a butterfly’s wings in Brazil set off a tornado in Texas?’

Lorenz’s ‘butterfly effect’ vividly describes one of the qualities of what have come to be known as ‘complex adaptive systems’ - they are extremely sensitive to initial conditions.

This is a world where a decision by an apocryphal young home-owner in Cleveland, Ohio to spend his wages on a ticket for the ballgame instead of paying his mortgage can bring, through a sequence of events no one could have predicted, the world’s banking system to its knees; a world where the harassment by local officials of a market trader in Tunisia can lead, via a sequence of events no one could have predicted, to revolts and revolutions, and a re-writing of the political map of North Africa and parts of the Middle East.

This is the challenge of complexity.

The complicated can and should be simplified. The complex can’t be simplified and the complexity of complex adaptive systems can’t be ‘reduced’, let alone eliminated. It is what it is; an integral and defining part of such systems. All you can do is recognise it, and try to adapt to it, by ensuring that your structures, organisation and decision-making processes are ‘complexity-compliant.’

This may mean counter-intuitive moves. Contrary to what the global consulting firm cited above prescribes, company managers might be better advised to value, and deliberately increase the complexity of their organisations, to permit the self-organising qualities of complex systems to enhance the adaptability of their companies.

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[The views and opinions expressed in this blogs by guests or members of the CCEG are those of the author, and not of the CCEG or the University of Northampton Business School]

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Incompetent Elites

By Tom Lloyd
Visiting Fellow to Northampton Business School

The contract between ordinary people and powerful high-paid elites rests on the tacit understanding that the former will tolerate the yawning gulf between their power and standards of living and those of the latter, while the latter run society and the economy well.

This unwritten contract begins to break down when high-paid elites continue to exercise enormous power and award themselves enormous pay packets after they have given ordinary people reasons to doubt their competence. Loss of public faith in the competence of ruling elites can lead to civil unrest, revolts and revolutions.

So far the automatic stabilisers in mature multi-party democracies have enabled them to cope with losses of faith in the competence of ruling elites quite well. Fixed terms between general elections allow voters to depose self-serving, or incompetent rulers before they do too much damage. Ordinary people have faith in the system, if not always in their ruling elites and the efficiency of markets that allocate human resources and rewards.

But the incidence of egregious errors in corporate management, and manifestly incompetent government seems to be increasing at a time when web-based communication and ‘social’ media can broadcast word of gaffs, misjudgements and elementary miscalculations instantly.

Take the case of High-Speed Rail 2 (HS2), a planned fast rail link between London, Manchester and Leeds, which has all-party support. At the end of June transport secretary Patrick McLoughlin owned up to an alarming miscalculation, and said that HS2 was now expected to cost £42.6 bn, 24% more than the initial estimate. A week later it emerged that the calculation of the economic benefits of faster journeys, on which the business case for HS2 was based, and about which the National Audit Office had expressed grave doubts in May, was grossly overestimated, because it assumed passengers could not work on trains.

Large sums of taxpayers’ money have been pocketed by well paid and putatively well-qualified people for preparing these deeply flawed cost-benefit analyses, and a new and similarly expensive review of the project’s economic viability seems inevitable. So far no heads have rolled, no ministers, or civil servants have resigned, and no fee claw-backs for shoddy work have been announced.

The HS2 debacle is not a casus belli for a taxpayer revolt, but it certainly adds to the impression of incompetent government, and is particularly disturbing, because all political parties still seem eager to go ahead with the project, even though its business case, marginal from the start, is now in tatters. Some may say that big infrastructure projects of this kind are needed to get the economy moving, but £50 bn (including rolling-stock) is a huge opportunity cost that could be spent on a set of smaller projects, with better economics.

Another way of looking at the new age of incompetent government is to see the problem as lying not so much in the personnel as in the volatility, uncertainty, complexity, and ambiguity (VUCA as the US military characterises the contemporary environment) of the issues confronting the ruling elite. Complexity is the VUCA driver and it has always been with us. We could forecast each raindrop by now if the weather system had only recently become complex. But the world is also becoming more volatile, uncertain and ambiguous, because many of its social, economic, political and financial systems have become complex too.

There’s nothing new about administrative mistakes, but it is to be expected that they will be more frequent and more conspicuous at a time when the unintended consequences of decisions are multiplying and word of errors is spreading ever more rapidly and widely.

The problem for government agencies is that, unlike business, they are not subject to competition, which, in the business world, weed out bad decision-making.

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[The views and opinions expressed in this blogs by guests or members of the CCEG are those of the author, and not of the CCEG or the University of Northampton Business School]

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Executive Pay and Social Stability

By Tom Lloyd
Visiting Fellow to Northampton Business School

Apologists and beneficiaries of huge executive pay packets talk of the ‘rate for the job’, and the ‘commercial realities’. Opponents and critics talk of greed, unfairness, and the exploitation of the weak by the strong. The former say the latter don’t understand how markets work. The latter say the former refuse even to acknowledge the possibility that their sense of entitlement is exaggerated.

It is a dialogue of the deaf. The protagonists transmit, but don’t receive. There seems to be no common ground on which to debate and thereby reach some kind of resolution to one of the most important  socio-economic issues of our age.

Two articles in the Financial Times of June 10, 2013 exemplify the great divide, and inadvertently suggest how it might be bridged.

The first on page three in the main paper reports that ‘The median total remuneration of FTSE 100 chief executives rose 8% [about six times the growth in average earnings in the UK economy as a whole] to £3.7m last year’, as higher share prices ‘drove a windfall from long-term incentive plans.’ The figures, from proxy voting agency, Manifest, and remuneration consultants, MM&K, show that the growth of CEO earnings has continued unabated, throughout the traumas and recessions of recent years that some, myself included, hoped would put a brake on the executive pay explosion. Between 1998 and 2012 the average pay of FTSE 100 bosses grew from 47 times to 133 times their employees’ average earnings.

There is no reference in the page three report to the John Authers column on page 20 in the Companies section of the FT, head-lined: ‘Elitist systems carry seeds of their own destruction’ and Authers makes no reference to the page three piece. Once spotted, however, the connection is obvious. The three books Authers refers to - Why Nations Fail, by Daron Acemoglu and James Robinson, When the Money Runs Out, by Stephen King, Balance – The Economics of Great Powers from Ancient Rome to Modern America, by Glenn Hubbard - all argue, says Authers, that ‘political systems that intensify inequality or that work exclusively for the benefit of particular groups, carry with them the seeds of their own destruction.’ History is littered with examples: the Bourbons, in France; the Romanovs, in Russia; the Stewarts, in Britain; the Pahlavis, in Iran; and more recently dictators in North Africa.

The three recently published books Authers mentions echo a warning in my own book, Business at a Crossroads. The crisis of corporate leadership (Palgrave Macmillan, 2009), in which I argued that very high levels of top executive pay are undermining what I called the ‘liberal-capitalist consensus’.

A shared wish for political stability is the common ground for the apologists for, and critics of, very high levels of executive pay. Both sides in the debate have an interest in ensuring the seeds of self-destruction in the high, still growing levels of inequality generated by the executive pay explosion do not germinate and lead to social instability. Social instability impoverishes people and disrupts the efficient working of the wealth creation process from which senior executives skim such a disproportionate share.

It’s on this common ground, the common desire for stability, where the essential question must be settled. 

Is the great wealth of company executives a creature of capitalism itself; or is it rather a creature of inefficiencies in the market for senior executives?

If the indulgence of natural human impulses in a capitalist system leads inevitably to enormous disparities in income and wealth then such disparities, and the sense of unfairness they foster, are the price we have to pay for the superior allocative efficiency of the free market system. Until, that is, the seeds of self-destruction germinate, and ordinary people demand another, less efficient, but more equitable system.

If, as we should all hope and as actually seems more likely, given the adaptability that capitalism has demonstrated in the past, the fault lies not in the system itself, but in market inefficiencies, then the executive pay problem is corrigible and the market for  executive talent could, in time, become as efficient as the market for Premiership footballers.

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[The views and opinions expressed in this blogs by guests or members of the CCEG are those of the author, and not of the CCEG or the University of Northampton Business School]

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Tax Ethics

By Tom Lloyd
Visiting Fellow to Northampton Business School

Tax avoidance is legal. Tax evasion is illegal. That much is clear and undisputed. But, as the row over the tax policies of companies such as Starbucks, Google and Apple has shown, this distinction no longer provides a sharp dividing line between fiscal propriety and impropriety. That line has become more than blurred; it has become a vast grey area awash with ethical controversies and accusations, public indignation, political point-scoring, mutual recriminations and fundamental conflicts of interests and duties.

The current, official line seems to be that there is a category of ‘tax planning’ behaviour lying between legal avoidance and illegal evasion that complies with the letter of tax law, but violates the spirit, which is to say the intent of the tax authority concerned.

Some tax planning is not only acceptable – it is desirable. When a corporate taxpayer brings forward investment, for example, to take advantage of a temporary accelerated depreciation provision, it is behaving as the government intends. But so-called ‘aggressive’ tax planning, as some tax authorities call it, such as routing profits on sales in one jurisdiction (such as the UK) through a lower-tax jurisdiction (such as Ireland) is morally, if not legally wrong. The argument here is that it is unfair to deprive customers in the country where sales are made of tax revenues associated with those sales, by artificially re-routing taxable earnings elsewhere.

There are two problems with this argument. 

The first is that it ignores the duty of company managers to their shareholders to maximise shareholder value. The managers of a firm operating in several tax jurisdictions who failed to make the most of differences between those jurisdictions in rates and allowances would be failing in their fiduciary duty to shareholders, many of whom will be pensioners and savers, to maximise ‘total shareholder returns’ (dividends + capital gains).

This is not, or not only, vested interests masquerading as a moral principle. The duty managers have to shareholders is real and part of the contract between directors and investors. A CEO who takes a high moral line and forswears use of anything other than the most pacific and proper tax planning would be in breach of contract and at risk of summary dismissal.

The second problem with the assertion that it is immoral to engage in ‘aggressive’ tax planning, particularly when it is asserted by ministers and civil servants, is that governments are themselves deeply implicated in the growth of aggressive tax avoidance. Their feverish efforts to develop tax systems that are ‘competitive’ in the global market for foreign investment has led to intense ‘tax competition’, as governments around the world vie with one another to attract, or retain foreign capital with low head-line tax rates and extended ‘tax holidays’ for foreign investors.

It borders on the disingenuous for governments and tax authorities that have, by engaging in tax competition, created the opportunity for aggressive tax planning, then to take a high moral tone with firms that exploit that opportunity. If governments don’t like the way that companies are legally avoiding taxes, they should either tighten tax law, abandon direct taxation of profits altogether, or change the basis of corporate income tax.

An interesting suggestion by Michael Devereux of the Saïd Business School (Financial Times, May 23, 2013) is to switch the basis of corporation tax from where profits are earned, to where sales are made. He proposes the adoption of VAT’s ‘destination principle’. The profits of multinational companies would be taxed on the basis of sales to UK residents. Imports would be taxed; exports would be exempt.

In the absence of such a switch to a more rational, less avoidable basis of company taxation, governments will continue to paper over the cracks in their tax systems by insisting that multinational companies have a moral duty to subordinate the interests of their shareholders to those of tax payers in the countries in which they operate.

 

 

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Technology Could Usher in a Post-Corporate Era

By Tom Lloyd
Visiting Fellow to Northampton Business School

New technology can create problems for business, such as the added volatility of capital markets caused by ‘flash’ trading systems. But it can also help to solve problems. Flash trading systems, for example, are the forerunners of smarter algorithms that will lead, in a few years, to fully automated capital markets. This will be a boon, because it will make investment bankers redundant, and help to eliminate one of the greatest threats to the liberal-capitalist consensus - the enormous, socially-divisive pay packets of a small self-serving elite.

New technology can do more than create and solve problems - it can also invalidate our assumptions about business, and even undermine the theoretical foundations of our business institutions.

Ronald Coase argued that integrated firms had evolved, because, by suppressing the internal price system, they saved the ‘transaction costs’ that arose when markets balanced supply and demand.

Coase’s ideas were later developed into a broad theory of the firm by his former student, Oliver Williamson, winner of the 2009 Nobel Prize for economics. According to Williamson the modern company is ‘..the product of a series of organizational innovations that have had the purpose and effect of economizing on transaction costs’.

Williamson acknowledged that the reduction in transaction costs in an integrated organization must be set against the growing ‘agency costs’ of management – the tendency of senior executives to pursue their own ends, at the expense of the company’s shareholders. He, as we now know, mistakenly, saw the giant company as a solution to this problem, because its scale enabled it to capture transaction cost economies and, as he supposed, the independence of the profit centres controlled agency costs.

In his fine book, The Visible Hand, Alfred Chandler suggested that ‘multi-unit business enterprises’ (MUBEs) replaced the traditional single-unit enterprise when ‘routinizing’ of transactions reduced transaction costs, and linking production, buying and distribution reduced information costs.

If Coase, Williamson and Chandler are right, therefore, the modern company is the creature of market inefficiencies, and particularly of substantial transaction costs. These are of three kinds:

1.  Search and information costs incurred while finding the required goods or services at the lowest price.

2.  Bargaining costs incurred while reaching an agreement with the other party, drawing up contracts, etc..

3.  Policing and enforcement costs incurred while ensuring the other party sticks to the terms of the contract.
 

The implication is that, in the absence of substantial transaction costs, the evolution of enterprise since the birth of the modern company (Alfred Chandler’s MUBE) in the mid-19^th century would have followed a very different path.

Modern technology (search engines, price comparison sites, on-line auctions) have greatly reduced search and information costs in the modern era. If Chandler’s MUBE was, as Coase suggested, invoked by the superiority, in the mid-19^th century, of ‘administrative’ over market coordination of business activities, it seems possible that the reversal of this balance of advantage will invoke another more collaborative, less integrated kind of organization.

As transaction costs fall, the economics of collaboration relative to integration will improve and forming partnerships will become a better and cheaper way to assemble the components of value chains. In time communities of like-minded ‘collaborators’ could emerge in which transaction costs are close to zero.


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Whatever Happened to CSR?

By Tom Lloyd

Visiting Fellow to Northampton Business School

 

Since the dawn of the corporate social responsibility (CSR) era in the 1990s, heralded by my book, The ‘nice’ company, (Bloomsbury, 1990), a wedge has been progressively driven between companies and societies. The original idea was that companies are members of the societies and communities they operate in, have a clear interest in the well-being of those communities, and thus close, mutually-supportive relationships between corporate and human citizens will be of benefit to both. But CSR, as it is today, is a parody of the original idea. De-nuded of social content by the poisoned chalice of a TLA (three letter acronym) CSR has been incorporated into the normal calculus of business; an item on a balanced score-card; a paragraph in the annual report; a box to be ticked. The originally envisaged day-to-day connections between companies and communities are conspicuous by their absence. Today, CSR budgets are voluntary taxes, paid (or quickly cut, when times are hard) with little more thought for their beneficiaries than is given to any other tax.

Company leaders sit in the driver’s seat, gripping the wheel. When it’s hot, they reach for the air-con; when it’s cold, they turn on the heater; when it gets dark, they switch on the lights; when it starts to rain, they turn on the wind-screen wipers. The dashboard is the balanced score-card. If the instruments read normal and no warning lights are flashing, managers keep their eyes on the road, and follow the satnav (or should it be ‘stratnav’?) instructions. The company is separate from its environment; a capsule travelling through time on paved roads, towards a pre-determined destination.

If something resembling the original idea of CSR is to be achieved managers will have to stop, get out of their capsules and continue their journeys on foot; walking through the countryside; gazing at the view; stopping from time, to time to look at a flower; leaving the path to examine a ruin; listening to birds, insects, and a dog fox barking in the distance; chatting to fellow walkers. They will still have some sense of direction, but it will be provisional and subject to revision if circumstances change, or unexpected threats or opportunities arise. Their routes will meander, guided by the terrain, the weather and circumstance. The walk itself will be the real objective. They will not simply be passing through. They will be parts of the countryside. They will feel it, see it, smell it.

This is not, as some may suggest, a recipe for bloated CSR budgets and for managers distracted from the main business of shareholder value creation by peripheral or extraneous concerns. In a business world characterised by the ‘VUCA’ qualities (volatile, uncertain, complex, ambiguous), insensitivity to your environment, and a lack of concern for the consequences of your actions are liabilities.

A sensitive, responsive CSR programme can contribute substantially to shareholder value creation by making an organisation more alert and more adaptable. By ignoring, or by paying insufficient regard to the VUCA qualities, capsule-management can lead an organisation into serious trouble.


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Yours Sincerely, A Jobseeker

By Peter Whitehead
Editor of Financial Times Executive Appointments and the FT Non-Executive Directors' Club

My creative side as a child sometimes worried and sometimes amused my parents. But at first they were simply bemused when one day I stuck a strip of card across the bottom of our television screen upon which was written: “This man is sincere”.

It meant little with the TV switched off. But when up and running, any news programme watched with this ever-present caption was elevated to a higher plane: the motivation and credibility of every talking head (pretty much exclusively male in the 1970s) was held up to question, scrutiny and ridicule. Today, it would have the same effect beneath images of a business leader complaining about the damaging effects of a UK “talent shortage”.

Businesses, apparently, cannot find the skilled individuals they need, particularly in such fields as science, technology and engineering. What, then, are they doing about it? Mostly, it seems, they are appealing to government to serve them up a ready supply of perfect job candidates – they want well-rounded people who are fully trained in all the relevant skills they require.

A PwC global survey of more than 1,300 chief executives, for example, recently found three-quarters of UK chief executives want the government to make creating and encouraging a skilled workforce its highest priority for business. Yet when asked where skills came on its own to-do list, only a third of UK business leaders made filling talent gaps an immediate investment priority. Either things are not as bad as they claim, or businesses no longer see training and development of skills as their responsibility. I suspect the latter.

There was a time when companies would accept training and developing its people as a responsibility and duty. Perhaps this was in a day when employees moved less, before transport improvements brought the side-effect of a less rooted and loyal workforce. In this light, businesses’ reduced willingness to invest in staff development might be understandable.

It could also be that employers’ expectations have risen as the numbers attending university have been forced up. Certainly, the expectations of the massed ranks of students have been raised, making the realities of employment uninspiring. The primacy given to wealth and celebrity in society serves to complicate motivations further and lead some to get-rich-quick careers in financial services, for example.

Business has been happy to see this set of priorities develop. Now, it is unhappy that individuals are losing interest in immersing themselves in a job and are finding other priorities beyond work. But rather than offering improved rewards – whether it be salary, perks, flexibility, excitement, inspiration or fulfilment – and seeking to address the issues that affect them by investing in people, employers seem to feel let down. They almost display an equivalent sense of “rights”, entitlement and dependency as some identify in those alleged to be taking advantage of the UK’s state benefits system.  

And when government fails to deliver, business representatives commission research, issue statements and appear on telly complaining of a talent shortage. They do, of course, believe it and mean it. That’s the most worrying thing of all – they are indeed sincere.

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Partnerships for Business Success

By Mark Mulcahey
Visiting Fellow to Northampton Business School


In my view the oldest forms of partnership structure, built on trust and the open exchange of information, are the most suitable for our modern business environment.

Over the last few decades companies have increasingly played lip service to the concept of genuine partnership and generally use one of three models:

Transactional partnerships involve a clear position of power for one party based on a contractual relationship between the two parties involving goods or services. A closed approach to information sharing and the implicit (and sometimes explicit) desire to create a deal that is unfavourable to one party. An example of this type of partnership would be between Samsung and Apple, with Samsung providing components to Apple for its products.  Neither side sees the other as equal, and their have been complex legal battles between the two parties.

Strategic partnerships often involve cross-ownership to support the creation of a new business enterprise or delivery of a service. Both sides are committed as a result of the ownership and (in the best) both sides bring particular skills and capabilities.  The relationship between Virgin and T-Mobile in the UK to create Virgin Mobile was a classic application of a strategic partnership.

Open partnerships are often for particular projects or to launch new products; companies seek out relationship that involves companies working together in a looser arrangement. Often there is no cross-ownership but there may be shared rewards in a positive outcome. An example of this would be Samsung and Phones4u working together in the UK to launch an innovative retail concept, the Samsung PIN store. Both sides shared a common vision and worked together for its achievement, but they did not engage directly in a long term or strategic partnership.

Unfortunately all these structures struggle in the new reality of a business world enabled by social technology. In my view this new reality is characterised by three principle components all of which directly impact on the partnership structures companies need to apply:

Business model disruption is the new reality with customers directly accessing  suppliers; the digitisation of all information and the emergence of new generic platforms such as Facebook, allow new routes to trading relationships. These can directly impact on the need for strategic partnerships.

 

Access to everyone – traditional connections are breaking down and it is easy for companies to make connections with multiple potential partners and transfer and share information immediately and at no cost.

Everyone knows everything – The bass of traditional partnerships is the sharing of information and the focus of that sharing on achieving a particular outcome. Sharing information is now easy and commonplace. Not only can any one reach anyone but they can share information easily – for example: CAD/CAM data between designers and machines (across continents) or integrating launch teams across continents.

All of these elements place significant strain on the current partnership models being used across business.

In my view businesses need to embrace a form of partnership that has not only been in existence for centuries, but also provides the essential tools to allow a business to survive and prosper in today’s environment.  

The mutual partnership is founded on an open, honest and trusting relationship. The desire is to build a much more effective approach to the market than either business could achieve alone. Both parties accept and acknowledge their strengths and limitations and both parties work together to achieve success. The conversations between the parties do not start with contract discussions but with shared aspirations and mutual respect.

How do you establish a mutual partnership?

There are six principal steps:

1. Understand your own strengths and weaknesses
2. Identify a small number of key partners that could help you and that you could help (Think about customers – these are crucial partners)
3. Meet with these partners and work on developing a shared vision
4. Start small and quickly – identify something that can be done collaboratively and that will breed a positive commitment  - and do it quickly
5. Constantly and mutually monitor the relationship. Don’t look for formal measures but constantly check – is this working for us? Is this working for them?
6. If it feels wrong – kill the project

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Ego, Ethics and High Finance: Debating the Moral Vacuum

By Tom Lloyd

Visiting Fellow to Northampton Business School

The departure in mid-April from Barclays Capital of Rich Ricci, his pockets bulging with £18m of deferred remuneration, marked the end of the Diamond age at Barclays, and the beginning of … what exactly? Normalisation; retrenchment? What was it that Barclays was putting behind it with its ejection of the last of BarCap’s notorious ‘three musketeers’ (the other two, Bob Diamond and Jerry del Missier, left last year, with similarly bulging pockets, in the wake of the LIBOR scandal)?

The official answer is that with the Augean stables of ego and greed cleared out, Barclays can get back to ‘normal’ – to an appropriate allocation of risk and reward between employees and shareholders, and to incentive systems designed to encourage staff to deliver high quality customer service, rather than high sales.

The normalisation programme launched by the new Barclays CEO Antony Jenkins is billed as a strategic review, and called ‘Transform’. It is very likely to implement the recommendations of the Salz Review commissioned in July 2012, and published in April 2013.

Although sceptics could be forgiven for dismissing the Salz Review as a whitewash job, on the grounds that Anthony Salz is executive vice-chairman of Rothschild, and thus can be expected to have a vested interest in the investment banking status quo, the review is well worth a read.

It suggests that BarCap’s extraordinarily generous bonus policy was an important contributor to the bank’s woefully unethical culture, as evidenced by the mis-selling of Payment Protection Insurance (PPI), and by attempts to manipulate the London Interbank Offer Rate (LIBOR). It comes close to suggesting that there’s an inverse causal correlation between levels of executive pay and ethical standards.

This conjecture is worth thinking about. Is it intuitively plausible for one thing; does it seem likely that extremely well paid people tend to be less ethical than average? Do extremely high levels of pay overwhelm or weaken ethical norms? Does the exaggerated sense of entitlement of Rich Ricci and his fellow ‘musketeers’ free them from  ethical standards that constrain normal behaviour? If any of these conjectures seem plausible, what can be done about it?


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Enlightenment Blog

By Tom Lloyd

Visiting Fellow to Northampton Business School

The launch of Northampton University Business School’s ‘Centre for Citizenship, Enterprise and Governance’(CCEG) has been inspired in part by the conviction that there is an urgent need, particularly in the West, for a new contract between business, individuals, and society at large.

We have reached the end of an era - a fin de siècle. The financial and economic traumas of recent years have been a wake up call. The post-war liberal capitalist consensus has been undermined by the manifest incompetence of those to whom ordinary people have relied on hitherto for economic, financial, and corporate governance, and by the huge rewards those same incompetents have appropriated, and continue to appropriate.

The value-creating power of business consists of people and people everywhere are rejecting a vision of business in which the company is merely an engine for creating shareholder value.

It will take a lot of time and thought to reach a consensus on the new contract. It is a challenge comparable in scale and radicalism to the great 18th century enlightenment that replaced the medieval era of all-powerful monarchs and their ‘divine rights’, with a new  secular age of science and reason.

The design and specification of this new contract is a job for the heirs of the enlightenment philosophers (Newton, Leibniz, Spinoza, Smith, Descartes, Voltaire, Locke, Diderot, Montesquieu, Franklin, Jefferson and Paine). The CCEG is committed to and wants to play a part in this hugely important enterprise.

Quite what form the ‘new contract’ will take is not yet clear, but it is certain to emerge from interactions between the CCEG’s three themes; Citizenship, Enterprise and Governance.

The mission of this blog is to apply new enlightenment thinking to the political, social, economic and corporate topics and issues of the day, to identify and criticise pre-enlightenment thinking, and to challenge traditional assumptions and conventional wisdoms.

We welcome feedback, the more the better, and we will offer ‘guest slots’ to those who have strong views about what we write here and others write elsewhere.

 

Visit our website at www.cceg.org.uk.

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