Doing as we are told...

Something happened the other day that set me musing (he's off again I hear you say...)

Fundamental changes have crept in to the way we interact in our society over the last years. This has a lot to do with the introduction of ever-increasing regulation and a reluctance on the part of many people to take things at face value. The consequence is that when we deal with strangers - particularly in commercial transactions - there is a tendency for responses that throw up huge potential issues.

The case in point was some instructions I had issued to a company to move a not insignificant amount of money. Instead of just doing as they had been instructed, I was furious to find that 48 hours after the instruction had been acknowledged they still had not done anything. The reason turned out to be a reluctance on the company's behalf to be certain that what I was doing was in my best interests. They had not thought it appropriate to contact me as a matter of urgency by phone and left it to an email 2 days later that then did not get read until some 5 hours after it had been sent.

In an age of execution-only dealing this was breathtaking in its stupidity. "Who are you" I asked "to decide what is right or wrong for me? Why haven't you done as you were told?" The response was a muttered "er, well we weren't sure." Clear printed instructions are, apparently, not enough these days. The fact that a delay of 48 hours might cause some financial embarrassment (not to say potentially huge loss) had never entered the head of the individual concerned. He was intent on protecting his company from the possibility of being seen as careless in the eyes of the FSA.

This showed a complete loss of focus on the customer (a key principle of a Compleat Biz) and the mesmerising effect of hiding behind a rules framework that, although intended to protect innocent investors, does absolutely nothing to reinforce attitudes of timeliness and accuracy that once were normal.

How often do you come across instances where giving instructions meets with the same hide-bound approach? Answers like "we don't do that" or "that's not possible on our system" abound. Getting to someone who has both the intelligence to recognise the stupidity and is also in a position to do something about it can be very difficult indeed. Like the operations director of another investment company who admitted that his systems could not send correspondence direct to a client - even though both the client and his IFA had instructed them to do so. Why? Because whoever designed the system had not allowed for two correspondence addresses - even though the marketplace commonly allows for correspondence to go direct to a client and copies to be sent to an adviser. Yet the rationale behind this restriction was not one of data storage but rather a view that individuals cannot be trusted with their own decisions. Someone else has to be in the loop to make sure that Mr Jones is not making a mess of his own finances.

Now, we are told, even more rules are being introduced in the area of mortgages. Self-certification is to be ruled out (without any real understanding of how that is going to affect the self-employed whom it was aimed at in the first place). More bureaucracy will surround even the simplest of loan applications... and so it goes on.

You might think me cynical on these points but I fail to see the broader sense in all of this. We should be encouraging more personal responsibility not taking it off the shoulders of the individual and putting it on someone else - be they mortgage lender or some other institution. The stakeholder who is being treated badly here (in the name of nanny actually looking after them) is the individual.

We can set different norms in society about savings ratios and so on without insisting that everyone goes through a state-defined series of tests before they are allowed to do anything that has financial consequences beyond the end of the month.

In a recent Public Sector Tender for a relatively insignificant local authority project - the requirements insisted on seeing Tax Certification that the suppliers did not owe anything to HMRC. What that had to do with the Local Authority in question is undefined. They are not the Tax Police. If they want to feel totally secure that they are only dealing with organisations that are beyond reproach on every level - that betrays a complete lack of understanding of the realities of this world. And yet this insinuation of oversight, rechecking and certification is spreading like wildfire.

On the downside, nobody is challenging the costs to society. We appear to have lost our collective intuition about such matters. It has been replaced with the idea that if you follow rules you cannot be reproved. Yet just who is writing the rules?

When does the Civil Service rise above the Law?

Now this is going to be quite short.

Over recent years I have come across a number of instances where the Civil Service in the execution of their duties have seen fit to impose an interpretation of the Law that has no foundation in legislation.

All well and good - but what does that mean in practice?

When challenged - the standard response is "our Policy Unit has set out the Rules" - yet when asked how these relate to underlying legislation, NOBODY will hold their hands up and accept accountability.

Take the supposedly simple Rules surrounding an International Student looking to come and study in the UK. Recently these were tightened up to ensure that applicants are intending to study at a bona fide college or school and hence stop a common route for illegal immigration. And quite right too. But then the administrators take the Legislative Requirement that anyone coming to the UK under such conditions must not have recourse to the Public Purse and give them a vicious twist. For the uninitiated the legislation means the student has to be able to support themselves whilst here, since they cannot claim Social Security.

There is Guidance - setting out how much that might reasonably be expected to cost, taking into account London or other locations, Course Fees and duration. But the present approach seems to be to treat that Guidance as immovable LAW. How idiotic when you consider the consequences.

This means that families wanting to bring a relative to live with them whilst they study in the UK (or philanthropists who are prepared to do similar) are apparently required to prove the existence of £thousands that will never actually be needed to pay for rent etc before a Student Visa will be granted. It appears that nobody in authority considers the human fact that not every student is going to be living in a flat and be paying food and accommodation charges.

This appears to be the tip of a very large iceberg in approach. Who knows what other invented rules are being rigidly adhered to to the detriment of human lives? And therefore I think it is time that a more rounded approach was required of our Civil Service Administrators - to think through the intention of the Law and apply that, not rigidly follow rules on the basis that doing so avoids any possibility of being accused of getting it wrong.

We hear via the media of interpretation of other things such as European Arrest Warrants that never expire and cause potential mayhem for a woman who thought she had been acquitted in France. We have absolutely no idea who the people are who make these decisions nor do we apparently have any way of keeping them in check. This is NOT an holistic approach to all the stakeholders in our Society.

It all makes for increasingly dangerous times - and even more so when the result is to mess with the lives of young people who are trying to make their way in the world. So how do we get accountability back into the Public Services?

Answers please - because I'm damned if anyone in a position of power seems to know or is prepared to stick their neck out.

Oh dear! Oh dear! - Have we learned nothing about executive pay?

The world is going crazy - or at least it seems so. Despite all the fuss about executive pay - nobody with the power to act appears to have the guts to challenge the proposed executive package for Stephen Hester at RBS (reputedly worth £9.6m)

I agree with Roger Lawson, of the UK Shareholders Association who said: “The Government doesn’t seem to have learnt anything. Such a package incentivises reckless behaviour and encourages risk taking. It is absolutely outrageous that the Government does not use its power to bring the remuneration of bankers in these companies down to a reasonable level. Do they need to pay him this much to make him work harder?”

But there's an even deeper issue here. Namely that the senior executives who are setting pay packages continue to believe that Share Price is the best benchmark of corporate success. Frankly it isn't.

Let me explain the reasoning for this departure from the paradigm of "big corporate" thinking.

Share price is based on the market's expectations of profitability, cash flow and other financial measures. So far so good. But that does not explain how a company is improving the well-being of its various stakeholders.

The share price can rise through cost reductions and yet the staff may be much worse off. Share prices can also rise at the expense of price cuts to suppliers. Or prices can be raised to customers - thereby giving bigger profits and a share price hike... you get my drift? In fact this latter scenario is already beginning to make itself felt in the mortgage sector with institutions raising their interest rates for funding - and this is now being passed on through hikes in Fixed Rate mortgages, even though the Bank of England has kept interest rates at 0.5%

Earlier today I was discussing this false philosophy on share prices with Bay Jordan - a South African Accountant based in the UK who has an amazing take on the value of human capital. His website is here.

We both felt that the present Government (through UK Financial Investments) has missed a real trick in accepting the proposed package for Stephen Hester. Undoubtedly the people at RBS want a top-man to help guide them out of their present mess - and top men command top dollar in remuneration circles.

But UK Financial Investments - as holder of 70% of the common stock - could have insisted on a more radical approach. Instead the boys at the Treasury seem only to want to maximimise the share price to ensure a rapid exit from the holding at a nominal profit to the taxpayer. But wait a minute! Aren't the various stakeholder's also largely members of the UK community - and hence worthy of a little more consideration than just a quick return of cash to the Exchequer?

Have we collectively learned nothing from the debacle of the last 9 months?

If you agree then time to start lobbying hard. The boys at Westminster are still on the back foot following the expenses row and know that they need to work harder to earn back our trust. What better time than to extol the virtues of some much more radical thinking about what we will accept (as a society) in our corporate boardrooms and beyond?

Is anybody THINKING?

Just who is there in the media and the political elite who is actually asking the real questions? The current brou-ha-ha about the demise of Labour at the polls may be great political entertainment but it is not getting to the nub of the real problem.

So what do I think that is? Well put in a nutshell it is a case of the Emperor's Clothes. Anyone who has followed the latest series of The Apprentice will have observed the apparent (mis)understanding of the contestants. Namely that to behave in what can only be described as arrogant and outrageous ways is what is needed to win in business. This style of behaviour is as devoid of reality as the aforementioned suit of the finest style and cloth...

Take the analogy into the political arena and it becomes clear that the present Government (like its predecessors) does NOT realise that what it legislates for is not delivering what the country needs. Now you can set aside party politics for a moment because this is about process not content. We have had the appointment of Sir Alan Sugar as Enterprise Czar a move that conveniently overlooks the real needs of business here in the UK. Sir Alan for all his experience is not a small businessman. His understanding of the world is coloured by the fact that for most of his life he has been answerable only to himself. So anything he may propose is not necessarily what is really needed. But the appointment gives the impression that a new suit of clothes has been made that will clothe the Government with the respectability it craves.

What Government CAN do (but chooses not to) is to insist that a philosophy is understood by those in the Civil & Public Services about how things ought to be run for the good of us all. Let me give an example.

For whatever reason - Local government and other bodies feel it is incumbent on them to carry out procurement for goods and services that are immune from suggestions that favouritism - or worse, bribery - are at play. What ensues are ridiculous Tender requirements that pay no attention to the delivery of the benefits that such purchasing should be looking to deliver. Instead there are endless hurdles to be overcome by small enterprises that could otherwise deliver fabulous value to the public. The net result is that despite Government protestations to the contrary - we are now in a much worse situation with regard to achieving value for the public purse than we were before such pressures were put on the Buyers in the first place.

The connection between this and the current political and economic situation is lost in the media noise. But sit back and reflect. If we got much better value for public spending than is currently the case (and there is sound data around that supports the view that we could get at least 30% more bang for our buck without causing misery to anyone) then we might not have to belt tighten to anywhere near the extent imagined to put the finances back in order. Of course this does not fit with the spin put forth from most corners of the political playing field.

I cannot imagine Lord Mandelson actually engaging with this as a viewpoint - which is a shame given that he started life as a Management Consultant and ought to be capable of making the distinction. Instead there is too much focus on personality and the belief that the country can be led out of the mess that is not of its own making but is instead the result of the disintegration of financial artifice. Reality has dawned but not - it appears - on the political stage. So we are left to wonder how many more Acts are left in the Music Hall before the final curtain and the audience can emerge into the night to contemplate what they might do next...

To coin a phrase - You would think, wouldn't you... that politicians might just have enough guts to realise that their world is about enabling our world - not trying to run it for us? But then I've already made the point that it doesn't appear as if anyone is thinking.

Integrity? What integrity?

There has been plenty splashed all over the media in the last weeks about sleaze and lack of integrity in general. Whether that has been the expenses issue in Parliament, the treatment of retired Gurkhas or the contempt for shareholders in setting the remuneration of senior execs at Royal Dutch Shell and elsewhere.

What much of these issues have in common seems to be a lack of willingness on the part of the few to listen to the concerns of the many. Just why this should be so is probably worthy of a treatise on mankind - but I'm going to keep things short. Instead I will simply pose a question. Just how do you change the culture of diverse organisations to take account of their stakeholder interests?

One argument - put forward by Jim Sinegal the CEO of Costco (the cut-price warehouse "club") is to focus solely on what the customer wants. Everything else follows.

So the follow-on question (in true Parliamentary tradition) would be to ask - How on earth have so many senior people in so many places managed to forget who the Customer is?

Greed is not good - no matter how alluring the fictional Gordon Gecko might have appeared to be. Instead the challenges we all face are how to share what we have in ways that benefit us all.

Time for a bit of soul searching at all levels - and let's remember that the behaviours that have received such recent approbation were born out of common attitudes. Step back in your own "world" and look for ways of breaking the cycle.

How to cut costs without cutting standards

Right now there are projects all over that are based on cutting costs in business through application of Lean Techniques and outsourcing of services. Only the other day I listened as a spokesman set out the reasoning behind Essex Council’s outsourced approach to cost-cutting in an attempt to balance their budget.

To be fair this is not an easy task to carry through. Providing services and meeting other demands placed on organisations with fixed budgets is a difficult balancing act. But there is something rather ridiculous about the notion that process improvement can continue forever in such a way. And that means that whatever is being contemplated right now is NOT (in my view anyway) a satisfactory answer to the fundamental problem.

In an organisation that has a more holistic view of what it is about, they may well identify non-core activities that are better delivered via alternate means. So be it. However that should be set against a coherent understanding of why they are there in the first place.

Just because an organisation is within the Public Sector does not mean the management should abrogate responsibility for questioning WHAT and WHY. Statutory requirements - such as provision of Social Care or the collection of refuse are easy to identify. Answering the questions in a way that also engages ALL the stakeholders is not a common occurrence.

It appears all too often that things get fragmented. A section of Social Care can be shaved. The refuse collection cycle can be extended to mean fewer shifts. But the overall consequence is not a coherent delivery of services to the community.

How about standing back and asking more fundamental questions instead of just trying to make a 1% saving over last year’s budget here or reviewing a provision there? The game plan should be for the Executive Tier of Local Government to show that community needs and requirements CAN be met - but that in order to do so, political choices are made about HOW that is done. The inefficiency of the current way of doing things is that there is NO debate about WHY the organisation is engaged in what it does. Somehow we conveniently overlook the fact that saving costs in one corner is potentially going to cost someone else a huge amount in resources or time.

Call me a grumpy old man if you like but I find the way that customer-facing automation is often presented pays scant attention to the time of the user. Web sites that allegedly make it easier to transact business but which take forever to work properly because they are overloaded with marketing messages and other garbage. I hate going onto my mobile phone provider’s site - it takes forever to get to the simple things like checking a bill because they are too busy insisting that I must be interested in games and videos and other nonsense.

So overall I think there is a message at the root of all of this. Providers everywhere should strip things right back to basics. Completely. No frills. None whatsoever. Then ask the question “Is this WHY we are in business?” If the answer is an unequivocal YES then that’s great. But I bet it isn’t. Instead there will be room for some real dialogue with the community they are serving about what is the basic no-frills that should be there.

Get that right and it becomes much easier to say that everything else is Nice to Have and could arguably be priced accordingly as additional services. People are quite happy to sign up for basic accounts all over the place but pay a premium for those additional layers. That might mean that my local city stops its nonsense over funding and actually gets the roads repaired properly. After all the costs of additional vehicle repairs due to potholes are something the economy could do without (no offence to the motor trade who depend on that for a living). As an individual I can pay (according to my ability) for things like Social Care. However I cannot normally pay and choose which roads I drive on. It is this level of questioning that I think is missing from organisations. They are simply incomplete in their approach because they remain blinded by the paradigm of how things have evolved.

Beyond that, the holistic thinking should challenge the benefits of Choices. There is sound argument that improving infrastructure has a beneficial effect on business. Better economic environment leads to more local wealth, taxes and well-being. That then also means that the areas of social provision are seen in a different light.

Taking this a stage further we can investigate items such as policing. Law enforcement and public safety are important matters. But how are they actually built up from a foundation? The current debate about consensual policing (following events around the G20 Summit) is exactly what we should be having in this context. Because it also informs what sort of resources are then required to deliver it. Wrapping everything up in layers of Counter-Terrorism is stupid. Overall people in the UK have accepted a degree of risk in going about their business as a price worth paying for some of the other freedoms we enjoy.

Now try and fit that into a Lean Six Sigma approach - it simply doesn’t compute.

Overall isn’t it time we stepped back and reviewed WHY we are doing things not just HOW we can do them more cheaply?

Whither Globalization?

I was engaged in an international dialogue the other day about “Where now for globalization?” in the context of the current economic turmoil. What was intriguing was the extent to which senior figures from around the globe were focusing on the large corporate impacts and the ways in which either globalization is or is not entrenched in the way we operate.

What struck me most was the lack of a local viewpoint. By which I mean the ways in which an individual anywhere on this planet might react (or not) to global issues and the spread of corporate and other institutions across borders.

Sure the price of coffee beans in Costa Rica is going to affect the weekly shop at some point - coupled with exchange rate fluctuations and a host of other factors. But does this hide the need to look more locally at what we do?

Let’s take the hypothetical example. Global Coffee Inc. buys forward contracts on the production of the Costa Rican crop. Certainty of price for the grower and also for the supermarkets in the consumer countries. This forward pricing is backed up by a global commodities market that, in theory, matches supply to demand. But does the fluctuation in the commodities price follow through to the coffee cropper? The answer in general is NO. His benefit is that there is a market that is going to buy the crop at a steady price from one year to the next and so to that extent he has certainty over his income.

But what if the crop booms or fails due to climate or other factors?

Well in these circumstances the profits or losses are borne by the intermediary exchanges and traders who have bet on the crop production and set their trades accordingly. In a boom year the cropper may struggle to sell all his production. In a poor year he is unlikely to get very high prices as the commodities market absorbs the difference. So what is the benefit? Ultimately Global Coffee Inc. will make money provided it has been astute enough in placing contracts in the market. Some coffee croppers will have a steady (if unexciting) income. And the supermarket price of a packet of roasted beans or its instant equivalent, will vary according to the simple equations of supply and demand in the overall market. There is coffee to drink and the consumer pays little attention (leaving aside for a moment the Fair Trade options that exist).

That is where I think the views of globalization start to come unstuck. Of course it’s a thoroughly interlinked world and the ability for capital to flow into emergent markets is an important stimulus to growth. However I come back to the simple question “Why are we in business?” The answer is a lot more difficult to define if the source of the wealth is exploitation of resources in someone else’s back yard.

In another sector, logging companies worldwide are seen as a threat to virgin rainforest - whether in British Columbia or Borneo. Why are they in business? Because someone somewhere is demanding lumber for whatever reason. That reason has to do with why those customers are themselves in business and is to an extent dependent on the ways in which they see their own operations as meeting the demands of a group of stakeholders that ought to include society at large. Also governments see natural resources as theirs to dispose of rather than thinking more widely about who the stakeholders are on this planet of ours.

So beginning to ask questions of ANY company or organisation about why it does what it does is a good way to begin opening eyes to the consequences.

And the ways in which we can ask those questions are both global AND local. For instance we know about the effects on the rainforest of Palm Oil plantations and the ways in which these drain the soil over a 20-30 year period and are then burned out. But do we question the companies who use the stuff in never-ending quantities? They are doing this on our behalf without consulting anybody as to whether we will accept the alternative. More to the point do they ask themselves the question?

Time for a change of culture through a local and global campaign for some accountability to ALL the stakeholders. Then whoever is in charge can honestly say that they are operating for the benefit of many - not just a few. I leave you to decide what that means for you…

What if the Banks had been operating as Compleat Bizzes?

What, I was wondering, would have happened if the recent debacle over banking had taken place against a different operating background?

Consider the causes (and outpourings) that have led us to the position where, in the UK at least, the Government owns one bank (Northern Rock), is heading for over 80% ownership of another (Royal Bank of Scotland) and now [7th March] has a 65% stake in the newly enlarged Lloyds Banking Group. Add to that the toxic debt guarantees and the impacts on the economy of reduced tax-take during a recession and it adds up to an enormous bill. Then there’s the individual pain felt by thousands who are victims of the downturn in one way or another.

Unavoidable? Well in the context of the operating models used by the banks that led up to the mountain of sub-prime lending and associated derivatives (that nobody can quite understand) then, Yes.

However what if those very same institutions had been operating within a Compleat Biz framework? Then, I believe, things would have been significantly different.

The biggest single factor at play here seems to be the attitude of Shareholders. Fred Goodwin (at RBS) played heavily on the relentless improvement in share price for his organisation. When the people in Corporate Finance were queried about why they favoured certain developments over others - the answer was an invariable “Because it will push the Share Price up.” Complete lunacy - especially when there was a notional Scorecard in place emphasising the need for tripartite balance to Shareholders, Staff and Customers. Other managers just accepted this as the power of the Corporate Finance Department and didn’t challenge it.

Yet the shareholders were (blissfully) unaware of how much their interests were being put in jeopardy. Moreover, if this had been a Compleat Biz in operation, then the Corporate Finance boys would have known very well that their attitude was unacceptable. Yet money talks - at least when there is nobody else to listen to. And as a result, there is less critical appraisal of what is actually going on.

Turning to the CB roles for Shareholders - somebody was required to bang the table. To make it abundantly clear that individual agendas within the bank(s) needed to be brought firmly into line with a broader vision for the organisation and its direction. This would have been a much better mirror for individuals and managers to hold up and reflect upon. Benchmarks for whether any individual piece of development was, in truth, really desirable or merely a case of the Emperor’s clothes to coin a metaphor.

Another facet of this is the way in which individuals within large corporate structures see their own role. The lack of any solid grounding in ‘WHY WE DO WHAT WE DO’ is overridden by ambition, internal politics, and misguided enthusiasm. It never ceases to amaze me how shallow the understanding of middle managers is around the basics. People seem to get caught up with chasing what they perceive to be the true goals.

Now of course that is not their fault - at least not directly. Goals and Mission Statements are not necessarily as well understood as those who write them think they are. Never mind the wrong directions that may also be embedded in those same statements.

It all comes back to perception. And of course ‘Perception’ is something that a Compleat Biz deals with very well. The detailed interrelationships between Staff, Suppliers, Customers, Shareholders and others are thought through. Effort has been put in to make sure that it is a vision that is so well understood that everybody can benchmark themselves (to a point). It is rather like in the manufacturing world moving from end-of-line inspection to routine quality checks at every stage. The overall result is just so much better.

So what?

Well if we are to move forward as a society and stop our major financial institutions from screwing things up again, then the case for pressuring them to adopt the Compleat Biz model is very strong indeed. Nobody can be certain what would have happened this time round - but one thing is clear, some serious questions would have been asked, earlier and louder. The boards of directors could not have shrugged it off and continued on the merry path they were following. And that is my point. Accountability works in both directions. Maybe the problem here was that the shareholders simply wanted money and were not accountable for allowing mayhem in the markets.

So we should be asking questions of the politicians who currently hold the reins, to ensure that these aspects of change are imposed. Just occasionally change of a good kind can be forced through because someone has sufficient clout to do it. There’s been nothing like the present for such an opportunity and it won’t remain open for long. The FSA needs to be made equally aware that it has stakeholders whom it has ignored for far too long. Light touch regulation where the overall objectives have not been fully-understood by all the players (and here I am alluding to the staff at all levels in the regulated businesses) is folly. To deliver that understanding the Regulators themselves need to be more engaging not only in what they are asking for but also WHY?

Experience has shown that individuals in banks and insurers really don’t understand Regulation and Compliance. To most it is a ‘Jobsworth’ rule book imposed from outside. And at an international level the requirements of Basel 2 are incomprehensible to the lay person - yet fundamentally they are all about ensuring capital adequacy for banking operations and hence making sure that what we have just seen should not happen…

I find it hard to believe that using a Compleat Biz model would have delivered anything like such a disaster - at all levels. People would not have been chasing short-term profit at the expense of everything else. And, while we could not necessarily have stopped the collapse in the US housing market, we would have been better insulated from the effects. So I guess a few more of us should turn up at shareholders meetings in future and put something back for what we expect to get out.