Sterling Performance

Is the financial crisis spreading beyond Europe and the US — and how will it affect emerging markets?

Martin Wolf argues that the financial crisis threatens globalisation in three ways.

1. There will be less willingness to liberalise financial markets in emerging economies.

2. Free market capitalism’s credibility will take a big hit (that’s already happening, although Stumbling & Mumbling has a solution.). Says Wolf: “The more intrusive governments become in the high-income countries, the more unwilling the rest of the world will be to listen to their lectures on the virtues of free markets.

3. If the US and Europe go into recession, Wolf predicts a rise in economic nationalism. (Again, Iceland would argue that’s already happened.) China and India, which have been driving much of the global growth, could find their economies slowing. China’s financial centre, Hong Kong, is opening helplines as of Monday to counsel people affected by the financial crisis as Asian stocks dive. True, China’s got a huge internal market to supply, but there are rumours that dissatisfied manufacturers, tired of annual labour cost rises, are setting their sights on Vietnam.

“Lessons must indeed be learned. But among those lessons is not a need for self-sufficiency. That would add economic disaster to financial calamity.”

(Photo by Jez Arnold, CC2.0)

Chairmen of the board believe CEOs don’t necessarily make good chairmen, according to research by Directorbank, the UK recruitment specialist for senior executives and non-executives.

In the same organisation, the move from CEO to chairman can be impossible. Lord Marshall of Knightsbridge, who was chief executive of BA before becoming chairman, found he had to bite his tongue, and people still looked to him for decisions that should rightfully have been the chief executive’s.

The two roles require different mindsets, as Elizabeth Jackson, Directorbank’s chief executive, explains here.

About 15 years ago business academia made the astonishing discovery that business success is not just about being a brain on sticks. They discovered that besides IQ, good managers needed EQ — emotional quotient. So the academics were only about 50 years behind reality — nothing new there, then.

And the academics are still way behind reality. Look around your organisation and see who makes it to the top. There are plenty of smart (high IQ) and nice (high EQ) people who remain in the background. Casual inspection shows that in many places the people who rise to the top are not that smart and have the interpersonal skills of a pterodactyl on a bad day. Clearly, something is missing.

It’s PQ — which I’ve blogged about before. PQ is about understanding how to make the organisation work for you, how to make things happen even when you do not have the formal authority to make it happen. As organisations get flatter, standard operating procedure is that managers responsibilities exceed their authority: this is a world in which it is easy to hide but difficult to shine. As organisations become flatter, so the need for PQ becomes greater. You have to make things happen through people you do not control.

The essence of successful PQ is building networks, or alliances, of support — but don’t mistake these for friendships. As Castlereagh, British Foreign secretary at the height of empire, said: “Britain has not permanant friends: it only has permanant interests”. Alliances are built on common interests and common trust. In essence, you help me and I will help you.

Building trust is straightforward, but takes time. Three simple steps can get anyone started:

1. Show you have some common interests and values. Initially, these may be common interests outside work. Within work, find ways in which you can align your agenda with theirs.
2. Walk the talk — demonstrate that you can deliver. Initially, you might help someone on something small (copy them on a good article, like this one, for instance). That will snowball.
3. Reduce the risk. Start small, make things simple, don’t ask for the world on day one. As your mutual trust grows you can start to work on bigger commitments.

Start building these alliances with enough of the right sorts of people across the organisation, and you will become someone who can makes things happen. People will start seeking you out. Even nice people can be power players if they know how.

Bank bailout views turn to banker bashing in as the Guardian’s Polly Toynbee demands a “clear out” at the top of City institutions in an interesting, albeit long, weekly political podcast.

Rather than allowing the perpetrators of the chaos, all “thoroughly imbued with the spirit of the City”, to oversee the new structure of the City, she calls for new faces to advise on regulation.

She also calls for a minimum level of corporation tax in eurozone countries to prevent some countries setting themselves up as offshore havens (Ireland, specifically).

In the same discussion, Observer economist Bill Keegan applauds the concerted intervention of the banks yesterday to avert Armageddon — but it won’t stave off recession, he says.

In fact, it’s beginning to seep out of the Square Mile and into the ‘real world’. Small businesses are being threatened with higher overdraft charges and the business confidence is waning, according to the British Chambers of Commerce. One accountancy firm boss predicts insolvencies will rise by at least 25 per cent next year, with over 20,000 firms going to the wall.

Some 20 local councils also look set to lose out as their deposits in Iceland’s failed banks – Transport for London, too, has a £40m deposit in Kaupthing Singer & Friedlander. And it’s not the first time local authorities have become embroiled with the wrong banks, says Burning Our Money.

But not everyone’s in the soup. Ruth Sunderland sees HSBC distancing itself from fellow banks, while wags have changed its brand from “the world’s local bank” to “the world’s only bank”.

It foresees consolidation at a global level among the banks that make it through the current economic turmoil. There will be opportunities as banks seek to deleverage or look for a protective business partner, but governments will be closely involved in any short-term merger and acquisition activity, according to HSBC finance director Douglas Flint.

But Darling’s reputation’s done an about face — this weekend, the Washington DC gathering of G7 finance ministers will be looking closely at Britain’s bailout plan as a potential way of salvaging their own financial institutions.

UK Prime Minister Gordon Brown’s government will make £500bn available through a series of measures designed to salvage the fortunes of struggling commercial lenders.

These include

• Debt issued by banks will be guaranteed up to £250bn
• Up to £200bn from the Bank of England for short-term loans
• £25bn Treasury capital
• £25bn available in exchange for preference shares.

Out of the eight banks for which support’s available, it’s expected that HSBC, Abbey and Standard Chartered will be likely to turn down the equity-raising option.

Overall, it gets the thumbs up at Lex (free registration). ” No bank can now say it cannot get hold of cash or cash-like securities when the Bank is doubling the size of its special liquidity scheme and extending (again) the type of collateral it will accept.”

But as Investors Chronicle (free registration) notes, government’s involvement comes with strings attached. To participate, lenders have to sign an agreement with financial regulator the FSA. It will want to know about dividend and executive remuneration policies “and will require a full commitment to support lending to small businesses and home buyers,” according to a Treasury statement.

This puts shareholders at the bottom of the priority list and executive pay in the firing line. There’s every chance for further regulations to be added in the future, as Jon Moulton’s argued.

Former Citigroup MD and Cass Business School fellow Peter Hahn believes the measures are better than guarantees, which wouldn’t have forced banks to change their behaviour. This way, he says, “the taxpayer has direct exposure and direct control on the banks… Darling has got it right.”

Damian Reece argues that different banks will need different amounts of capital, but all need to be brought up to the same capital ratios, however unfair that may be on the more robust banks.

He also called (earlier today) for interest rate cuts, his request answered by the Bank of England, which pushed forward its interest-rate decision and cut UK rates to 4.5 per cent, along with six other international banks.

It may be too late to keep the UK from entering a severe slowdown. But it should keep the Grinch from stealing Christmas from high-street retailers.

Are diversity initiatives a bull market luxury? A survey of top employers for women is a useful guide for any employee interested in top talent managers.

As the economic outlook for the UK generally darkens, companies are starting to look for operational cost efficiencies.

Corporate social responsibility and diversity can be the first casualties, acknowledges Glenda Stone, the founder and chief executive at Aurora.

So what difference does that make if you’re not affected? Plenty, as this year’s Aurora-Times Where Women Want to Work listing reveals. If employers are committed to nurturing and retaining talent women in the workplace, it speaks volumes about their employee development policies generally.

The listing marks out the leaders in talent managent. “At company level, measures such as flexible working and the provision of women’s networks are becoming quite commonplace,” says Stone. With that standardisation can come complacency, so companies that want to differentiate themselves need to innovate and stay ahead. This means being creative, not throwing loads of cash at people.

“Look at Deloitte, which won an award for its recruitment initiatives,” says Stone. It takes a multi-channel approach to hiring and has relationships with organisations such as the Duke of Edinburgh Award scheme and charity Teach First so it can source and develop people from truly diverse backgrounds.

This kind of creativity separates the wheat from the chaff. Says Stone: “The top employers truly push the envelope and are continuously looking at how to extend their boundaries when it comes to talent management.

“It’s like Warren Buffett says: when the tide goes out, you see who’s swimming naked,” says Stone. “The true market leader will prioritise talent management and retention, regardless of whether we’re in a bull or bear market.”

Special awards in the Aurora-Times top 50

(Photo: Pete’s travels, CC2.0)

When I was four years old I found a sparrow with a damaged wing in the garden. For a day or two my mother and I kept it in a box in our garage and fed it on bread soaked in milk. Then, one morning, it had disappeared. I asked my mum where it was and she told me it had flown away.

I was reminiscing with my mum about this story a couple of years ago when she turned to me and said, “But Stuart, the sparrow died. I had to put it in the bin.”

Of course the sparrow had died. It could never have survived a broken wing. But for over 35 years I had never questioned the idea that it had simply got better and flown away.

I don’t think that I am alone in failing to challenge some basic assumptions and wanting, unquestioningly, to believe the most attractive answer. Take these examples:

• The leaders of the world’s major banks have carried a belief that they could remain fireproof to higher-risk loans, and have either not carried out or failed to understand their own risk assessments.
• According to Gary Hamel in his book, “The Future of Management”, the US car industry has taken over twenty years to really understand the ’secret’ of Toyota’s success in North America, let alone respond to it.

Time and again, market leaders hang on too long to the model that brought historic success but which becomes redundant in the face of customer, competitor or technological changes. Think of Kodak’s inability to succeed in digital photography or the problems of European airlines in responding to Ryanair and other low-cost carriers.

We all hold onto certain assumptions that may or may not be true. But in these, more turbulent times, the rules of business can change radically and so must your assumptions — even those you have never before explicitly questioned.

What are the assumptions that you are holding about your business that you haven’t fully challenged?

Late-night Tequila spammers, help is at hand. Google’s launched a new feature for Gmail users called “Mail Goggles” — automatically activated software to temper that urge to send drunken, ill-advised email to old flames, your aged parents, crush objects — or your entire company.

Mail Goggles acts as a quick sobriety check — a bit like asking you to count to 10 before speaking, it gives users a quick, timed maths test before it allows them to fire off inebremail.

The sympathetic Google engineer behind the tool knows that morning-after feeling all too well, says Brand Republic (free registration). “Sometimes I send messages I shouldn’t send. Like the time I told that girl I had a crush on her over text message. Or the time I sent that late-night email to my ex-girlfriend that we should get back together.”

Mail Goggles is activated late at night and at weekends — “when you’re most likely to need it” — but once it’s up and running you can adjust the timings to catch you when you’re most vulnerable. Workplace “flame mailers” may just want to keep it on all the time.

Google Labs has yet to tackle the drunk dialling, but it’s only a matter of time. To activate the Goggles, go to Settings, then Labs.

(Photos, from top: Kencfo618 and Thomas Roche, CC2.0)

Over the years I’ve been gathering an eclectic assortment of other people’s wisdom in a box file. It is a tatty collection of magazine articles, photocopies, quotations, and printouts from the internet.

The best wisdom has truth and timelessness so I read the contents regularly and bin anything that fooled me at the time. These random scraps give me a sense of continuity and of direction.

At this unsettling and curious time one bit of wisdom comes into my mind over and over again. It came from James McMillan (McMillan Advertising Group) in the early 1990s and I’ve kept it ever since.

A fable for our time

Once upon a time a little old lady discovered a recipe for making a type of chocolate which her family loved.The chocolate was so fine that her children told their friends and soon she was making more and more chocolate and more and more people came to hear of it. She needed help and employed several assistants.

Her fame spread so far that strangers wanted to find her. To help them she put up signs to her house. She made the house look nice to welcome them. And her business grew and grew.

Then one day she picked up her newspaper and read that certain wise men in the big city were warning people of “a recession”.

Intrigued she discovered that she was doing all the wrong things. People wouldn’t want to buy her chocolate in a recession. She should be cutting her costs. So she disposed of her assistants, let the signs go and could not find the time to make the house look attractive. And people thought that the little old lady had stopped making chocolate.

They stopped coming to her house.

“Those men were right” she said, “There is a recession”

Photo by Simon Goldenberg, CC2.0

Phones International entrepreneur and Dragon’s Den investor Peter Jones is fulfilling a long-held ambition by opening a skills academy for entrepreneurs.

The first National Enterprise Academy will be set up with some £4m of government backing and the rest of the estimated £8m running cost provided by Jones and other sources. The course will be fine tuned through a “live test” from January 2009, according to Jones, with a full launch in September 2009 followed by further NEAs in the north west and nationally.

There are 10 National Skills Academies (NSAs) in the UK (two more are in development), which offer vocational qualifications to over-16s and are part-funded by business and part by government. The current crop include academies in manufacturing, construction and the nuclear industries and are shaped by employer input. Each NSA delivers a qualification that is recognised by that particular industry.

According to the department of Business, Enterprise and Regulatory Reform (BERR), £30m has been earmarked for Jones’s NSA, along with three others for IT workers, electrical engineers and social carers.

Jones sees the enterprise academy as bringing some much needed awareness of entrepreneurship as a viable career route. There is also talk of creating links to further education and, more oddly, primary school — though this is less about turning tykes into tycoons than creating a new mindset among Britons, from what Jones has said.

“There is a stark difference in the entrepreneurial mindset between the UK and the US. Here, there tends to be a ‘can I?’ approach, whereas in the US the ‘I can’ belief is instilled from an early age. If the UK economy is to become a world leader in business, we need to create the right learning environment for all our children, where their talents can be developed so they can go out into the workplace or business and prosper.

Can you, and should you, teach entrepreneurship to kids? There’s a raging debate on the UK’s cultural inadequacy following Richard Tyler’s blog on this story earlier this year.

But may big business chief Andy Bond of Asda has the right idea. He thinks the academies are a “fantastic idea” and sees the problem-solving and communication skills being taught at the academy as vital to any workplace.

There’s no arguing with that. The opportunity Jones’s academy will offer 16-year-olds with ambition and an idea will be invaluable, even if only a small proportion go on to start up businesses. But I do wonder why the government turned down James Dyson’s application for a Bath-based engineering academy, which sounds like a strong idea from a reputable UK inventor. Perhaps Jones just pitched his idea more effectively.

What do you think - can you teach someone to be an entrepreneur?