Sterling Performance

Chancellor Darling’s Pre-Budget Report took a Robin Hood-approach to the UK’s top earners to which even captains of industry couldn’t disapprove. But there may be unwanted consequences for UK competitiveness as talented workers reassess their options.

In a few years, anyone bringing home over £40,000 — that’s where the top layer of earnings begins in the UK — will be paying an extra £1,000 in taxes, while the super-earners over £150,000 will be stung for 45 per cent tax (a staging post, say some, to an inevitable 50 per cent).

While those at the top end of the earnings pyramid may well be able to afford higher taxes, they may not want to — especially if their talents can be put to use in lower-cost economies.

Matt Ellis, employer services partner at Deloitte, predicts the war for talent will escalate as talented people opt for cheaper places to live, or look to employers to mitigate the high cost of living in Britain. Companies could offer shares to employees (which attract less tax) or advance income ahead of the 2011 change of rate, but it all comes down to higher employment costs.

National Insurance Contributions will rise by 0.5 per cent from 2011. Anyone earning more than £20,000 will be worse off, with the overall cost of £3.8bn in 2011-12, according to KPMG.

Arguably, globetrotting entrepreneurs and, in particular, venture capitalists may look less favourably on the UK as a potential HQ, even though the PBR pushed through several measures to kick start small businesses. Likewise, multinationals, which have been given a break on foreign dividends, may find it more expensive to keep their top talent in Britain.

Entrepreneurs are said to be differently wired and are more willing to take big risks as a result. So what’s maverick budget airline boss Sir Stelios Haji-Ioannou doing trying to restrain the board, hardly known for wild decisions, at EasyJet?

Has he, as some would have it, lost his nerve and fallen prey to the kind of mid-life corporate crisis entrepreneurs are prone if they don’t let go? Is he the “grumpy founder shareholder… barrelling up and down the aisle as the flight gets bumpy”? Or is he showing another trait common among entrepreneurs, a reliable gut?

His travel brands are the best performing of Sir Stelios’s myriad concerns, which include EasyCar, a rental business and EasyInternet Cafes (these likely to see less demand as home broadband is so widespread). And he now has control of over 25 per cent of EasyJet’s holdings, having added his siblings’ 11.3 per cent holdings to his own 15.6 per cent stake, estimated to be worth around £180m.

His public criticism of the board does his shareholding no favours and he would have done better to keep it behind closed doors. And while it’s true that there are doves and hawks in every boardroom, it’s naturally going to be more damaging when the founder refuses to back his board’s business strategy.

On the other hand, Sir Stelios has remained pretty hands off up until now — giving his intervention all the more weight. Maybe that caution’s just what is needed. Aerospace giant Rolls Royce has announced plans to lay off up to 2,000 of its 39,000 employees (60 per cent work of whom are UK-based) because of delays on delivery of some Airbus A380 and Boeing 787 aircraft. Overall, this takes the total announced job cuts in the UK to 24,000 this week. High-street retailers are desperately slashing prices while Woolworth’s contemplates a £1 bid for its 800-outlet chain.

His caution may be uncharacteristic, but maybe Sir Stelios is right to ground EasyJet’s growth plans for now.

What do you think — does the current financial crisis call for a more risk-averse entrepreneur?

(Photo: Redvers, CC2.0)

Social enterprise ventures are taking the brass ring at traditional business awards, with Global Ethics and One Water founder Duncan Goose scooping the top entrepreneur prize at the National Business Awards this week.

Goose — a former board member at media giant WPP — launched the One Water brand, whose returns are reinvested in installing clean-water systems in southern Africa.

Like many traditional entrepreneurs, Goose’s business started out as an evenings-and-weekends project. But unlike for-profit models, he’s less interested in market share than lives changed.

The social enterprise models, though, have wider appeal to employees generally. Earlier this year, the Work Foundation published a report on the importance of meaningful work. And recent research by recruitment site Crone Corkill found that 44 per cent of job candidates believe it’s a priority to find employers who ‘give something back’ to the community.

Supporters also reckon all businesses can include an element of social enterprise in their model. Volans founders Pamela Hartigan and John Elkington outline different business models in their book, The Power of Unreasonable People . In the social business, investors can expect some financial return alongside the social one — it’s just less of a priority.

In a speech earlier this year, Belu Water’s Reed Paget predicted the next dotcom-style boom would “involve businesses that put people and the planet before profits and will end up being more profitable as a result. Whether a capitalist or an environmentalist, sustainability makes sense.”

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Entrepreneur and author Jon Gillespie-Brown suggests that entrepreneurs may want to hold onto their day job if they need a bit of time to incubate their ideas.

In a video interview for the UK’s Enterprise Week, Gillespie-Brown says the prospects for start-ups in cleantech, biotech and IT remain strong in Silicon Valley, but financing may prove tougher to raise over coming months. Those who can ‘boostrap’ or self-fund their fledgling enterprises will be in a good position in the current economy.

Research by the Kauffman Foundation demonstrates that nearly 75 per cent of start-up capital derives from an equal contribution from the owner and a bank or credit card debt. So the tough credit markets will make it tougher on even promising tech start-ups, which tend to be more favourably looked upon as investment prospects.

The silver lining is for bigger businesses, or at least those that can still afford to nurture some of these entrepreneurial ideas or channel wannabe entrepreneurs’ energy to innovate within their current roles.

Nevertheless, Gillespie-Brown’s advice to potential business start-ups remains the same: if you’ve got the idea and the passion, just do it.

Here’s the interview in full. Don’t be offended by the frequent book plugs — proceeds, after all, go to the Grameen Foundation, so it’s all for a good cause.

Who’s hiring in these miserable conditions? Adam Jones of the FT puts together a podcast featuring the views of three people in the know — two of whom are specialists in board appointments.

Here are a few practical tips from the podcast:

Samuel Johar, chairman of Buchanan Harvey. 

Unemployed bankers are not the only ones beating a path to his door. He’s seeing the effects of the financial crisis spreading into retail and other consumer industries, as well as manufacturing and engineering.

He reckons PFI (private finance contracts) contractors are less affected by the recession.

His advice for job seekers:

• Consider foreign postings as a possibility, but bear in mind that the Gulf an BRIC states are affected, so may not yield opportunities for everyone.
• Be flexible.
• Keep contacts fresh, whether headhunters, clients or management consultants.
• Don’t be too demanding or prescriptive — it is unrealistic and irritates contacts.

David Peters, EMEA regional managing partner at Heidrick & Struggles.

Don’t worry if you’re a hopeless networker.

Some people cringe at thought of being a supplicant or worry they’ll be criticised for only calling when they are in need. But this is “a circular business”, says Peter, and “good people” will understand.

His networking tips:

• When approaching a contact’s contact, it’s ok to call them directly, but wiser to speak to their PA and be honest with them as to what you want of their boss.
• Be selective about your network.
• Find points of common interest — be engaged in the right forums. Take up opportunities to speak or attend forums. Things happen to people who get out there and get connected.

What do you do when the CEO does the following:

• Lets the company share price fall to an all-time low?
• Issues a £40bn profit warning and the company finances are in a mess?
• Starts laying people off by the thousands?
• Claims he is doing a great job?

Now let’s look at how the CEO of UK Plc, Gordon Brown, is doing:

• The country’s share price (sterling, measured against the euro) has fallen to an all-time low.
• The pre-budget report is expected to announce a £40bn increase in the government’s borrowing requirement, a national profits warning if there ever was one.
• This week alone, BT announced 10,000 people are to be laid off and RBS announced 3,000 job cuts and unemployment has grown by 140,000 over the last quarter.
• Gordon Brown insists that he is the “best man for the job”, that he is leading the world recovery. Eleven years of success are all down to him, while this year’s problems are nothing to do with him at all.

Now let’s look at how Brown performs against the top five things that followers expect of a good leader:

• Vision. What is his vision? Instead of a Brown movement we have Brownian motion: a random walk from past to the future.
• Ability to motivate people. His tantrums are famous, his staff do not like working for him and he lacks the popular touch of his predecessor.
• Good in crises. To be fair, he has had a good credit crunch because it is intellectually interesting and requires no emotional engagement.
• Decisive. He micromanages, but blows the big decisions, like not calling a general election last year.
• Honesty and integrity. After 11 years in power, all the broken promises, spin, puff and half truths finally catch up with any politician.

Of course, this assumes that there is someone better to succeed him. Should we give incumbent President Obama a 51st state to look after?

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George Soros, chairman of Soros Fund Management, has predicted “a deep recession is now inevitable and the possibility of a depression cannot be ruled out.”

Speaking before the US House of Representatives committee on oversight and government reform, Soros admitted that hedge fund managers — of which he is one — played a pivotal role in pushing the financial markets to the brink.

But he also pointed to US financial regulators (and would presumably include UK ones, had he been called to account for himself here) for creating the bubble.

Soros has form when it comes to predicting downfalls. He’s known as the man who broke the Bank of England, earning £1.1bn from ’shorting’ UK sterling on Black Wednesday,  1992. (The BoE was forced to remove sterling from the European Exchange Rate Mechanism.)

Soros has advised the House — gathered to consider hedge funds’ role in the current crisis and if they need stricter regulation — not to penalise hedgies too heavily.

He predicts natural selection will see off up to 75 per cent of the funds, with their assets  “decimated” in the coming months — a view shared by Alchemy private equity investor Jon Moulton in a recent comment for BNET and supported by industry figures claiming hedge funds lost $100bn (over £66bn) in October.
Hedge funds are not the worst performers in the asset class, according to analysts at Citi: “No doubt hedge funds are suffering large redemptions and liquidations, but the decline in industry-wide assets under management is being matched in the long-only space.”

And the knock-on effect of poor hedge fund performance is unlikely to remain ringfenced. As a US senator noted, they pose “a very public peril when the bets go bad”.

The only hope, then, is that Soros has lost his touch as a soothsayer. But I wouldn’t put money on it.

(Photo: World Economic Forum, CC2.0)

Business Link is offering an online health-check for businesses. Although the questions seem a bit simplistic, the analysis that results is quite detailed. I asked a few entrepreneurs to give it a test run and they reckon it’s good stuff for a start-up without much experience.

While it doesn’t replace the in-depth service a team of consultants could offer, the tool is targeted to small, new business ventures. It’s quick and easy to answer, with the option of contacting an advisor right away for more feedback. “Perfect for a time-pressed owner-manager”, offered one of the testers.

Ten years ago, the current economic forecasts would’ve had UK businesses reaching for their sharpest downsizing tool. But there’s much more feistiness today, according to Tom Barry, European managing director at BlessingWhite, the engagement, leadership and coaching specialists. “Businesses are saying, ‘let’s fight and innovate our way out of this’,” he says.

So the findings of its report, The Coaching Conundrum 2009, are baffling. After surveying over 2,000 managers and employees worldwide, then following up with interviews of 60 HR and business leaders, BlessingWhite found that the majority of employees (87 per cent) like to be coached.

Likewise, the majority of managers — 84 per cent — love to coach.

Yet one in two employees receive no coaching at all.

“It’s a bit like charity and world peace,” says Barry. “We think it’s great, but we’re not doing anything to achieve it.”

Among the “believers” in management, there’s a general consensus that coaching is fun and important. Managers said that scheduled one-on-ones pay more dividends than anything else they do and that they make the difference between good and great performance — 70 per cent believe coaching leads to better bottom-line results.

So what’s the problem?

There are also a couple of commonly held beliefs that get in the way of more regular coaching.

• It takes too long.
• I don’t have all the answers.
• I have to know the job I’m coaching someone to do inside out.

“I don’t think we’re very good at role-modelling the job of coach,” says Barry. What’s more, coaching is often mixed up with mentoring. A coach may or may not have done the job they’re helping someone else with, whereas a mentor is likely to be an expert in that role.

Coaching is about helping another person to achieve their goals or enhance their skills for the good of the business. It’s not telling people what to do, nor stepping in to do their work.

It can be a positive boon for a manager to be unfamiliar with a role he’s helping to coach an employee in — the challenge comes when a manager has done the role and thinks they have all the answers.

So it’s essential, says Barry, to persuade managers that coaching doesn’t mean having all the answers and that it shouldn’t take up ‘extra’ time, but be part of their day-to-day role. There also needs to be more connection between inputs and output — only 24 per cent of those surveyed had a portion of their pay directly tied to coaching.

“We haven’t yet made the financial connection,” says Barry. “We should be saying, ‘your bonus is reliant on coaching and performance improvement’.”

So while managers need to become coaching leaders, organisations, too, need to develop a sympathetic culture where people are incentivised to make it a priority.

Managers can and must coach — it’s integral to their role, not a nice-to-have. But there’s only so far that tools and training will take a manager. Coaching is fundamentally about trust. It may mean doing different things for different people, tailoring your approach to the individual. It’s not just a process, it’s a relationship at heart. Says Barry: “It’s not a pill you can take. It’s about doing the right things at the right time.”

There’s also one more issue for to consider when it comes to coaching: do you hire ‘coachable’ employees — and how would your rate your own ‘coachability’?

(Photo: Irish Philadelphia, CC2.0)

It may be Lewis Hamilton who’s in the limelight, but he attributes his success to the efforts of everyone at McLaren. The youngest ever Formula One world champion, Hamilton’s low-key style of managing relationships offers a useful guide to anyone who is part of  team.

“You only see a handful [of people] on race weekends or test weeks, but when you go back to the factory, you see them all working on different components — and you’ve got to rely on all those people doing their job perfectly,” Hamilton tells Management Today.

His teamwork tips to MT?

Communication. This is essential to ensuring everything runs smoothly on the track,  but that doesn’t mean giving people “a kick in the arse”. It’s more a case of providing honest feedback on what works, where there are limitations and what needs to be fixed in order to win the next race.

Friendship and respect. Hamilton’s very close to the McLaren team — “they’re like family to me”.  This makes it easier to develop close working relationships.

Flexibility. The team evolves rapidly and continuously. “Things are changing all the time — each race there are new wings, new tyres…”. Everyone has to fulfil their role to ensure that there’s no hitch in the production and that means being flexible and willing to go back to the drawing board.

Confidence. When he started at 21, (he’s now 23), Hamilton lacked experience and confidence. “Now I can say, ‘this is not working’ — and that’s it, there are no questions or doubts about it.”

Learn2Develop also identifies some leadership traits that make Hamilton stand out:

Team spirit. He talks about ‘we’ not ‘I’ when he refers to successes.

Willingness to admit his own mistakes and to learn from them.

Mindset, especially in the face of personal attacks.  “At no point was this more obvious than when he overtook the Toyota on the final lap in Brazil to win the title — nerves of steel and resolute belief.”

(Photo: 3ug3n3, CC2.0)