Sterling Performance

The crisis we are going through at the moment is not economic, it’s moral, according to Paul Bennett,  chief creative officer at the European office of design organisation IDEO.

We need a reboot of our values and choices, in order to make the businesses on which our economy depends durable enough to withstand the next crisis.

Speaking at the Economist and Design Council’s Redesigning Business summit, Bennett broke this moral reboot down into a number of specific areas:

• Have a higher purpose and meaning. Those companies which transcend the profit imperative and take on a real basic need felt by their customers. “It’s about having the passion burning behind the eyes,” according to Bennett. (more…)

Gordon Brown is calling for the UK corporate governance code to force companies to state why they have not promoted more females to top jobs. The answers might be too embarrassingly honest.

The under-representation of women on corporate boards is a continuing cause celebre — and remains a perennial problem because the numbers are stubbornly static at their low level. While three-quarters of FTSE 100 companies have a woman on the board it is usually only one, and a mere 15 of the 100 firms have a female executive, according to Cranfield School of Management. 

Just 12 per cent of FTSE directors are women and the prime minister’s letter to the Financial Reporting Council wants the authors of the government code to make directors tell shareholders what they are doing about it. There’s no talk of Norwegian-style boardroom quotas, but the premier threatens that if having to account for a gender imbalance at board level does not work, he will take “more serious action”.  

Don’t expect any of these male-dominated boards to admit to misogyny. It takes a conspiracy theorist to believe nomination committees universally reject women candidates on principle or prejudice. The reality is that the shortlists provided by headhunters are notably short of females and these firms blame the lack of women willing to put themselves forward for advancement. 

Bending over backwards to find female names to fill-out candidates’ lists usually means bending the selection criteria and overpromotion helps neither the individual nor other would-be women directors, but that is the risk, not only as a result of the PM’s pressure, but also from the Equality Bill, which gives employers the sanction to discriminate positively to promote women. 

Politicians must concede that while there should be no barriers to women wanting to climb the corporate ladder, not all women see that as an objective. And if some choose to curtail their careers prematurely to pursue other options leaving many men remaining in the running, then there will be more males than females in top management.   

If the prime minister’s is successful in inserting a new clause into the corporate governance code, there will still be plenty of opportunity for directors to avoid being honest and provide a meaningless paragraph claiming they have done their best and are always open to appointing suitable candidates.

Brown can try to force companies to promote women but he cannot force women to take the jobs. Equality in business is about opportunity, not about equal numbers in the boardroom.

Nick Hine, partner at law firm Thomas Eggar, responds to your employment law questions:

There is a restructure going on in my organisation at present, where they are getting rid of the current structure by making all roles redundant. My bosses have created what they say is a new set of roles. One of these roles is effectively my old job, but a few days ago I was told my current position is under threat of redundancy.  Is this correct?  Surely can’t be made redundent if my role is still there but just disguised as a new role.

– Name witheld

Redundancy occurs where there is a reduction or complete cessation of the need for you to carry out work of a particular type and at a particular location.

This can occur where there are restructures of organisations which normally also involve a reduction in a number of roles and headcount and normally result in a new reporting line.

Even though the position that you are performing is still required by the organisation, because of the restructure and the reduction in headcount there could well be a redundancy situation.

Often, people are invited to apply back for their roles in the new structure and it is possible that because of the restructure certain roles may have been combined and therefore different skill sets may be required.

So even though the work is still required there can be a redundancy situation.  That does’nt necessarily mean that you will be made redundant because a redundancy process involves consultation. Your employers are required to look at ways of avoiding redundancies and any suitable alternative employment that employees can be offered. 

If your old role is still effectively there in the new structure then you should be offered it as a suitable alternative role. Always get advice to clarify the situation.

British business has had the Cadbury Code on corporate governance; is it to have a Cadbury Code on takeovers too? Kraft’s perfectly legitimate takeover of the UK chocolate company looks like leading to a change in the rules for all future bids as pressure for protectionism grows.

Business secretary Lord Mandelson has produced a manifesto for changing the takeover rules that echoes the criticisms from CBI chief Richard Lambert and the proposals from Cadbury’s defeated chairman, Roger Carr. Faced with such concerted calls, the Takeover Panel has ordered a consultation on changing its code. 

However content the Panel is with its current code it is unlikely to resist any amendment. So it must sort the silly from the sensible to ensure business is not saddled with new rules based on one famous brand being bought by foreigners. 

The idea that shareholders consider the national interest before accepting a bid should go straight to the silly list, not least because most Cadbury shares were held by overseas investors with no reason to protect UK interests. And even if directors had to bow to Britain’s interest, shareholders could vote against board recommendations. If ministers really want a National Interest Commission to block bids that damage British brands or jobs, like the Competition Commission protects consumer interests, that is a matter for parliament, not the Takeover Panel. 

What is within the panel’s remit is the timetable of bids. Mandelson suggests curtailing the phoney war before a formal offer starts the clock but limiting the time a target is under siege also shortens the period for preparing its defence. The panel can be expected to make concessions here, however, if only to encourage targets to be quicker in seeking a ‘put up or shut up’ order.

And it is under pressure to make changes on voting too. Carr suggested bidders have 60 per cent acceptance before declaring victory; Mandelson proposes 65 per cent. But scrapping the current threshold of ‘50 per cent plus one share’ is dangerous: it allows a minority to outvote the majority. Carr’s idea of disenfranchising short-term investors is bad because it similarly distorts decision-making.

But Mandelson may be on sounder ground in suggesting that shareholders of bidding companies vote as well as the target’s investors. Kraft shareholder Warren Buffet grumbled about its bid but couldn’t block it. Big takeovers, including the disastrous ABN-Amro and HBoS acquisitions, are voted on by the offerers’ owners but while this could presumably apply only to UK bidders (and quoted companies, not private-equity funds) requiring approval could concentrate directors’ minds. The Prudential’s share price gave the thumbs down to the mega-bid for AIA: would its investors vote the same way?

However, all this tampering with the takeover rules is protectionism, whatever the proponents say. Not necessarily protection against foreign ownership but protection from hedge funds and speculators and protection for inefficient companies and bad management. Pretending it is protection for iconic British brands is merely a cover.

Boards accept that shareholders act out of self-interest but they can respect investors whose objective is to profit from a higher share price.

Yet increasingly funds are taking broader decisions that can be against the best interests of a single business, because they own shares in both companies and are prepared to damage one to protect the other.

Shipbuilding and engineering support service group Babcock International’s bid for VT Group, an outsourcing and support services company, illustrates the potential conflict.

Five big investors including Fidelity, Legal & General and Scottish Widows together own over 20 per cent of each company. What they gain from the rise in VT’s share price because of the £1.25bn bid, they risk losing because of the fall in the bidder’s shares. (more…)

The Greek crisis raises a simple question: can you have monetary union without political and fiscal union? It is a question no one in Brussels is too keen to answer openly.

This crisis has been entirely predictable, and I predicted it in a 1996 paper “Banking on the Euro”. I was not alone. In 2000 the Government Institute for Economic Research Finland (VATT) published a report on this subject. I will spare you the economics voodoo cut to the heart of the argument.

An EU-US contrast makes the point: the United States have political and monetary union. This means they have stabilisers which help when one state goes through hard times.

Eurozone states have one main stabiliser (asset prices) and that is bad news for the economy, home owners and banks.

1. Federal taxation and spending eases the burden: federal taxes go down, but spending stays high, giving the struggling  state a classic Keynesian boost, funded by the other states. So will Germany be prepared to throw money at Greece (and then at Portugal, Ireland, Spain and Italy if necessary)? It does not look too attractive if you are a German taxpayer. (more…)
   Jo Owen is a serial entrepreneur, author and business speaker. Got a leadership idea for Jo to tackle?

Nick Hine, partner at law firm Thomas Eggar, responds to your employment law questions:

For the last year, one of my team has been off on maternity leave. She was a capable worker who was missed at first, but we had a temporary replacement to fill the breach. My permanent employee is now planning to come back part time three days a week, which means I stand to lose some resources in the team.  Do I have to agree this?

– Name witheld.

An employee on return from maternity leave has a statutory right to request to work flexibly to help look after their child. 

It is not a right though, there is simply a statutory framework in place through which an eligible employee can request to work flexibly.

The request can be made by an adult to care for a child or another adult, but they must have at least 26 weeks continuous service and they should not have made a request to work flexibly in the past year.

The nature of this request could involve hours of work, when they arrive and leave and where they work.

Any eligible employee who wants to change their working conditions in these ways must make their request in writing. 

An employer must meet with the employee within 28 days of receiving the request to discuss the application and within 14 days after the date of that meeting write to the employee to either agree to the new proposed work pattern and set a start date, or to provide grounds for rejecting the application. 

If you reject the application then your employee has a right of appeal and must do so within 14 days of the original application being refused.

You must arrange an appeal meeting within 14 days of receiving that notice and then 14 days after that appeal meeting you must notify the employee of your decision.

There are effectively eight grounds for rejecting a request and these include:

• Burden of additional costs.
• Detrimental effect on ability to meet customer demand.
• Inability to re-organise work amongst existing staff.
• Inability to recruit additional staff.
• Detrimental impact on the employee’s quality of work.
• Detrimental impact on the employee’s performance.
• Insufficiency of work during the periods the employee proposes to work.
• Planned structural changes that would render the employee’s proposed pattern unworkable. 

If you refuse a request then your employee can make a complaint to an Employment Tribunal potentially for sex discrimination and also for constructive unfair dismissal if they resign as a result.

The Employment Tribunal would expect you to have properly considered the request and so if any employer refuses any application they must have a sound reason for doing so. This area is quite complex and I would suggest you take advice if these circumstances arise.

Portsmouth University is one of a number of colleges kicking off an initiative to boost graduate recruitment amongst small and medium businesses (SMBs) in their area with a government funded internship subsidy.

Earlier this year, the Higher Education Funding Council for England (HEFCE) announced £13.6m for a graduate internship scheme designed to give new entrants a way into the job market and at the same time, provide support for local businesses by giving them access to educated interns for a limited time.

The scheme in Portsmouth has enough funding for 90 graduate internships. Employers will receive £1,200 towards the intern’s salary, provided they match that with a further £2,400. Internships have to last for at least 12 weeks. That’s a wage of around £8.50 per hour — more than the £5.80 per hour national minimum wage.

So far, 54 other colleges have received funding for between 20 and 700 placements in their area.

In total, just under 7,000 placements have been created, but there is still funding available for a further 1,500 internships to be created by colleges not yet applied to the scheme.

Although this won’t solve the problem of the chronic shortage of vacancies for the 22,000 graduates on Job Seekers Allowance, it will go some way to taking the heat off those who have just finished or are about to leave university.

Alice Hickman, recruitment manager at Purple Door Recruitment, the in-house recruitment agency at Portsmouth University explained how involved she was in the selection and ongoing development of the graduates she places. (more…)

Barclays Bank’s proposed bonuses to high performing staff illustrates the dilemmas banks face — reward high-flyers or risk them skipping off to rivals, increase lending and risk being accused of abandoning fiscal prudence.

Barclays has tried to offset any umbrage caused by the doubling of its yearly profits for 2009 to £11.6bn by announcing the chairman, president and CEO will not take their annual bonuses and that it lent £35bn to individuals and businesses last year — three times more than it promised at the beginning of the tax year.

That said, it is paying 22,000 investment bankers £2.7bn in short-term and long-term bonuses — about £100,000 extra in their pay packet. The announcement looks selfish against the background of a report out by the Institute of Directors which found 60 per cent of small businesses have been refused the loans they need to keep their heads above water and many have been forced to rely on unsecured credit, such as credit cards.

Undoubtedly there will be a real fear that if investment bankers don’t get the remuneration they feel they deserve, they will defect, especially after the news that two senior investment bankers at majority state-owned RBS have done just that, a week before the bank announces its bonus package. Barclays glowing figures are entirely down to its investment arm, with the retail division halving its yearly profits. Is it not good business sense then to invest in the booming part of the business and cut back on the poorly performing part?

It’s understandable that banks are more careful in lending to small businesses, which carry a higher risk of defaulting on debt. The banks were branded the irresponsible catalysts of the credit crunch and are much more risk averse in all areas of business than they were two years ago.

However, Barclays and all the other UK big banks have a duty to the economy now. Barclays didn’t take any of the government hand-out, but it benefitted from the banking industry as a whole being propped up by the public purse. Business customers are also tax-payers and so deserve to benefit from banks’ stellar profits.

There are lots of good business reasons too for banks to release more funds to small businesses. Foremost, it wasn’t lending to small businesses that caused the credit crunch, so there is little good reason that they should be penalised any more than they were before the economic downturn. As a group, they are a significant customer group for the banks. This customer group may find their custom is more welcome elsewhere if UK banks restrict credit for the long-term.

More than this though, although many small businesses fall by the wayside, some eventually become big businesses that are prudent investments. To throttle small businesses now limits the potential for profits for banks in the future.

Beware leaders trying to tamper with the way we vote. Cadbury’s defeated chairman wants to disenfranchise the speculators who delivered the UK confectionery company into Kraft’s hands.

Instead of control comprising one share more than 50 per cent of the company, Roger Carr proposes raising the hurdle to 60 per cent — with anyone investing during the bid barred from voting at all. Carr explained his reforms in a lecture at Oxford’s Said Business School and as a senior UK businessman — his chairmanships include Centrica gas group and, in the past,  Mitchells & Butlers, Thames Water besides Cadbury — he deserves to be heard.

Investors do not actually vote on takeovers: they either accept of abstain, not vote for or against. And at Cadbury they accepted, not least because Carr advised them to, after correctly anticipating they would.

Carr may be sore at seeing Kraft Foods’ bid succeed but Cadbury can blame only itself. The US company and its countrymen saw value that UK investors did not: before the bid, UK institutions owned just 28 per cent of the shares while American funds held 49 per cent. When Kraft’s bid boosted the share price, long-term investors of both nationalities sold out to take long-term gains and short-term investors bought in seeking short-term profits.

By the time Kraft raised its terms, hedge-funds and other short-term investors owned 31 per cent of the stock. And as Carr’s 60 per cent threshold did not thwart them, he would disenfranchise investors who had bought since the bid started anyway. He also suggests preferential tax treatment for long-term holders.

His recommendations might keep more British companies British but they would protect poor management as well as protect independence. The threat of takeover is a key way to make companies improve and a change of ownership is the ultimate way to change the board and its strategy.

Indeed, Carr’s own career is based on mergers and acquisitions. He built the Williams Holdings conglomerate by acquiring brands such as Crown paints, Yale, Rawlplug and Chubb, and then divested them when conglomerates fell from favour. As Centrica chairman he last year fought a £1.3bn hostile bid for venture Petroleum.

And Cadbury has grown by takeover too, from Green & Black’s organic chocolate or Schweppes drinks to the Fry’s factory whose production it is now transferring to Poland: it bought Dr Pepper and Adams gum in America and demerged its beverages business out again.

Carr admits that those who live by the sword should be prepared to die by it. Cadbury enjoyed M&A when it won: its ousted chairman should not try to change the voting rules now it has lost.

(Pic: Cyron cc2.0)