Sterling Performance

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.

During Apple’s recent iPad launch, the comment that made me really stop and listen was when Steve Jobs said that Apple were now the world’s largest player in the mobile devices market.

It struck me that Apple’s perception of its market has changed significantly over time. No longer is the company in the personal computer business; it is in a far more dynamic, amorphous and wide-ranging market called mobile devices, covering laptops, phones, cameras, music and entertainment systems and more.

To my mind, this is part of Steve Jobs’s genius. He recognises that companies shouldn’t define themselves by a narrow view of the products they have historically made, but by a broader view of the customer experiences they help create.

Kodak is struggling because, for too long, it continued to believe it was in the film processing market, not the mobile devices or picture sharing market. Olivetti made the mistake of believing it was in the typewriter market, not the word processing or document sharing market. (more…)

It is not only banks that are too big to fail. The treatment of corruption allegations against BAE Systems shows some manufacturing companies must be protected from their own excesses too. 

As Britain’s biggest industrial company, BAE is too important to be severely punished. It employs more than 100,000 staff, earns foreign income from exports and supplies the hardware to defend the nation. And given the international counterparties to its questionable payments, prosecuting the UK company could risk upsetting important allies abroad.

So following the Serious Fraud Office’s decision to scrap its inquiry into Saudi Arabian arms contracts because of national security interests, the SFO and US Department of Justice have now extracted the maximum fines from the aerospace company that do not cause wider damage. Hurting BAE would endanger not only its own payroll but also the 400,000 workers at its suppliers.

The American prosecutors have thus imposed a $400m fine for providing inaccurate information while the UK fines it £30m on an accounting irregularity. The cost is bearable for a company valued at £12bn and with sales almost double that, but BAE emerges innocent of any serious charges and free to continue supplying governments. 

The settlement is the equivalent of the US and UK governments injecting funds into the banks that caused the financial crisis, rescuing rather than punishing them. Britain can no more function without a major defence supplier — never mind employer and exporter — than without a banking system. 

As at the banks, BAE’s board has been cleaned out, a new code of ethics written, and tougher regulation imposed, but it will be allowed to flourish because, like the lenders, it is too big to fail.

That was the test applied to British manufacturing industry many years ago and used to justify the wave of nationalisation after the Second World War. In the 1970s, Rolls-Royce and British Leyland were rescued by the state because the aircraft and car companies were considered too big to fail — and the US government adopted the principal last year to save Chrysler and General Motors.

But having been held to ransom by the banks, governments are urgently examining how to stop companies again becoming too important to lose. Barrack Obama wants deposit-taking banks to shed their risk-taking activities such as private-equity and hedge funds. The UK’s parliamentary inquiry into exactly that danger will report soon.

If “too big” becomes unacceptable, politicians must rethink their views on big business. Anti-trust and competition rules have been used to prevent consumer exploitation rather than break monopolies because their size endangers supply or could cause consequential failures.

But unless the risk can be taken out of commerce, or unless governments turn against big business, the state must be willing to accept companies can fail or prepared to step in when they make mistakes.

Whether car companies, defence companies or banks, it is the economy that the state is protecting, not the erring corporations.

The Equality and Human Rights Commission call for employees to be allowed to continue working after official retirement age is a vital aid to our ability to compete in international markets. Employers who remove more “expensive” older workers and get in cheaper, younger workers and think this gives them an advantage are wrong.

Even if older workers cost more, the evidence shows they often produce a greater return on investment than younger staff. Most current world leaders are over 50, a substantial proportion of CEOs of major organisations are over 50 and many are over retirement age. Why is that acceptable for them but not for others?

Research shows older workers – anyone over 50 – are often more flexible than younger ones, better with customers and capable of developing the skills of others, thus increasing the performance of all. Their valuable organisational experience also keeps the organisation running well from day to day.

 Many have been through difficult experiences, which increases their determination to succeed and survive the present difficult economic conditions. So if older workers are also less likely to give up on their organisation why should some organisations give up on them? (more…)

If you’re feeling frustrated after Copenhagen, take heart. Your actions can help tackle climate change while making your company - and career - stronger and more successful.

Making a commitment to sustainability is relatively easy. Actually adapting business practices to meet that commitment is much harder.

If you are keen on making your company more sustainable, it’s more than just one person can handle. Here are five strategies that can help you manage that change process:

1) Get the mindset: Believe in your own power, and you can make a difference. At the Phelps Group, Kristen Thomas’ idea to swap disposable dishes for reusable ones started a green tidal wave that ultimately led to her company becoming the largest private solar power installation in the Santa Monica area.

2) Make the business case: Doug Shaw’s mobile handset recycling scheme at BT Wholesale delivered £3 million in cost savings whilst generating cash for charity and increasing recycling. It also kept customers happy as a survey had found customers cared about old handsets ending up as landfill.

3) Get colleagues on your side: From using peer pressure to change behaviour to giving people the freedom to develop their own solutions, engagement is vital. Dr Paul Toyne from Bovis Lend Lease formed sustainability action groups across the company, asking directors to recommend people to ensure top level buy in. This meant new initiatives were embraced as solutions came from within.

4) Have two-way conversations. It’s crucial to communicate your messages effectively and that means making it real and relevant. Coral Rose persuaded fabric buyers at Walmart to use organic cotton by giving them a packet of kitty litter which was the equivalent weight of chemical fertilizers and pesticides used to grow cotton for a single conventional t-shirt. The result? Wal Mart is now the largest user of organic cotton in the world.

5) Work together: Collaboration can reap great rewards. Emlist help from others in your company, competitors, customers, suppliers, NGOs and government. For example, in Scotland, Boots has teamed up with another company to share deliveries. The initiative has save 6,000 delivery miles a week and 150,000 litres of fuel per annum - reducing costs and the company’s carbon footprint.