Breakfast with Bankers

I went off to a breakfast with Clydesdale Bank in Richmond last week to hear the views of Tom Vosa, who is the National Australia Banking (NAB) Group's Head of Market Economics, Europe. As NAB is one of the few remaining AA rated banks in the world, clearly they have been doing some things right, and it was a good opportunity to hear what one of their senior economists had to say, as well as renew acquaintances with our Clydesdale contacts, and meet other local business people.


Tom has a refreshing approach to all matters economic, and it is testimony to his communication skills that not only did a 72 slide presentation packed with detailed economic statistics and analysis seem to fly by, but we were all able to leave the room fully understanding what his views were for the economy in 2010 and beyond, and how they might affect our businesses and those of our clients.

In essence he believed that the recovery in 2010 would be patchy and would most likely resemble a W in shape than any of the other letters or symbols that have bandied about. While each quarter would show some growth, it would not feel like a recovery. There was still a significant wholesale funding gap, which along with the regulatory tightening that was taking place, would continue to limit the availability of finance. Unemployment and earnings would hold back any real increase in consumer spending, and the need to close the gap in the public sector deficit, through spending cuts and tax increases, would also be a dampener on recovery. Nonetheless, there would be a recovery in 2010, mainly led by the public sector activities currently in force, with the real economy taking up the slack in 2011.

In short the deepest recession since the 1930s, would be followed by the weakest of recoveries. London itself would remain the engine room for national recovery, not least because of the Olympics in 2012, although as with most Olympic cities, there will be a negative reaction in the following year.

Clydesdale very kindly makes available much of its research, which you can look at by clicking here . However, the presentation reinforced our view that businesses will have to create their own recovery stories rather than wait for any pick up in the economy.

The wonder of a Woolworths administration – part three

Further to our recent blog on the challenges facing insolvency practitioners (ISPs) in the current business climate, it now seems that the corporate insolvency market is to be the subject of an Office of Fair Trading (OFT) enquiry .


Some of you will find it hard to have any sympathy for these under fire ISPs, reasoning that as they must be so rushed off their feet at present, a squeeze on their fees would not seem out of order. However it is not all sweetness and light in the world of insolvency. Yes, there may be rich pickings at the top end of the scale, which deserve to be scrutinised (Lehman Brothers anybody?) but at the lower end the picture is much less rosy. Due to the reluctance of the banks and HMRC, the two organisations most likely to put a business into insolvency, to pull the plug on businesses, ISPs, while busy, are not that busy.

Also, as so many businesses now operate on a virtual basis, there are very few, if any, realisable assets available. These barely cover the costs of insolvency never mind leave anything left to pay out to creditors.

I still have my doubts about the way the Woolworths administration was handled, but somebody has to clear up the mess that poorly managed businesses leave behind, and in that regard the insolvency profession in general still does a pretty good job.

That’s football isn’t it?

Thierry Henry is a cheat. A fantastic footballer, and for all I know a pleasant and charming individual, but on the evidence of this week’s World Cup qualifying play off second leg match in Paris between France and the Republic of Ireland a cheat.


Football and sport are often used as metaphors for business, mainly in terms of teamwork and people management. However there is also a belief that the spirit in which any game is played is as important as the skill level, and this is another ethos that can be applied to business, as in other walks of life.

There is a way of doing things that is honourable and that does not involve using an unfair advantage to get ahead. You can of course have endless debates as to what is fair or not, but deep down most of us know what is right and what is wrong in business.

Listening to Ronnie Whelan and Alex McLeish two experienced professional football people who were on Sky Sports after the game, both said that while it was clearly heartbreaking for the Irish team, they understood why Henry had done what he’d done, and therefore the Irish had to accept it and move on. “That’s football” seemed to be their message, to which the only possible reply is “Well it damn well shouldn’t be!”

The wonder of a Woolworths administration – part two

Rumblings persist concerning the way that the administration of Woolworths was handled, something that we raised in our blog back in December 2008. Indeed Woolworth’s former management have now added their voices to those who believe that more efforts could have been made by the administrators, Deloittes, to keep the giant store group afloat questioning whether there was a conflict of interest in their provision of advice to the company’s banking syndicate prior to their appointment as administrators. Not surprisingly Deloittes have robustly defended their actions, pointing out that the business simply ran out of money, and that they had been called in with the management’s blessing.


Nobody is pretending that Woolworths was the best run company in the world. However the negative impact of its closure on many high streets up and down the country, and the fact that newly established imitators such as Alworths and Wellworths have seemingly thrived, indicate that the general public placed more value on Woolworths than the financial community apparently did.

With an upsurge in insolvencies expected in 2010, insolvency practitioners will face even more challenges in deciding how terminal the decline of such businesses is, and how far they can go in keeping them alive, whilst not being seen to reward poor management. I wish them all the luck in the world – they are going to need it.

Non-execs – pain without the gain?

One of the biggest questions to emerge from the current banking crisis is what were the non executive directors doing while top banking executives were running their companies into the ground. Indeed this has been a question asked after a number of corporate failures in the past 10 years, such as Enron and Worldcom.


Some of the arguments advanced as to why these non execs were so ineffective in preventing what occurred include lack of accountability, insufficient knowledge of the businesses they were directors of, the fact that they were not selected from a wide enough pool of candidates, and the implication that their high levels of remuneration had compromised their independence.

This view on payment levels was expressed forcefully in last Sunday’s Mail on Sunday. And yet, when one takes into account the risks associated with being a director, the time and effort required to do the job in a way that discharges the legal duties of a director as well as satisfies the requirements of external stakeholders, and the knowledge and experience required to carry out the role properly, the question moves towards not whether non-execs are paid too much but are they actually paid enough to ensure that the right calibre of individual undertakes the role.

That is not to say that independence argument does not have merit, because it clearly does, but surely one of the reasons that a non executive is brought on board is for their ability to think and act independently, something that can obviously be established during the selection process. It is also difficult to establish what level of remuneration is excessive, in that £30,000 for some individuals would be a considerable sum whilst for others it would be pocket money.

We at Orchard have always been big fans of non-execs for all companies, and have had our own from the start. Good non-execs add considerable value bringing experience and knowledge to the party as well as providing a vital sanity check for executive directors and managers, and standing up for the interests of outside shareholders. One of the reasons that we have a strong relationship with the Non Executive Directors Association (NEDA) is the desire to promote good corporate governance through a strong non executive presence on company boards.

We all want knowledgeable, experienced, independent, diverse non executive directors in big and small companies who are willing to stand up to and challenge executive managers where necessary. We also expect these non execs to make available the necessary time to undertake their role, and to take full director risk and responsibilities when carrying out their role. We therefore cannot be surprised when they start to demand remuneration that reflects their skills, their time and the risks that they take.

It's a VAT trap......

I tend to count myself as one of life’s optimists (supporting Spurs tends to do that to you), and I have no doubt that sooner or later we will be out of recession, and enjoying a period of steady, if maybe not exciting, economic growth. The creativity, determination and energy that I have seen over the past twelve months, as business people old and new have faced up to the reality of the economic situation and looked at how to improve their way of doing business, and the goods and services that they provide, has left me convinced of that.

However the accountant in me can never stop looking at potential downsides, so that I can ensure that I have some contingency plans in place to cope. One big lurking downside, along with dealing with the government deficit and the requirement to slash (there is no other word for it) public expenditure, with its consequent impact on unemployment, is the end of the VAT rate cut stimulus that the government put in place at the end of last year.

I fear that this has been forgotten among the various sightings of green shoots and the FTSE index rocketing over the 5,000 mark, but come 1st January 2010 VAT will be back up to 17.5% (or even 20%). Once again systems will need to be changed, wasting valuable time and money, but what will be more interesting is how many businesses will increase their prices as a result. I am sure that most of you will have noticed that since the much trumpeted “point of sale” VAT reductions that major store groups put in place last Christmas, prices have more or less drifted back to their pre-reduction levels. Will there be an increase in prices over and above their pre-VAT cut level, or will firms have to swallow the increase putting even more pressure on profits and cash?

Savvy businesses will have used the VAT reduction to squirrel away some cash (something that I advised clients at the time, believing that this was a better use of the rate reduction rather than adding to the discounts that were already in place for bargain hunting consumers), which they can use to support their businesses in 2010. For other businesses the VAT jump is going to be yet another hurdle for them to overcome. Hopefully it won’t be one too many.

To engage or disengage, that is the question…

Having sat through a thought provoking session on employee engagement last Friday at the IOD West Surrey People Forum, it was somewhat dispiriting to come across a survey in this morning’s paper that, in spite of the fact that their companies have lost on average almost a third of their value, executives at Britain’s top companies earned 10% more than in the previous year. This compares to the overall 3.1% increase that ordinary workers “enjoyed”.

No doubt these executives will use the “L’Oreal” defence (“because I’m worth it”) to justify their largesse, whilst exhorting their employees (those who are left after the most recent round of downsizing) to buckle down and take one for the company, but to use a phrase that has been much used already in respect of politicians and bankers “they still don’t get it do they?”.

Had they been at my people forum last week, they would have heard from Jonathan Scott of em(ic)* about engaged employees i.e. people who enjoy the work they do and “who unlock their discretionary effort to create a winning organisation”, and the potential of such employees to outperform on sales, growth and profit by 2:1, a compelling business case you might think. However the continuing divide between what bosses say and what they do, as evidenced by the pay statistics above, is much more likely to lead to employee disengagement, which one would think was not what is required in the current climate.

Yes top people will earn, and deserve to earn, more based on the skills and responsibilities that go with their jobs, and entrepreneurs in particular deserve to be recompensed for their risk taking. However too many senior executives, both in the private and public sectors, take no risk and little responsibility in their roles, and it is about time their pay packets recognised this. Chances are that their employees already have…..