Irreplaceable or what…..?

Pity the poor directors at Easyjet. OK don’t pity them that much as they are well rewarded for what they do. But unlike every other major quoted company they have Sir Stelios Haji-Ioannou on their back. Whether it is about strategic direction, buying new planes, or as in this case executive pay, invariably Sir Stelios has a view and, as a very major shareholder, clearly he has every right to that view.

Presumably this is what Vince Cable has in mind when he set out his plans for the role that shareholders can play in curbing excessive executive pay.  He believes that like Sir Stelios, and all SME business owners, they should be treating the company’s money as their own in terms of monitoring how it is spent. It would be nice if those in government also thought in such terms.

However perhaps the more incendiary part of this story is Sir Stelios’ comment "I know as shareholders we could easily replace them with talented executives and experienced non-executive directors who will cost half as much in bonuses."

Wow! One of the arguments for high executive (or any other) remuneration is that you need to pay it to get the best people. These people are apparently so rare in the global economy that their pay has gone up exponentially over the past couple of decades. Football agents and clubs also use it, although even allowing for massive TV deals, there is absolutely no financial justification for footballers’ salaries at current levels. Now it seems that Sir Stelios has woken up to that old cliché that graveyards are full of indispensable people.

Perhaps it is the vast sums of money involved that makes logic fly out of the window on this. Record labels have almost bankrupted themselves on multi album record deals for artists who they thought were sure fire winners. A salutary reminder that, as far as people are concerned, like investments, the past is not necessarily a guide to the future.

Vast sums sadly are rarely available to SME owners to enable them to keep hold of their key people. They have to find other ways to hold onto them, ranging from share schemes to providing a workplace where people feel they are valued and enjoy working in even if the money is not the best they can get.

Actually the problem is not really that key people are irreplaceable because of course they are. It is more that the process of replacement is a real hassle. Mind you if you are currently having to find someone to replace the irreplaceable, don’t despair. You might end up with someone even better at a lower cost. Well that’s how multi-millionaires like Sir Stelios think…..

All the nasties……?

Oh dear. It seems that one in four small business owners are so depressed by the state of the economy that they want to give it all up and revert back to being salaried employees again. Apparently they have lost their enthusiasm for being the boss and crave the relative stability of working for somebody else.

Yes, frustrations with increasing regulation are being blamed, but I tend to think it is the constant worry about where the cash is coming from to pay suppliers and wages and the efforts involved in trying to win new orders and deal with ever more demanding customers (i.e. the travails of everyday business for which the buck stops with the business owner) that is the real culprit. No wonder eyes are cast enviously towards the idea of a no risk monthly payment into their bank accounts that enables them to leave their work at the office when they go home every evening.  

Make no bones about it many of these business owners did extremely well during the boom years of the last decade. Equally they have had to dig deep into their pockets over the last few years to keep their businesses afloat during the downturn. Therefore their trepidation at the prospect of another year or more of austerity is understandable.

Of course risk free salaried work is also not what it used to be. There is a noticeable increase in the number of job adverts that quote an OTE (On Target Earnings i.e. minimal salary plus commission) figure rather than a fixed salary. Or what were once jobs with a wage, such as van drivers, are now “self-employment” opportunities. The business owners who remain are clearly looking to shift the performance risk back onto their employees, much as many big employers have been shifting their pension risks for a number of years.

It seems that now the good times have well and truly gone and the banks are no longer handing out money without due care and attention, the attractions of running and growing your own business for lots of hassle and uncertain reward are diminishing rapidly.   

This ought to be of real concern to a Government that is relying on the private sector to take up the slack of job creation now the public sector jobs bonanza is over. Therefore it seems an odd time to focus on the excesses of capitalism, as represented by unjustified executive pay, rather than what can be done to really support those brave enough to take on the responsibility of building a business in a financially responsible way.

At its best capitalism provides motivated imaginative individuals with good sustainable business ideas the freedom to get on and create wealth and jobs. We need to be careful that the justifiable attacks on nasty capitalism that are being indulged in at present do not crowd out the benefits that the nice version provides.

Too small to succeed…..?

So that’s that then. Tesco isn’t. Too big to fail that is. Britain’s mightiest retail steamroller has finally come a cropper according to its recent trading figures. Big helpings of schadenfreude all round. Furthermore one of their senior executives managed to (legitimately) offload a batch of shares just prior to the announcement being made and the double digit percentage drop in the Tesco share price that followed. You can almost feel sorry for CEO Philip Clarke. Following a retail superstar like Sir Terry Leahy was never going to be easy, although I suspect he is paid enough not to need our sympathy.

We can ponder endlessly as to what this means for retail as an industry and the British economy in general. However from a company perspective, logic dictated that it had to happen eventually. When you are so dominant in a market place, unless you are a virtual monopoly, there comes a time when real growth is just not possible.  

Sooner or later bigger companies start to believe they can no longer achieve significant organic growth. That is normally when they start looking at cost cutting exercises and/or acquisitions and/or overseas expansion. Good news for executives, corporate finance advisors and travel agents. Often not such good news for shareholders and employees.   

Unless they are in a really niche market, smaller businesses, whatever the economic climate, will always have an opportunity to grow organically. Moving from say 5% market share to 6% market share (i.e 20% growth) is much easier that moving from, say, 30% to 36%. When you only have a minute share of a market the potential is always there to grab more be it through innovation, aggressive selling or weak competition. Of course growth targets must include profit and cash as well as market share but fundamentally the principle is sound.

Too many smaller businesses get into the habit of thinking themselves small. It’s too difficult to grow in this market place. I need this or that or the other. The competition is too tough for us. Tesco have just proved that you can never be too big to fail. Maybe that will convince these smaller businesses to stop thinking that they are too small to succeed.

The world outside the office….

When I started my own business back in 2006 one of the first things I was told was that I needed to get out and network. Who me? A meek and mild accountant who barely ever ventured out of the office in corporate life (unless it was to visit another office)? Go out into the wide world and actually talk to…. strangers?

Networking is one of those things that can provoke extreme reactions. It is the old school tie at work. It is a vision of a loud gregarious sales person (it is always a sales person and no I don’t have anything against them). It is schmoozing and glad-handing your way through numerous breakfasts, lunches and evening receptions.  

Of course it does not have to be like this and indeed frequently isn’t. At its best it is the building of a string of relationships with people that you may otherwise not come into contact with, sharing ideas and opportunities and genuinely attempting to help move business life forward, even if you do not directly benefit from it.

I think that one of the reasons networking often gets a bad press it that many of the articles on the subject imply that it is primarily for the benefit of the individual. Little seems to be made of how organisations that have skilled networkers within their ranks benefit beyond the commercial returns that result.

I have developed valuable business contacts through networking. But I have also used it as an important tool for self-development. It has increased my business and technical knowledge. It has enabled me to view the business world in a much more rounded way that I would ever have been able to do as a corporate accountant. As regular readers may recall through networking I have even taken part in a competition to race to the top of the Jungfrau in Switzerland.

The business insights that I have gained through networking are valued by my clients and should I go back into corporate life would make me a much better employee than I was when I left.

Sadly too many companies out there just don’t get it. One only has to look at the social media policies industry to realise that it is seen in terms of what it should not be rather than what it can be. We are led to believe that a careless remark on Facebook can cause untold reputational damage to a business. Excessive executive remuneration policies on the other hand…..  

Too many organisations are losing out by expecting their staff to keep their noses to the grindstone for every hour they are at work. Letting them out into the outside world to develop their networks can help them think in a different way and pay real dividends. Yes there is a risk but, as any accountant will tell you, you rarely get returns without one.

Follow the money…..

Happy new year to you all! Many writers tend to start their first blog of the year by offering predictions for the coming year but I am going to resist that temptation, not least because 2012 is shaping up to be the most unpredictable year ever!

With the New Year only a few days old we have already had a raft of positive and negative statistics  lending themselves to both optimistic and pessimistic interpretations. Based on this I think it is safe to say that "Old Dogg’s Alamanac" will not be making an appearance in 2012.

Finance Directors as a breed like to know where we and our businesses stand at any one time so this uncertainty does not sit easily with us. Nonetheless, like many of the companies we work with, we have had to change our way of thinking and carrying out scenario planning with copious “what if” analyses is now as regular a part of the FD routine as monthly management accounts and weekly cash flows.

However life and business goes on and there remains a need to find and develop profitable opportunities. We can’t continually keep saying “no” or “wait”. But how do you get them? Moreover how do you evaluate them?

My mind goes back to my days as a naïve young accountant in industry and when I was introduced to a newly appointed business development director. Keen to learn about life beyond the finance function I asked him how he would go about getting new work in. I expected him to say he carefully researched what projects were happening and where, and then worked out which ones he thought the business had the best chance of getting. However his response was short and to the point. “I’ll just follow the money”, he said.

Follow the money. Simple yet obvious. Find out who actually has money to spend and what they intend to spend it on. Then you can focus on what you can do to help them spend it. If you are dealing with a business credit checking, common sense, industry gossip and the past histories of any individuals help. If you are dealing with consumers it’s a question of need to haves and nice to haves.

By following this money trail you can ensure that you don’t waste time on things that clearly are not going to work financially, especially in this climate. People can talk about projects and products that they are working on till the cows come home but unless there is money in the background somewhere there is little point in you as a business chasing them.

When I first asked that question I thought I knew how money worked. And I guess in terms of debits and credits and P&Ls and Balance Sheets I did. But good finance people realise that it works in many other ways as well, and understanding these and working them into our financial management processes is just as important as all those technical skills that we and our clients and employers take for granted.