Wednesday 28 May 2014

Heads-I-win-tails-you-lose

Mark Carney the Governor of the Bank of England spoke at the "Inclusive Capitalism" conference last night. Again this blog is going to quote excerpts directly from someone (Mark Carney). Here goes " capitalism is at risk of destroying itself unless bankers realise they have an obligation to create a fairer society....Prosperity requires not just investment in economic capital but investment in social capital". He talked about the banks having an unacceptable "heads-I-win-tails-you-lose" mentality and called for more professional standards in banking and more personal accountability.

This, along with yesterday's blog on Unilever's approach to investors and the long-term, is starting to suggest that some in big business are beginning to see the light ie that capitalism requires ethical behaviours just as much as, if not more than,other business models. The fair treatment of all stakeholders (removing zero hours for employees for example) and more transparency as this blog expounds, would be good starting points. We really need to be moving towards a win:win positioning for all.

Tuesday 27 May 2014

Capitalism must evolve: Unilever focus on the long-term

There's a fascinating article in McKinsey Quarterly this month by Paul Polman CEO of Unilever entitled "Business, society and the future of capitalism".

Here's some excerpts from it with no apologies for quoting directly from him. It's worth a full read.
 "Business is here to serve society......thinking in the long term has removed enormous shackles from our organisation....better decisions are being made....we have moved to a more mature dialogue with our investor base about strategic actions which serve Unilever's best interests in the long- term versus explaining short-term movements....This is very motivational for our employees to hear....people are proud to work on something where they actually make a difference in life, and that is obviously the hallmark of a purpose-driven business model".

"We spent time identifying investors who would be comfortable with the longer-term growth model instead of focusing on shorter-term interests and have seen our shareholder base shift. We're starting to attract more longer-term thinkers".

"Corporate social responsibility and philanthropy are very important, and I certainly don't want to belittle them. But if you want to exist as a company in the future, you have to go beyond that. You actually have to make a positive contribution. Business needs to step up to the plate."

Tuesday 20 May 2014

Codes of conduct

Enron had a code of ethics. CEO Kenneth Lay stated, "We want to be proud of Enron and to know that it enjoys a reputation for fairness and honesty, that it respected".During the 1990s Enron's success was phenomenal. On 2nd December 2001 it filed for bankruptcy after a series of scandals, including insider dealing. Having a code of conduct was clearly not enough.

Richard Lambert's proposed "Banking Standards Review Council"is designed to help "rebuild confidence and trust in banks."It will monitor banking culture and this will include HOW well employees understand their organisation's codes of conduct. It will therefore no longer be sufficient for Boards to just approve updates to the respective codes on an annual basis. They will need to  ensure and test that all employees fully understand what the codes mean in practice and have such things as ongoing refresher training to keep the messages and understanding fresh.

Hopefully these moves will ensure that organisations no longer play lip service to their stated codes of conduct but really start to bring them alive and make them meaningful to everyone in the organisation.


Friday 16 May 2014

It really is a revolting shareholder spring

So what have National Express, ITV, BG Group, Petrofac, Prudential and Hiscox all got in common? Well apart from the fact that they are all big businesses of course, they have all got revolting shareholders who are now starting to show that they're not so keen on the executive pay and bonuses of the teams running their companies.

The highest level of revolt was for Hiscox with 42% of voting shareholders failing to support the remuneration policy. At ITV the share price crashed. The executives act as agents for shareholders and so these shifts in views by the capital owners are pretty significant.

It suggests that the media and public/consumer outrage about executive pay and bonuses, which is being perceived as having no direct link with performance and accountability, is now seen by shareholders as damaging the reputation and public trust of the companies in which they have invested and therefore the return on their investment.

If shareholders start to demand more ethical business practices with more transparent and balanced approaches to running companies then trust could be regained providing fairer treatment for a broader range of stakeholders which is genuinely sustainable in the long term.


Wednesday 14 May 2014

Ultra-transparency the key to fair treatment?

The Financial Conduct Authority is now starting to scrutinise the value for money aspect of financial products and services. A key question is "how do customers know they are getting value for money" and basically not being ripped off ie how do they know they are being treated fairly?.

 If you took an "ultra-transparent" approach this would mean providing customers with clear details of product terms, conditions, exclusions, costs, commission, margins and claims levels etc etc. It could include the rates of pay and contracts for staff (zero hours etc) and suppliers.  If any organisation feels "uncomfortable" about revealing these areas to customers then maybe they need to review what they do so that there is clear justification for their practices?

And how does ultra-transparency translate when it comes to "big data". How comfortable are we as consumers to know that,for example, the debit card expenditure at Boots is being used by the insurance sector to predict health issues and set our premium levels. We can only make a choice, assess fair treatment and vote with our feet as consumers if we know about it- interesting times ahead.

Wednesday 7 May 2014

"Manifestly dysfunctional": Independence and challenge key to Coop future

Business ethics is simply about decision making. How you make "good" decisions is dependent on the consideration of a broad a range of views, options and diversity of thought. To do this the ideal is to have access to independent thinkers and a culture of acceptable, constructive challenge.

Lord Myners in his report on the Cooperative Group today recommends the Cooperative Group's board needs changing to 6-7 independent non- executive directors with 2-3 executives. With the right skills and experience the independent directors should be able to challenge the executives effectively for the long-term good of the sector. Currently Lord Myners refers to the existing board as "manifestly dysfunctional".

However, none of these recent reports fully address the real problems at the Group ie how to address a board full of egos, set views, emotions, anger, passion and self-righteousness. This is a much harder problem to tackle. A good starting point for this is to revisit the very excellent and most important part of the Walkers Report, annex 4 entitled "Psychological and behavioural elements in Board Performance". To quote:

"Board members need to be schooled in group relations, power dynamics and the behaviours and processes that are required to maximise the intellectual capability of the group. This type of leadership is known as transformational leadership. It requires that leaders have highly-tuned facilitation and listening skills. Transformational leaders satisfy the group’s emotional needs whilst also holding the group to the work of the board. In our experience, transactional rather than transformational leadership is predominant in the financial industry where high risk, high pressure and high rewards dominate."

Tuesday 6 May 2014

Believe in better: the mood from the middle at Sky

There's been a lot written recently about the importance of the "tone from the top", but maybe we need to focus just as much on the " mood from the middle" as Sky has found over the weekend to its cost. And whether the allegations of mis-selling are true or not, the reputational damage has already been done.

The Guardian reported that a group of door-to-door agents contacted them about the mis-selling triggered by commission-led sales.Their whistleblowing is pretty damning if true:
  • Targeting vulnerable customers e.g. recent immigrants who don't fully understand the offer.
  • Mis-selling call packages  e.g. lying about the costs
  • Exaggerating broadband speeds.
  • Pressure to sell, e.g. being "punished" for not selling rather than motivated or encouraged.

These are all such classic examples of both unfair treatment of customers and employees.

Apparently, from the Guardian's report, the management track the sales agents, especially the poor performers (also after hours), through their mobile and iPad promising them extra bonuses for more sales. They are constantly monitored through security tags so the managers always know where their staff are.

The root cause of all these issues seems to be the commission incentives and the bonuses available to managers for sales and of course the very competitive market place in which they operate. Sky states that it undertakes rigorous training and has management systems in place to prevent mis-selling with sales teams all functioning in-house so that it has more control.

As this blog has stated many times,the key to building trust and sustainable long-term futures for business is through fair treatment of stakeholders and transparency of business practice. The "mood from the middle" at Sky clearly shows that they are not living and breathing the strapline "believe in better" other than in relation to their bonuses.  In this way the credibility and consistency of the Sky's customer proposition is totally discredited. An organisation needs so much more than expensive marketing to get customers to believe. It needs in-depth cultural commitment to putting customers' interests first, from the top, to middle managers right through to their customer-facing teams. Then we can really "believe in better".  .

Thursday 1 May 2014

6.7m are in-job poverty,1.4m on zero hours contracts,where's the fair treatment?

A recent report published by the Joseph Rowntree Foundation (JRF) reveals that more than half the households in poverty live in families where someone works ie 6.7m.

The ONS also revealed recently that 1.4m employees are on contracts that don't guarantee minimum hours.If organisations want their customers treated well then a good starting point is to treat the employees who serve them better.

The JRF calls for all employers to provide a living wage for their employees. It also calls for clear and structured career progression pathways, training to facilitate job progression and flexible working.

The ethical message is that fair treatment of all employees will help to engender loyalty and motivation which will ultimately serve customers and society better building trust, reputation and boosting long-term value for the businesses enlightened enough to do this.