Economics, Leadership and My Friend Stephanie

If I am ever lucky enough to get the chance to study again, the subject I would like to study is Economics. While the recent crisis has revealed that actually nobody holds all of the answers in this space, I think I would definitely enjoy the journey. Strategy consultancy after University taught me the real basics, and not a day goes by where I do not return to that grounding as the building blocks of my current working life. At some point I would love to top that up with some more detailed learning.

Of course, the reality is that some top line theory from a few years ago is not enough to lead in the current environment. I try to take as lively an interest as I can in all things economic, both in terms of news but also pushing my ongoing learning along. This is not easy because I am lucky if I get a spare minute in a busy day, let alone time for attending a lecture or two. Fortunate, then, that I have my friend Stephanie to rely on!

Stephanie Flanders is the BBC Economics Editor. Actually I have never met her, and I rarely even get the chance to hear her broadcast. I find the car en route to work a little early, and the end of the News at Ten a little late for me to really process complex information. Fortunate for me, then, that she writes a fantastic blog called Stephanomics. This provides me with all the economic news and opinion anyone would need to lead a business in short, concise chunks.

One of Stephanie’s blogs last weekend, ‘Damned if They Do, Damned if They Don’t’ brought home to me once again the challenges our leaders currently face. The truth is, nobody knows which way the economic pendulum will swing, and there is a fine line (or even no line) between too much and not enough fiscal stimulus. Stephanie relays our expectation that leaders will meet this this challenge head on and deal with ambiguity in an agile, proactive way.

Leaders of any business are confronted with their our own version of this tightrope. Over-investment might be risky to the long term health of any business in the current environment, but no more so than under-investment. Our Lane4 approach throughout has been to favour positive, forward movement – launching our broader service offer being the outcome of this approach. We move on remaining confident but not complacent.

http://mattrogan.blogspot.com/2010/04/lane4-our-new-world.html

While I am no more likely to be able to predict the medium or even short term economic picture than the next man, my responsibility as a leader is to have my ear to the ground. My friend Stephanie is by no means the only strategic input to my work at Lane4, but personally I do value the context she sets.

http://www.bbc.co.uk/blogs/thereporters/stephanieflanders/2010/06/damned_if_they_do_damned_if_th.html

Different Types of Conversations

Two months into the year, and our economy continues to be in a very interesting yet slightly perplexing place. Traditional indicators of the health of our market-place do not provide a consistent picture.

Of course prospects for the public sector and the overall size of the national debt cast an ongoing shadow over the UK market at the beginning of the year. We all recognise that something needs to be done, and yet we have a curious interlude until the General Election until anything major actually happens. Britain’s biggest businesses claim that 56.6% of gross profits went back to the Government in the form of different types of taxation last year. That is an extraordinarily high figure. We tend to think of the government as having an equity stake in our banking sector alone, but the practical reality is that their ‘dividend’ flow comes from each part of the 'private' sector.

The challenge of public debt aside, there is a brighter news. Recruitment in the UK is on the rise. I met a provider of assessment software the other day who described a very promising uptake in demand from January. The prevailing mood at the Best Companies Awards Ceremony (where we were delighted to come 5th) was one of cautious optimism. This definitely stronger than last year, although less because of any broader confidence in the economy than a feeling that we are collectively wiser about how to tackle this uncertainty than eighteen months ago.

This sense of 'confidence from experience' we felt in the SME market last week is also mirrored in our corporate clients. They are increasingly leaning to practical action not just despite, but also because of economic circumstance. Certainly the strategy houses are very busy indeed with a blend of growth strategy and due diligence work. The strongest businesses are plotting for significant market share growth in the next eighteen months. We notice them being far clearer around their strategy whether we experience double dip or slow growth scenario. They have built plans which will operable under either set of economic conditions.

This environment creates a really interesting shift in our client conversations. Three years ago we might have been asked about (for example) a pre-diagnosed leadership development programme for a 150-strong Directorate. Often it needed a lot of probing to identify how this related to the future strategic intent for the business. Today our conversations start earlier and far broader in scope. Questions like ‘’if this is our strategic straw man for the next 5 years, how will this impact our people strategy? How do we cascade the imperative for change and the behaviours we require? How will that impact on our employees, our customer service levels and the way our customers talk about us? How will we know if it is working?’ This is where we love to start a conversation.

Economic uncertainty remains in the UK, but it seems to be driving far less strategic uncertainty than twelve months ago. Our clients are clearer about a future vision and purpose. Or challenge is to respond to that.

A Dangerous Follow-Up Post - Obama and Bankers Bonuses

When I started this blog, I was advised that being occasionally controversial was a good idea.
So here's the thing. Today Barack Obama has launched a stinging attack on the US banking system. By the time you read this, you are bound to have heard all about it. You might not quite have managed to wade through the headlines to hear about Goldman Sachs results.

Goldman anounced it will pay $16.19bn in compensation and benefits for the whole year, up 48% from 2008. But its compensation as a percentage of net revenues was 35.8%, the lowest since it went public in 1999.

As I mentioned below, there are very few people intensive businesses which manage a salary bill which equates to that percentage of total income. Certainly not football clubs, and also not quality HR consultancies which offer value for money.

Therein lies the rub for me. I have no issue at all with bankers bonuses. In my mind they are no more controversial than Richard Branson or Anita Roddick using their intellect to build and then sell their businesses for equivalent fortunes. The days of a City job inheritance are long gone - most of our City's bankers are intelligent people with immense talent who have grafted hard to get where they are.

The issue for me is not the P&L of the investment banks, but the balance sheets. If these annual profits are generated via excessive balance sheet risk, the man in the street gets hurt. I imagine less than 1% of this country's bankers have willingly endangered the health of their organisation's balance sheet.

In my view investment bankers should be able to pay their people as much as they like as long as they can manage the downside risk. Obama is absolutely right to push for stronger regulation of the banking sector, but politicians who petition for smaller bankers' bonuses are simply pandering for cheap votes and big headlines.