Monday, 27 July 2009

How To Distinguish Swine Flu

The following advice has been circulated around the staff of one of the world's largest pharmaceutical companies to aid in distinguishing flu from the common cold. Read it carefully so that you know when you should be calling an NHS helpline. Remember, you may only have a cold, and not Swine Flu.

What are the symptoms of flu?
Symptoms of flu are a fever (>38°C) or a history of fever, and TWO or MORE of the following symptoms: cough, sore throat, runny nose, sneezing, limb / joint pain, headache, vomiting / diarrhoea.

You can obtain flu advice and additional information as follows:

National Pandemic Flu Service (England): 0800 1 513 513

NHS Direct: 0845 46 47 :

NHS24 (Scotland): 08454 24 24 24

NHS Info Line: 0800 22 44 88

Department of Health



Friday, 24 July 2009

The Cost of Capital

Discussions are now under way to make "systemically important" banks hold more capital as a cushion against losses in another financial crisis. What does this mean?

The question of capital has been raging since the beginnings of the current recession - the idea being that banks should hold more capital to cover losses during bad times. Having plenty of reserves to tide one over in times of crisis is common sense, but will the proposals in their current form create an "unlevel playing field"?

The main "targets" of this would be the large international banks which have multiple lines of business (retail, corporate, investment banking). If the cost of their continuing to do business was to increase, the effect would be either to see them pass this cost on to customers, or to absorb it if they could, or perhaps a combination of the two. Whatever happened, it would result in them being less competitive and/or profitable than their smaller rivals.

The target is the investment banking business which is generally the one that tends to make huge profits (and equally huge losses) so the only other option is to spin off the investment banking arm and capitalise that separately. However, the "cross-subsidisation" of invesment banks by their commercial arms has been one of the reasons banks have been profitable. Remove this profitability and (apart from hefty bonuses) you risk removing/reducing:

- Tax revenues to the exchequer;
- Sponsorship of sporting and cultural events;
- Finance to needy businesses at competitive prices;
- Dividend streams to pension funds;
- Jobs as customers desert to "cheaper" rivals.

There is no easy answer, but should we be making our banking industry less competitive at a time when we need it most? Discipline those likely to cause problems again, rather than punishing the industry as a whole for the misdeeds of the minority.


Monday, 20 July 2009

"Wither" Now The FSA?

The Conservative Party want to move responsibility for oversight of the UK financial system's stability back to the Bank of England. Is this the right course of action?

There is a high level of suspicion that the UK Financial Services Authority (created in 1997 by then-Chancellor Gordon Brown) "fell down on the job" and "didn't see the crisis coming" - along with the Bank of England, HM Treasury and various other regulators and central banks around the world. The Conservatives feel that the answer is to take away its powers and return them to the Bank of England which was previously responsible for overseeing the UK financial services sector. I would be reluctant to see this for several reasons:

There would be a period of transition when, for all we know, we would not know who was responsible for regulation. What would this do to confidence in the UK financial system? At a time when we are all struggling, should we be giving away one of our comparative advantages?

There will be a cost to the taxpayer of changing things back to the way they were 10 years ago. This is not what we need now.

Continuity of Markets:
One of the reasons that the FSA was created was to allow the BoE to concentrate on monetary policy in the face of the increasingly complex financial services sector that was evolving. Moving back to the status quo ante risks reducing the levels of supervision needed.

Conflict (of Interest):
The BoE is there to supervise monetary policy and could be influenced by those whom it seeks to regulate.

More appropriate would be to review whether the FSA had the right rules and processes in place to start with, then whether it has sufficient "teeth" in terms of policy and remit as well as staff qualified to do the job. In the case of the latter, this means hiring people with industry experience. As it is, those currently employed by the FSA would most likely be shifted back under BoE contracts (as they were originally shifted out under FSA contracts when the latter was created). In the end, what would we achieve, apart from the equivalent of re-arranging the deck chairs on the Titanic? Previous "banking crises" have seen the BoE in charge of regulation, and how much did that help?


Friday, 10 July 2009

Choosing Your Employees

The current economic recession has resulted in rumours of employers sacking staff to "upskill" their workforce.

Any employer worth should always be looking for any opportunity to "upskill" and increase their product quality. In theory this should result in better service, better product, and happier customers. The reality may be different, however.

Firstly, assuming that employers have made others redundant to bring on the "better" staff, there will have been an interval during which customers will have noticed the disappearance of the "old" staff whom they knew and who knew them. The duties of those who left will either not have been carried out, or else passed on to over-worked colleagues, resulting in reduced standards, reduced morale and increased resentment on the part of the "survivors". The resulting loss of staff and customer trust and goodwill will take time to repair.

Secondly, the new arrivals will take time to settle in and get to know the company's systems, procedures and their new co-workers. Team-work and efficiency will need to be monitored by senior management, especially as the new recruits will be the objects of suspicion and distrust by their colleagues.

The other factor to consider is the cost of firing any previous workers and then of hiring the "better" ones. Redundancy payments and management time in managing those staff out are the main ingredients of the former, whilst advertising fees, headhunter fees (perhaps) and management time spent interviewing the potential recruits as well as potential union issues will all add up. In the end, is it all worth it?

One option to consider is additional training for those viewed as less productive. Not only will this maintain continuity, it will also increase morale and commitment amongst employees, as well as maintain continuity for customers.

Of course, if there are staff who are not pulling their weight despite all best efforts, they should be subject to normal sanctions and procedures. This will be seen by others as fair and part of the course of business. Beware, however, of using the current recession as an excuse to replace headcount because there is a "natural" reason to do so. Reducing to cut costs is one thing. Replacing because of current circumstances may cost more than it saves.


Thursday, 9 July 2009

Bashing The Bankers, Again...

Almost two years after the current crisis began, we continue to tinker with the system. Why is it taking so long to fix?

The UK government has announced that the FSA will now monitor remuneration packages to ensure that they do not encourage "excessive risk-taking". So the FSA has now become the remuneration committee of the UK financial system in addition to its remit of ensuring financial stability and prudence. The report is short on detail of how this will be achieved, however, as it is difficult to tell where a package that rewards a CEO for good stewardship begins and ends. The whole raison d'etre for banks is taking risk. Some of them just did it better (or were luckier) than others.

We are now at a stage where it is socially (and, it would seem, morally) reprehensible for a CEO charged with sorting out the problems in a government-rescued bank to be rewarded for his efforts. I am talking here about the anger over the GBP9.6million package of Stephen Hester who has stepped into the thankless role of Chief Executive at RBS. Would things be the same if he had stepped into rescue a large UK corporate other than a bank? The question is more, is GBP9.6million too much? If he saves the UK government (and, by extension, the taxpayer) billions, this may be a small price to pay. The labourer is worthy of his hire... Much of Mr. Hester's package is actually in the form of deferred share options, meaning that he doesn't get them unless certain conditions are met.

The general thrust is right in that the Chancellor is trying to return to the concept of "fiduciary" duty of bankers toward their clients. This means that a "good" banker may have to decline to sell a product to a client if it is not in their best interests. However, that same banker should not be held accountable for meeting ever-increasing profit growth targets as these may be diametrically opposed to what constitutes "good" banking. Here is where the interests of shareholders (who want capital appreciation and dividends) and customers (who want safety) differ. It is this difference which needs to be managed carefully. We have seen top management have their rewards cut for their role in getting RBS into its current mess, but shouldn't the person who gets it out deserve to be rewarded for that as well?

We need to change expectations right down the line and this involves a serious re-think of what CEOs are for. Senior management run a company for the benefit of the shareholders who want a return (dividends) on their investment and for the value of that investment to grow (capital apreciation). The shareholders are the ones who vote the top management in (and out), and therefore their wishes are paramount. Shareholders who wield the most influence these days are the large institutional fund managers - pension funds, insurance companies for example - who own billions of shares and therefore have a major say. Is it not up to them to reign in errant CEOs? Of course, their comment would be that they trusted the CEO and Board... The 2007 Annual Report of RBS details major shareholders and makes for interesting reading, as some would definitely have had the expertise to question RBS' strategy.

Banks are different to other industries, as they are the bedrock on which confidence in the financial system is based. If that confidence is lost, chaos ensues (as we saw with Northern Rock). Banks are there to take deposits, to lend to those in need, to sponsor sporting events, to sponsor charity events, to provide safe and stable employment. The number of comments on what is expected of Mr. Hester in the article above just shows how many different stakeholder interests there are in RBS.

Perhaps banks cannot be trustworthy guardians of our financial safety and hugely profitable if the latter depends on taking huge risks. Once this is understood, we have a basis on which to begin. Similarly, it may mean that they will no longer lend to those who cannot repay. This will mean lower profit margins, lower deposit rates, and people who can no longer purchase goods and services on credit, with its attendant impact on the economy. For higher-risk lending, higher rewards and higher capital are the only way to go.

Banks embarked on one of the most ill-advised personal lending sprees during the first few years of the millenium, and the global economy and the taxpayer will be paying for this for many years to come. Banks were turned into "financial supermarkets" run by people who were in some cases not themselves financiers by training. There is little doubt, however, that a lot of the growth that the global economy saw during the same period was also due to the banks being prepared to take risks - and noone saw fit to complain whilst the going was good. Whether the organisation charged with maintaining confidence in the UK financial markets should get into the details of their compensation is a different matter.


Wednesday, 8 July 2009

The FSA Sharpens Its Claws

In my blog "The New Two-Speed Financial System" in April 2009, I commented on the risks of a financial system composed of government and non-government owned banks. Recent announcements of more hefty fines by the FSA have just appeared, so what does this mean?

The way I see the FSA's task, there are a number of stages: first, it needs to review itself and understand why it may not have been as effective as it could have been. This has been done.

Second, it needs to be staffed by the right people - those who actually understand the risks being measured and monitored. For this, it needs people who understand the banking system and its products - i.e. bankers. That needs to change and may well be now. The FSA is recruiting again, and bankers are going in.

Third, it needs to be respected by those whom it regulates and by the government. Previous fines have been insufficient to deter what is essentially irresponsible (and, at times, criminal) behaviour on the part of those working in the financial system. The focus on "hitting them where it hurts" (i.e. their pocket books) is long overdue and will also help keep levies down on those who act as good corporate citizens.

Fourth, penalties must also extend to individuals more rather than letting them hide behind the company. Again, this is changing with heavier fines and harsher punishment for those who tempt fate...

Finally, it would be good to see the good citizens mentioned above being rewarded with lower charges for their good behaviour, lower capital costs or even (heresy!) taxes. Admittedly, this would need some thought on how to implement, but what better way of encouraging good behaviour than showing that "virtue has its own rewards"? The concept of fiduciary duty has been all but lost in recent years - this is what British bankers were once famous for. How much would it really take to return to those days?


Saturday, 4 July 2009

Swine Flu - Now It's Real

In April I posted several articles on action to be taken in the event that Swine Flu (its less dramatic name is A H1N1) spread. The UK government has now announced that it has moved from a containment to a treatment phase. If you don't have any contingency plans, now is the time to make them.

Firstly, look at what I wrote in April. I am not an expert on Swine Flu, and much of my advice centres around consulting your GP and medical advisers. This still holds true. YOU will be the expert on what will happen to your business if things do go wrong and staff do not turn up to work.

The UK government has reported nearly 8,000 cases of infection so far, and expects 100,000 per day by the end of August. The focus has moved from prevention now to cure. With the holiday season upon us, people will be moving around more - going away or coming back from overseas and the risk of transmission is higher. If you can, restrict your own movements and follow the "Catch It, Bin It, Kill It" mantra.

Do plan now for your business and what happens to it should you be unable to have all your team present. Get informed through the NHS, your GP and/or medical adviser. Speak to your team, voice your concerns and listen to theirs. Agree plans. If people can work from home (and so minimise their risk of being infected through crowded workplaces), consider making more use of this.

There seems to be no reason for panic. Swine Flu is not a killer of itself yet and those who have died have been the very young, the elderly or those with pre-existing health complications. The risk profile of the virus is still being studied but the NHS advises that the following people are particularly vulnerable:

•People with:
- chronic lung disease,
- chronic heart disease,
- chronic kidney disease,
- chronic liver disease,
- chronic neurological disease,
- immunosuppression (whether caused by disease or treatment), and
- diabetes mellitus,
•Patients who have had drug treatment for asthma in the past three years,
•Pregnant women,
•People aged 65 years and older, and
•Children under five years old.

Be aware, be informed and be careful!