Thursday, 27 August 2009

The New "City Tax"

Lord Turner has joined the bandwagon of those baying for The City's blood. Essentially, he proposes a tax on City activities.Again, this is part of the post-crisis knee-jerk reaction and will serve little purpose. The article to which I have provided the link above postulates that certain financial activities are useless (questionable),that The City has attracted the brightest talent at the expense of industry (true) and that the City needs to be "cut down to size" (probably). The comments that follow the article suggest that a number of people are "with" Lord Turner in his views and that activites such as fixed income trading, hedge fund management and securities trading add no value.

Where were all these dissenters when times were good? What was the FSA doing at the time? Empty rhetoric like this is no doubt popular, but has anyone really looked at the FSA's role in the failure to contain the financial crisis that started in the US and spread like a contagion throughout the rest of the world? If we were to discourage the better traders from working in the UK, they would simply take their talents elsewhere with the resultant loss of income and skills (and growth) to the UK economy. Equally, is the FSA's role to set tax policy, or does this belong to the Treasury?

Another fact that seems to have escaped the worthy peer is that banks pay "indirect taxes" in the form of sports sponsorships, charity donations and community initiatives. Tax them more, and perhaps the "Natwest Trophy" or the "Barclays Premier League" to name but two will suddenly disappear with the resultant impact on UK sport. Additionally, if not allowed to keep profits, where will banks find the cash to invest in the increasingly expensive and complex systems required by today's financial markets to ensure that economies run smoothly?

Lord Turner should look more to see what the FSA should be doing in terms of regulating activity (i.e. its job) effectively rather than handing over skills and revenues to other countries in a misguided attempt to be seen to be "doing something".


Wednesday, 12 August 2009

What's The Point?

A fascinating letter by Michael Heppell has just appeared - well worth reading.

Michael's concept is not difficult - if you have a purpose in life, you will be motivated. The problem is how many people really have a purpose in which they truly believe and which stretches them to display their ingenuity and resourcefulness.

For the majority of corporate workers in large organisations, their purpose is usually set from the top. The goals are often not set with the company's true position or capabilities in mind and simply reflect a set "formula" - i.e. achieve x% revenue increase/cost reduction/productivity improvement/staff performance and so on.

Of course, there are exceptions to this and companies who really "get it right", but for the majority, goal-setting and performance appraisal are usually another "box ticking" exercise completed by harried managers based on scant information/observation. As a result, people do not "buy in" to the process and live their corporate lives finding ways to "get around" the system.

Ram Charan in his book Know-How discusses the art of goal-setting and of aligning everyone's interests so that all know what must be done, what resources and are available and what must be achieved by when. Charan also illustrates how to ensure that things are kept on track and/or changed if need be.

Have you thought of what your copmpany's and your mission really are? How will you achieve them and how will you help others achieve theirs? Is your process meaningful and embraced by all or is it just "box-ticking" to keep HR happy? If the latter, you are probably keeping someone in a job who doesn't deserve it...


Back From The Brink?

Just over a month ago, I commented on the latest proposals for the FSA to regulate top bankers' pay. The FSA now seems to be making a u-turn.

The Financial Times has announced that the FSA is backing away from specific recommendations on the structure of top bankers' pay as there is a concern that it will undermine the competitiveness of UK banks. In other words, they won't be able to hire the top talent necessary to manage banks out of the current crisis.

This was, perhaps, predictable in today's markets where labour can move freely, but also understandable when the political pressure was on to be seen to be "doing something" and knee-jerk reactions were all the fashion, depsite the fact that this might be counter-productive. Stephen Hester, the new head of RBS, has also had his say about making sure that capable people were retained recently when he spoke about the RBS results.

The Times of Friday 13th February 2009 announced that the FSA were paying bonuses and increasing salaries - we were told to make them competitive with the market - so why did it take them so long to realise that to limit top executive compensation in the financial services industry might also cause a problem? It is good to see that the FSA still want compensation to reflect risk, but to re-hash my previous point, they need to realise that the interests of banks' shareholders, employees and customers are difficult to manage at the best of times, let alone the worst. Less risk means lower revenues and therefore lower bonuses, taxes, sponsorship, investment in innovative products and processes, but perhaps also less potential for catastrophic and systemic failure. If other countries (the US and European Union are mentioned) do not impose the Draconian measures proposed by the UK, we clearly have an unlevel playing field.

Hector Sants - head of the FSA - proposes that higher salaries/bonuses should be controlled by "appropriate methods such as taxation". This implies that a banker who took less risk would be taxed at a higher rate on a bonus deservedly earned in the same way that a bonus earned through unjustified risk-taking. Where is the logic in that?

The long and short of it is that current public ire at high bonuses paid to top bankers (who are seen as the architects of the current financial crisis and whose banks have possibly also been bailed out by the taxpayer) is resulting in ill-thought out solutions to a very thorny problem. If this indeed the quality of leadership we can expect from the FSA, perhaps it is as well that the Bank of England takes it back under its wing.