Monday, 6 December 2010

The Men At The Top – Eric Daniels

Eric Daniels was born on August 14 1951 in Dillon, Montana of a German university professor and a Chinese mother, who met at the University of Berkeley.

He went to High School in New Jersey, took a BA in History at Cornell University in 1973 and then studied for an MSc in Management at Massachusetts Institute of Technology, leaving in 1975.

His wife is from Panama and he has one son.

Daniels’ career began with Citibank in 1975. He was in Panama for five years, then moved to Argentina and later to Chile. In the late 1980s he spent three years in London and became Chief Operating Officer of Citibank Consumer Bank in 1998. When Citibank and Travelers merged in 1998, he became Chairman and Chief Executive Officer of Travelers Life and Annuity. From 2000 - 2001 he was Chairman and Chief Executive Officer of a small internet start-up company which didn’t last long. He joined Lloyds TSB in 2001 as Head of Retail Banking and became Chief Executive in June 2003. When Lloyds TSB took over HBOS in 2009, he became Chief Executive of Lloyds Banking Group.

Daniels comes across as anything but the “brash American” so beloved of critics of US bankers (unlike one of his peers). In 2008 The Guardian described him as “The quiet American” and “The Invisible Man”! Those who have known him or met him describe him as a “deep thinker” and “good with numbers”. In some ways, this made him the perfect counter balance to Sir Victor Blank – Lloyds’ former high profile chairman. Some say that it was Blank who pushed the HBOS deal rather than Daniels, but this we may never know.

Although not seen as a “star” at Citibank according to David Enrich of The Wall Street Journal , his activity in purchasing successful businesses in Latin America clearly impressed potential future employers, especially Lloyds where, as one of his reports told the BBC in September 2010, he brought “vision and effort” and a “sense of direction and purpose”.

When Daniels joined Lloyds as Head of Retail Banking in 2001, things had slowed down thanks to its ill-timed £7billion acquisition of Scottish Widows two years earlier. He spent the next five years turning things around to make Lloyds a serious player once more.

Equally, the effort that he has made to put things right after the HBOS acquisition (let’s not call it a “merger”) has been impressive, with Lloyds returning to profitability in the first half of the year (although there is now speculation that another profits warning is in the offing…). He maintained the confidence of his shareholders sufficiently to support a £13.5billion rights issue to increase its capital and fend off accusations by the EU that Lloyds benefitted from state aid.

Those achievements have allowed Daniels to claim, as Blank did, that the HBOS deal will eventually be applauded. That argument is certainly now plausible given the size of the profits – £3.7bn this year, say the analysts – but let's see if Lloyds survives the fallout from the Banking Commission. (The Guardian)

Will the HBOS purchase be seen as a good move in the future? It has been fraught, to say the least, with critics pointing out that competition rules were waived to save the previous government’s face. Lloyds was seen to have increased its market share to between 25-30% of the UK retail market whilst destroying shareholder value by not making proper disclosure of a £25.4billion loan from the government to HBOS and handing a 41% shareholding to the UK taxpayer.

Thanks to this, Daniels is the subject of litigation by shareholders who are demanding about £14million in compensation, and a commission has been set up to assess whether Lloyds Banking Group should be broken up.

HBOS will be a subject of debate for some time. Some will say that its acquisition has made Lloyds Banking Group a major force in the UK market, but at the expense of huge bad debt and being 41% owned by the UK taxpayer. There is talk that Daniels was interested in Northern Rock, and one wonders whether his failure to acquire that may have pushed him more strongly when HBOS came up for grabs. Apparently he knew that it would be “painful” in the short-term, but the speed with which the global economy deteriorated after Lloyds stepped in seems to have caught everyone by surprise.

Daniels is not, according to many, a risk-taker in the same mould that other high-profile bank heads were. Some believe that the HBOS acquisition may have been “pushed” by a government anxious to avoid another “Northern Rock” episode. However, Lloyds Banking Group have now taken on what some would feel is “toxic” debt which will take time to sort out. Equally, there’s the issue of Lloyds having to shrink its balance sheet due to competition regulations, which were happily torn up by the previous government to make the rescue possible. When his departure was announced, shares in Lloyds Banking Group rose, giving the taxpayer a profit on its stake of around £1bn on the average price paid for the shares. Clearly the markets approved…

From the remuneration point of view, Daniels embarrassed himself before MPs in February 2009 by describing his £1million salary as "relatively modest". When he leaves, he could take with him shares and cash worth over £14million, but this is rumour so far. He’s also entitled to a pension of at least £190,000 a year according to The Guardian.

The Banking Commission set up to enquire into the financial markets will be looking closely at the banking industry, and rumour has it that they may recommend a break-up of such as Lloyds Banking Group. Politically, this is tempting for a (relatively) new government keen to be seen to be “doing something”, but Daniels and his peers will resist.

Conclusions? Daniels leaves Lloyds Banking Group in profit (excluding HBOS) and probably with a good deal. In March 2008, he told the Sunday Times “my job is to leave Lloyds in shape to last another 240 years, and that means you are very careful with reputation, with capital, with customers and with the franchise you build.” Let's hope he did right with HBOS, as that is what he’ll be remembered for…

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I wrote this on the second day of Britain being brought to a halt by heavy snow. The country saw winter come more quickly, with lower temperatures and heavier snow than it did in 2009.

The result? Blocked roads, rail network at minimum efficiency, schools, businesses and airports closed. I’ve also heard stories about employers calling employees who haven’t come into work and threatening them with docked salary or worse.

One of my clients had clearly thought ahead. They sent out an email - short and to the point, giving an emergency contact number and that the company intended to advise their customers of any likely delays in receiving product or reaching customers’ offices. This told their customers and other stakeholders that they were being proactive, that they cared.

So what can you do to make sure that your business has the best chance of running as best it can in conditions such as the UK experienced? You need to look at various issues:

First: what does your company or business actually do? If your business is (say) working from home with visits to customer or client premises, that’s different to a shop on a remote country lane one mile from the nearest main road. Some kinds of business will hardly be affected; others will really feel the impact.

Second: your premises need to be looked at from several angles: their accessibility to you and your staff, to your customers or suppliers, and to other services. Are approach roads likely to be cleared, and will the actual car park also be cleared (it’s surprising how often this doesn’t happen)? I saw that our local Tesco had a small ploughing/gritting machine for the customer car park – that’s what I call service! If there’s a heavy fall of snow during the working day, can you and your staff get away? Can you get to your customers’ premises? Just because you can get out of yours, it doesn’t follow that your customers will be accessible.

Continuing with premises, what are the arrangements for heating, electricity, gas, water? Does your business operate from a Business Centre where the managing company pays utility bills (and have they kept payments up to date)? Does the building rely on a delivery of heating oil (and can this be delivered)? What arrangements does the Business Centre have in the event of severe weather warnings (e.g. to clear approach roads, car parks, etc)? You may find that it could get too cold for your staff or you to function properly if something goes wrong… If you’re the one responsible for paying the bills, make sure your payments are up to date and that any critical supplies of gas or oil are delivered before any snowfall forecast.

Third: how long can you survive without doing any business? If you can be closed for 2-3 days without a problem, then you only start worrying if the snow lasts longer than that. In this case, which services or processes need to be up and running first and therefore have to be given priority? What will be needed to make them work?

Next, who are your “critical” staff – the ones you must have on site? How long can you operate without them? What arrangements may need to be made for them? Who can work from home without jeopardising confidentiality or data protection? Can their phone be diverted to (say) their mobile number (and do they get reception at home)?

Fourth, do you rely on any critical suppliers? These could be for raw materials for your manufacturing process, or stocks of merchandise for sale. Do you have any important deliveries scheduled and will they be made? You need to ask your suppliers what their arrangements are in case of snow. Will they still be able to supply you? If not, how will this impact your ability to supply others? Can you get earlier delivery of critical supplies if there’s a severe weather warning?

Other critical suppliers may be outsourced services such as banking, post, legal advice, your accountant/book keeper, technical services (to name a few). Can they get to you or you to them? What happens if your computers go down and your outsourced IT partner can’t get to you? Do your buyers pay by cheques sent through the post? Can they get to the post office to send their mail? Is mail being delivered to your premises? If not, what impact will this have on your cash flows if cheques can’t be received (and do you need to speak to the bank or not write certain cheques yourself if you can do this)? Can your buyers pay through the internet? Can you pay your suppliers the same way?

How about your buyers? Depending on the business, you may rely on a steady stream of customers during the day (e.g. a café or supermarket). Alternatively, you may rely on despatching your goods by courier, or on customers sending their truck to your warehouse. You’re back to the approaches to your business in this case; if the roads are cleared, you don’t have a problem unless you’re some distance from a road. A consultant based at home may be able to hold meetings by phone with little or no problem.

In the event that you end up “snowbound”, what vital supplies should you have? Have you laid in sufficient stores of stationery and other items (e.g. toilet paper, tea, coffee)?

These are just some the main areas that you’ll need to look. You may know others that are peculiar to your particular circumstances to ensure that you are in a position to cope in some measure with what Mother Nature can throw at you. You might want to apply the same process to flooding as well.

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Wednesday, 1 December 2010

Re-Kindle Your Interest...

Those who know me know that I'm a gadget fan. I started reading eBooks in the nineties when I purchased an HP95-LX "Palmtop Computer" and heard about "Project Gutenberg".

There are a number of eBook formats, with Microsoft Reader's ".lit" format being one of the first. As companies looked at this market, many developed their own eReader with its own proprietary format, meaning that you couldn't change supplier once you bought one particular device.

Amazon seem to have realised that their "Kindle" will not in itself be enough to attract legions of buyers of the device. However, realising that the object is to sell eBooks from their store, they've announced the development of a free Kindle "App" so that iPhone, Android phone, iPad, Mac and PC users can download "Kindle" format eBooks, magazines or newspapers to their platform of choice. You can therefore switch from an android phone to an iPhone (to take a simple example) and not have to re-purchase your entire eLibrary, according to their TV ads! They've thus extended their potential market.

So far, so good, but with all the pros come the inevitable cons, which mainly seem to revolve around the quality of newspaper and magazine subscriptions that are available on the Kindle. In brief, the Kindle versions may lack quality, functionality or are (in the eyes of the reviewers) over-priced. The comparisons are sometimes fair, sometimes not. To put things into perspective, the same criticisms have been levelled against the iPad versions of newspapers and magazines.

In the case of price, you pay for convenience, for (usually) not having adverts to distract you, and finally you pay VAT as digital magazines are subject to VAT unlike their paper counterparts.

eLiterature still has a way to go. It needs to be easily obtainable (wireless and internet take care of this), seen as value-for-money (the jury seems to be out on this one) and (most important) transferable. When I buy a newspaper, magazine or book, I can lend it to whomever I like. Electronic formats often come "tagged" with a password that means that only the platform onto which they have been loaded can open them from then on.

Amazon may be about to change this.

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