What Have I Been Trying To Tell You?

You write a blog, you have a website, you write articles and send them to nice Editors about how good talent is being overlooked and they ignore you. Then one of them goes on a course and suddenly they can't wait to say exactly what I have been trying to say.

Rant Over

I am exaggerating, as usual, but I picked up this month's Director Magazine from the IOD while waiting for someone to turn up on Friday and there was a good article by Jane Simms on page 27 entitled 'Leading Questions'. It appears Ms. Simms had an epiphany when she attended a training course for a profiling tool while doing some research for an article. She found the results to be startling and spent most of the two day course in 'denial' (yes I have a bit about that before) of the results.

As a self-employed journalist she believed her core attributes were innovating, promoting and producing. The test revealed she was a control freak, most interested in inspecting and auditing. She rightly points out she must have been hell to work with at her previous jobs as an editor manging people and I have to say I wouldn't have liked to have been on the receiving end of those 'attributes'.

But Jane Simms also points out that she was one of the many thousands of people 'who are thrust into management positions and expected to understand intuitively how to manage others'.

I couldn't agree more.

Personal Experience

My first 'big' management job I have written about before - due to resignations I had a 'dead man's shoes' role managing a £13m revenue business with some 56 reports. I was rightly chuffed but as the country lurched around recession and our main vendor did a volte-face on strategy we rapidly found that around 70% of our main vendor's business was at risk as we added little value. The business plummeted and staff got demoralised, some left, some I had to 'let go'. After a year of hell, we managed to shore up the business and survive. I was 27 at the time.

It had been a bad time to find out that I knew nothing about managing a business - but I did learn an incredible amount over the course of that year and I also learnt a lot about myself. One thing was sure, the cockiness of thinking I knew it all prior to taking the job had been rapidly beaten out of me and I had found myself vastly under prepared. In the end, I was certainly to blame for sticking my neck out to take on such a job but equally the senior executives were daft in putting an unprepared and untested person into such a big role at that time.

Lessons Learnt

During that year, I certainly did learn something of great importance. While Richard Branson is right that business should be fun, I rapidly found it it isn't always fun. Looking into the eyes of a grown man crying as I made him redundant with his boss pleading with me to not do it was a memory I have found hard to forget. I also learned that planning is the best way to avoid disaster. It's difficult to plan for all eventualities but you have to know what it is you are trying to achieve, work out what is required to achieve it and think about as many things that might get in the way as possible. And above all, think about what might happen in your market place that makes the plan most vulnerable - the golden assumption that becomes the Achilles Heel of any business.

And people. I had thought beforehand that I was nice enough chap, got on well with people, had some leadership skills and was ambitious enough to make things happen. How dumb I had been. Leadership skills are the crux of it all and this was the point of Jane Simms' article.

Leadership

I have turned off watching things like 'The Apprentice' mainly when Ruth Badger became a revered 'leader' for apparently just making scowls when other people are talking. I hate that - such disrespect no matter what tripe people are talking is just disgusting, and I am sure she would have hated it if she had received similar treatment. But that's the kind of leadership revered in such programs, perhaps as there seems to be a reverence toward the leadership styles of Alan Sugar, Philip Green and Donald Trump - I don't know. But there is this thinking of sling the person into a few situations under TV spotlight, get them to out-slag-off the others and you will know them. Leadership is about managing people to get the right results.

Apprentice-style management may work when business conditions are good, but when things go slightly awry, the core attributes of individuals bubble to the surface and they revert to type. I have blogged about this before. Why is it that when recession bites so many business leaders hand the company to accountants and external cost-cutting executives and let them cut the company to ribbons before handing it back in no condition to take advantage of any upturns? But they do. Fair weather managers, perhaps.

Many such leaders are strong personalities who lead by sheer dominance of character but many lack the planning and people management skills to work businesses when times are hard. Such people seem to be brilliant when sales are vibrant and leading bold acquisition plans or fabulous trading in banks, but when the downturns bite they retreat into a shell and mumble things about 'Global Market Conditions'.

Getting The Best Out Of People

I agree with Jane Simms - often forceful characters at the top of business are useless when downturns arrive. They are so used to managing things their own way that they have ignored the power of the people below. It was the big lesson I learnt about people when I was in that fateful first big role. People have much more to offer than you think and getting the best out of them is something that doesn't come natural to 'big personality leaders' as so much revolves about them.

I remember an older Product Manager who worked for me. I thought he was not performing well as he largely ignored what I told him and plodded along his own way. I felt he was a Luddite so we should get rid of him. But having attended a short course on Interviewing Techniques run by an Australian and thinking I knew it all beforehand, I realised you needed to know what made people tick to understand their real abilities. So I sat this PM down and we just talked about what he did in his spare time. To my amazement, every year he organised the second largest Regatta in the UK - from planning to budgeting to executing. It was a far bigger job than my day job and he did it in his spare time! From that day onwards our relationship changed and I valued his opinion and took time to understand how he was working. Sure we had our differences but I adjusted his responsibilities to get the best out of him and, for that matter, me.

When times are harder, you need to turn to your people as they have many of the ideas, innovations and skills to help you survive - owning those common goals is crucial to making the sacrifices and changes required to help a business manage a recession and take advantage of the upturns on offer at the end of it.

My Point

Similar to Jane Simms, I believe that innovation comes as much from within the heart of the organisation as from the leadership or outside and most managers have little clue how exploit the talents, skills and capabilities of their people as they have had little direction and help themselves. Ms. Simms also points out that many look to HR to get direction on this but frankly HR are probably the least equipped to do so.

The skill of any manager is to keep looking and understanding to find the inner qualities of their people and listening to their thoughts and ideas. Very often signals for opportunities or threats can come from people in the firing line but managers often will have just a few 'pet' workers they listen to. Grading staff rigorously doesn't help as most systems tell you there are elite and then also-rans by grade and only the elite are worth grooming and listening to. How foolish, when the downturn comes, it is the majority or also-rans of the workforce who will save you by their extra efforts but you have already alienated and trained them less by grading.

The mark of any manager in a downturn is not how fast they handover the keys to the shop to the accountants for cost cutting but how they planned in advance to avoid it.

We are seeing businesses going belly up within short trading cycles as they Hit The Wall and yet simple people like me highlight a little planning can a) help you survive a recession and b) help you thrive on the upturn and, heaven knows, may be even during it.

I have talked a lot about reviewing business pipelines, talking to customers, checking the Value Proposition, making tough decisions early, spending less etc but these are not the things that many leaders and managers like to do as a) it makes them look not too great and ego is important and b) they have no idea where to start.

Jane Simms highlights that line managers and leaders need the skills to get the best out of people particularly in a downturn. I have highlighted before, the biggest cost to any business is poor recruitment and the management of the process afterwards. How much money could be saved, profit earned and businesses have survived if only more managers were better skilled in managing people?

Climate Change - Real or Another Scientific Example of Hokum?

If you should Google 'Climate Change' long before you find the faddy sites from 'greenists' you will find information from the FT, the UK Government, Scottish Government, the Met Office, the Royal Society and Chevron. All bristling with compelling evidence that the earth's climate has changed due to human intervention.

In a discussion over dinner, a friend of mine asserted that this is just hokum presented by the green lobby based on misrepresentation of the very facts used to argue the case for Climate Change.

I must admit that I am personally concerned about whether such 'greenist' evidence is exaggerated after watching parts of Al Gore's 'An Inconvenient Truth' which frankly scared the pants off me, but I am also a pragmatist.

Common Sense - My Opinion

The earth has existed for billions of years and in that time there have been many incredible cycles as the earth and then life has evolved and in that long expanse of time there have been periods when the earth has alternated between very cold and very warm, full of noxious gas and even had its poles reversed. That's what we might describe as the phenomenon known as Nature at work. As the late Carl Sagan explained in his excellent series, 'The Cosmos', if the entire history of the planet were expressed as a calendar of a single year, humans appeared at approximately the last hour of the 31st of December. We are THAT new to this earth.

In that short human history compared to the rest of earth's age, humans have subjected the planet to a whole host of things from pollution to nuclear weapon explosions to World Wars to ozone depletion and lots more all of which have never occurred before in the cycles of the earth. Yet all of that has occurred in an amazingly short period of the earth's history and as we consume the vast resources left to us by that history we present ourselves with the conundrum about the earth's future.

The crux of the matter is that common sense says that human intervention has changed the planet because most of what we have done has never occurred before. But the 'Denyer' viewpoint would say that over a long period the earth has cycles anyway and our trivial existence will have no real effect.

'Denyers' see the issue as a question of lifestyle - much like smoking, choosing what cars they drive or wanting a free world to live in - because capitalism, and therefore the perceived progression of humans, does not square with some of the outcomes of believing that we have to do something about emissions and the like. Legacy is not their concern.

The 'Greenists' would assert the question of Climate Change, while rapidly upon us, is actually about legacy. If we do not do anything about the world we live in today, it will be future generations who will be affected by our laissez faire indecision. We will leave them a depleted and uninhabitable planet, and in their eyes, every minute we delay doing something about it could cost future generations years of life expectancy.

This is something I am very much bought into. Our responsibility as humans today is to make sure we leave a planet capable of sustaining human life for as long as possible in the future. Sticking our heads in the sand about Climate Change today will curtail the lives of our future generations, possibly even our next generation.

It's as fundamental as wanting your child to have a good chance, possibly any chance, in life.

The Evidence

A quick bit of research shows there are around 12 assertions by Climate Change opponents and the Royal Society has put together a team who looked at these and using evidence from sources such as the IPCC and the United States National Academy of Sciences, they answered these questions so I summarise their findings - forgive me if trivialise some of their learned research:

• The IPCC is too politicised so does not reflect the uncertainty of scientific opinion

In 2001, the Bush Administration commissioned the United States National Academy of Sciences to assess the IPCC's assertions. The answer was, “The IPCC’s conclusion that most of the observed warming of the last 50 years is likely to have been due to the increase in greenhouse gas concentrations accurately reflects the current thinking of the scientific community on this issue.”

That from the guys who did not sign the Kyoto Protocol.

• Many scientists do not think Climate Change is a problem and have even signed petitions

It's true there are plenty of scientists who dispute some of the evidence either in part or wholly. However, in the journal Science in 2004, Oreskes published the results of a survey of 928 papers on climate change published in peer-reviewed journals between 1993 and 2003. She found that three-quarters of the papers either explicitly or implicitly accepted the view expressed in the IPCC 2001 report that human activities have had a major impact on climate change in the last 50 years, and none rejected it.

Many of the opposing views are those from scientists funded by the US oil industry who even use the very same evidence to assert that action on Climate Change will have the opposite effect and actually bring about changes faster than doing nothing.

To illustrate this illogical thinking, I saw Top Gear the other night where Clarkson showed that the new nickel batteries in the Toyota Primus car cost more to the environment to make than the good they bring about. That's a fair comment. In the same program he also showed that a Primus driven flat out for 10 laps consumed more fuel per gallon than a BMW M3 driven at the same speed. He's right.

But he misses the point - driving BMW M3s or not having the Primus is not an acceptable alternative. Finding a Primus that is less cost on the environment is. Poo-pooing research and progress has been the stable argument of Denyers for years and has stifled the alternatives to the status quo.

• There is little evidence to show that the earth is warming - in fact parts are cooler and some parts of Europe were much warmer previously

The IPCC concluded that global warming is not uniform although evidence shows that the earth has warmed on average by o.6 of a degree centigrade in the 20th century and even pinpointed the 90s as the warmest decade since records began in 1861 and 1998 was in fact the warmest year on record.

There is a problem with this evidence, and I sympathise with the opponents. Over the billions of years of earth history, we have only measured temperature since 1861 - what if every period of a similar length showed a cycle of heating and cooling? And what of these areas that don't rise in temperature? Many argue that urbanisation causes 'heat islands' and for this reason the South Seas and Antarctica have not changed much in temperature.

Certainly, this evidence is not convincing on its own.

• The earth may be getting hotter but this has nothing to do with greenhouse gases such as CO2 - it's the sun's variations

About half the sun's radiation which reaches our atmosphere gets to the surface. Some of this radiation is absorbed and some of it is radiated back into the atmosphere which is then absorbed by 'greenhouse' gases such as CO2, methane and water vapour which helps keep the earth around 20 degrees centigrade warmer than it otherwise would be, this is known as the 'greenhouse effect' and it's what keeps us alive.

Increases in the concentration of greenhouse gases has caused a greater effect. CO2 strongly absorbs infra-red radiation, I know that much from my chemistry and the concentration of CO2 has increased from 280 parts per million before 1750 to 368 parts per million in the period up to 2000, a 31% rise. This is a level in CO2 in the atmosphere which has not been exceeded in the last 420,000 years of the earth's history. Doubters point out that the increase in CO2 is in fact due to Climate Change not caused by it. Funny that it has only risen that sharply since 1750, the dawn of the mechanised world.

The IPCC acknowledge that solar radiation and decreased volcanic activity played a part in the early 20th century, but the latter half was all ours.

• There is no accurate method of predicting temperature change in the future

Good - let's ignore it then and carry on emitting freely. I find that argument in the heartland of all doubters. However, if you just go back and think about the levels of concentration of CO2 in the atmosphere and look at the correlation between average earth temperature rise and the rise on CO2 levels, there would be some cause for concern at least.

• Scientists mislead us by pointing out extreme weather as indicative of Climate Change

Of course, you cannot put down the extreme weather conditions like Bocastle or New Orleans to to the rise in CO2 emissions alone - the earth is far more complex than that. Vast eruptions like Mount St Helena may just as well have been more of a cause. However, if you are happy that's the only answer, fine. Just remember that the IPCC say that there is now a 66-90% likelihood of an increase in volatile weather systems like El Nino due to the rise in concentration of greenhouse gases like CO2.

• There is conflicting evidence that polar ice caps are melting, heck, they're even getting thick in Antarctica

The Arctic ice cap thinned by 40% in the last few decades and by 15% since the 1950s - you can measure that for yourself. The Antarctica has not experienced the same. No worries then. It's just that if the Greenland ice sheet continues to melt at the same rate then a further 7m will be added to sea level. I'm ok, I live inland and on a high point. Those on the coast, kiss your backsides goodbye.

• There is little evidence that sea level has risen due to Global Warming

Sea level has risen on average between 0.1 and 0.2 cm per year during the 20th century, that's about 15cm then overall. I don't suppose the water flows off the corners of the earth when ice melts so expect it to continue. There are other factors which change our apparent sea level such as isostatic rebound but that's more to be with land shape than water level.

• Even if Climate Change is occurring it won't be dangerous

Keep your head in the sand and you'll be okay. If temperature continues to rise at the same rate and unevenly, then common sense, not science, says we are in for some rough weather. Many believe that methane (CH4) has far more of an effect in the atmosphere as a greenhouse gas and that's pretty much down to the output of all those cow farts etc. The problem is that CH4 is short lived in the atmosphere whereas CO2 has a prolonged life. Besides, there has not been a corresponding rise in CH4 concentrations over the period of measurement to explain the temperature rise only CO2 - so perhaps those little CH4 molecules have changed their fundamental properties and started absorbing far more radiation. We chemists, if I may call myself one, would argue that nature says that cannot happen.

• What evidence is there to show higher temperatures are bad for you?

Maybe Newcastle will no longer sell coal but nice claret - is that so bad? Well that's fine so long as the poor Southerners covered in water have the wherewith all to pay for it. As much good as it may bring, there would be corresponding consequences - again it's just common sense to realise that sunbathing at the North Pole is probably not good.

• There are too many uncertainties to make Climate Change believable

Again I can sympathise - the world is an uncertain place and we would sure like to believe that these nasty things cannot happen. Temperature itself is a man-made phenomenon and is simply the approximate indication of the energy given off through the friction of molecules moving about - it averages it out in a form we can understand. But down below are those molecules are moving and colliding and as they heat up they move faster and collide more. We know these tiny things can have incredible effects when summed up and this is the problem. The faster we make them move the more uncertain it gets.

What most agree upon is that it is better to not make them go much faster than they need to.

• The Kyoto Protocol is a waste of time as the US will not ratify it

I don't have to read the evidence here. Like Clarkson's Primus - if attempting to make something more effective at controlling emissions is itself contributing more to the problem (allegedly) then it's no point in trying. It argues that we just sit here and do nothing - that option is for cissies.

It's Not Our Future - It's Their Future

And we are back to square one. What will be, will be - Nature itself is more a cause of Climate Control than man and so we should do nothing. By the same argument, then what are we doing trying to fight the elements like cold, heat, disease, famine and what indeed are we inventing things for if not to better ourselves and survive and thrive as a species if indeed there is no point as Nature will win?

It's the argument that is applied with equal measure to the Third World - it's beyond our personal control so we leave it. Only when it threatens the onslaught of capitalism, democracy and freedom do we actually allow our Governments to do anything. For years 'Greens' have been ridiculed as faddists and using science wrongly, causing more disasters in trying to dispose of toxic wastes in Fjords than the open sea as a for instance.

Well, the capitalist world and corporations have a nasty track record of putting the pursuit of their own goals, well-being and wealth ahead of the general welfare of the world and others. If left to their own devices they would carry on regardless.

The future is ahead and we will be long dead by the time the consequences of our current actions and inactions have taken full effect. So we can either bury it or think, 'Is that what I want for my children or their children's children?'

For all of you who believe that you would die for your children, think only of this - are you prepared to let them die for you? Because that is a very likely outcome of your denial of this issue today.

Is This A Different Kind of Financial Crisis?

I recently saw a question on Linked In which referenced an article about whether the current Financial Crisis was just a piece of necessary 'Housecleaning' and therefore good for us.

I read with some incredulity the answers which trooped out well trusted economic data on the rescue packages which they asserted would patch up the problem and we can then get back to growing. What it displayed was the archetypal financial viewpoint to the world crisis - just get a few things right and we will back to normal - history shows the system mends itself and all will be well again soon enough. Markets will recover.

I am sure they will at some point, but in the meantime at what cost?

Fiscal Stimulation

Much has been blurbed about this by people like Gordon Brown and Alistair Darling using 'Fiscal Stimulation' as if it was some kind of concept from the financial Karma Sutra. There is some confusion here - at least the experiences of the Karma Sutra are meant to be pleasurable. This crisis is all but that.

Missing The Point

I don't think I am alone in thinking this and the Linked In discussion was interrupted by a poignant comment by an American person who was facing Christmas having just lost his job - for the first time in 20 years. His plight is not uncommon in the US as last month alone over 500,000 people lost their jobs.

The reality is that this financial crisis will cost not only money now and in the future but it will cost an enormous amount of jobs and the ruination of many a decent company and even country. It is that big.

The Size of The problem

In the discussion much credence was given to what Gordon Brown describes as his 'Saving the World'. Between the US, Asian and Europe, over $5 trillion has been pledged to shore up the global financial markets and underpin the bad debts incurred by reckless lending. That sounds a lot of money, but when you realise the value of mortgages in the US alone rated as sub-prime is estimated at $12 trillion, you can see we have only scraped the surface. Perhaps a more telling problem is that combined global output is $50 trillion yet the total amount of outstanding derivatives is $535 trillion.

You see, the sheer enormity of this financial crisis has burst the boundaries of our knowledge, experience and historical comparisons and taken the world into a new territory of numbers.

The World Has Changed

Different to all the other downturns and crises it has faced, deregulation has introduced the concept of derivatives as the fundamental way to raise capital in the world markets. This has added considerably to an already overly complex financial world and has also scaled the use of credit beyond all known measurements. Even if you try to compare the situation we are in today with say the Great Depression, you cannot compare apples to apples because the financial world is vastly different and more complex than then.

It is like the Medical Profession encountering a formidable new virus. We are using old theory, logic and methodology to try to treat a completely new sort of disease whose make up and behaviour we have yet to experience.

It will be some time before we realise whether our normal treatments have any effect.

We Have Changed

And we have changed as people too. In the last 10 years, the economies in the UK, the rest of Europe and the US were stimulated by a massively new phenomenon. In the period, average household disposable incomes in real terms declined not insignificantly and long term savings declined very sharply as a proportion of that household disposable income. We were not increasing in worth and not saving for our retirements, yet spending increased massively.

Where did all that wealth come from? Thanks to the world of derivatives, cheap, freely available and unlimited credit was advanced against the security of the growth in equity in people's homes. As never before, people increased their disposable income by as much as 100% as they remortgaged their homes and released equity.

This spiral of income growth depended on two things - 1) the continued rise in the value of properties and 2) the continued availability of credit at similar terms.

BOTH have changed.

Fiscal Stimulation - The Reality

Economists and Politicians are smug in the feeling that once credit starts moving again, then the band wagon of growth will follow. But there is a problem in that theory.

As house prices in the UK fell 15% last year and are forecasted to drop by a further 20% this year and not recover until 2011, there has been a rapid shrinking in that equity gain in the UK and the US, experienced by most households. In fact, most UK households will see their entire equity gain, against which they secured extra loans, crash to nothing and even go negative.

If there is no equity to release, then people will have to rely on their disposable income to restart the economy - but that has shrunk over the last 10 years. Small VAT changes, stamp duty holidays and minor tax giveaways cannot increase household disposable incomes by the same amount that Mortgage Equity Withdrawal (MEW) did.

The equations don't add up.

Manifestations of a Bigger Problem

Only now are we seeing just why the world has changed because of the lack of ability to leverage household equity. The car building and car industries have Hit The Wall. It stands to reason that if by extending or renovating your house it will not contribute to an increase in value then you will not do it. You will not sell and buy a house if your new asset falls in value by 20% in the next 12 months. You will not buy a new car to see its value depreciate by 20 to 30% or more in the first 12 months of ownership.

Buying decisions are now very different in the world of the consumer.

The World of Finance Just Doesn't get It

As financial people wax lyrical about their cleverness and ability to avert disaster to see the world recover, in its wake lies the devastating reality.

On the brink of collapse stands the car industry which in the US alone employs up to 5 million direct and indirect jobs - in the UK there are a further 850,000 jobs at stake and it accounts for 11% of our manufacturing base and contributes £51 billion to our GDP.

It will not be the first or last major industry to stand at the edge of the precipice. The rate of business failure in the UK is increasing and the jobless total approaches 2m and is forecast to rise to 3m in the next year.

The cost of this financial disaster will mean a lot of good businesses and real people will be profoundly affected for some time.

Wake Up

The world of Finance ought to get a sharp jolt of reality. Their industry has been saved and has alone cost the taxpayers some $5 trillion. It has cost Britain £20bn in short term borrowing, for which we will have to pay. The cost of this is not just money, it is businesses and jobs.

So while the Armani suited whizz kids in their Porsches spout out that the 'World is Saved' they actually mean is that THEY ARE SAVED.

As Mr. Thain, CEO at Merrills, has the unthinkable audacity to ask for a $10m bonus for saving the company he drove to the edge of destruction only to be given away to its rival, we know that the elite of society are getting back to normal. Business as usual.

So when we pick and choose who we save, we have to remember there is a cost to each and every bank and executive we bail out in terms of countless jobs.

We are paying for saving their jobs and their future by OUR loss. That is the reality.

And Is The Rescue Working?

As in dealing with a new disease, traditional treatments may not work. In London there has been a dramatic collapse in its core business as global lending has fallen at record rates. Cross border loans fell $1.1 trillion in the first half of the year as credit worries continue. Foreign lending by UK banks fell by $884bn or 81% of the entire contraction in international lending. Further, The City is facing another blow as worldwide bond issues and securities have also plummeted 77% or over $247 trillion in the third quarter. Sterling is on its knees trading a €1.14 to the £.

Reality is a tough beast for sure - it would be just a little comfort if Finance Executives show just a little understanding of what they have caused before they tell us how clever they are.

Funfzig lashes if you please, Judge

Max Mosley is some guy. If secretly filmed in a sordid sex session with a bunch of dominatrix paid-for ladies I would wager most people would be horrified and embarrassed, and possibly shrink from public life. It surely would be difficult to look loved ones in the eye and friends too - and goodness knows about work colleagues and business associates. Wouldn't we? Or am I living in a different world?

Not so Mr. Mosley. He actually turned the tables and made the whole thing a breach of his privacy. That takes some chin, but then again he's from a family not short of sticking its neck out and indulging in something repellent to most sane and decent-minded individuals.

What Are The Real Implications?

It was a bizarre affair that you couldn't have made up.

When a key witness did not show up the Judge in the case, Mr. Justice Eady, invoked the Human Rights Act to support legal action against the News of The World which had published the story and film to effectively expose his moral shortcomings, an age-old right of newspapers. Former Lord Chancellor Lord Falconer stuck with his old chum and said the Judge did the right thing. Interesting.

Mr. Justice Eady ruled that the paper had breached Mr. Mosley's privacy while he had taken part in a sado-masochistic sex session with five prostitutes, in the process falsely claiming that it had a Nazi theme - which confused all of us who actually looked at the thing. I wonder why Max and the ladies didn't speak in menacing West Wales accents - surely it would have had a similar effects or perhaps we should ask the Judge.

In fact Justice Eady claimed Mr. Mosley was entitled to privacy for consensual 'sexual activities (albeit unconventional)'. It seemed to omit the fact he paid the ladies for the consensual activities, but no matter.

Enter The Daily Mail

I don't have a massive amount of time for newspapers editors, I think they do regularly overstep the boundaries of privacy. But in this instance, frankly Mosley had it coming. Paul Dacre, Editor-in-Chief at the Daily Mail, at the Society of Editors annual conference contended most people would consider Mr. Mosley's activities to be perverted and depraved.

I would draw readers' attention to my previous blogs on Denial as a Coping Mechanism. Psychopaths use the power of denial to distance themselves from their actions otherwise they surely would be overcome by their enormity while we regularly use denial to cope with deal with bereavement or similar. Mr. Mosley uses denial to make us believe the problem is with a warped newspaper who think his privacy is more sacrosanct than his depraved activities.

Dacre rightly points out the particular Judge has 'Form' on such rulings and contends that he is effectively passing laws. Even the PM would have had to set out a bill and get it passed by both Houses, a passage which everyone knows is no 'slam dunk'. Not so Justice Eady, asserts Dacre.

'...one judge with a subjective and highly relativist moral sense can do the same with a stroke of his pen,' said Dacre. 'I would personally would rather have never heard of Max Mosley and the squalid purgatory he inhabits. It is the others I care about - the crooks, the liars, the cheats, the rich and the corrupt sheltering behind a law of privacy being created by an unaccountable judge.'

Do We Agree?

Clearly the power of the vote of motorsport's governing body for whom Mr. Mosley works, do not agree - they gave him a vote of confidence although it might be alleged Mr. Mosley was happy to have accepted lashes instead.

I do agree this has a an implication for newspapers and society generally. If we extend Justice Eady's judgement then we may never know if politicians like Mandelson, Mellor, Blunkett, Conway, Hamilton or others far worse are doing anything which we ought to know about. It does have implications - it's called trust. While sexual activities may be a private matter in general, if you are in a high profile position or indeed in any where your actions may be construed by others as odd, depraved or unusual, do not be surprised if you take a fall. This applies to everyone when you think about it.

But here's the rub. Max Mosley slipped out of the situation because he has money. A great deal of it. If an employee, whatever rank in a company, had a video of his or herself published on YouTube of even an embarrassing incident let alone sexually depraved act they might possibly be disciplined or worse if their employers got to know. While they might argue a breach of privacy, the fact is they took the risk knowing the repercussions.

As usual in life, just as Formula One getting dispensation to get cigarette advertising a special dispensation even when it is clinically proven smoking harms health and can kill possibly with a greater risk than driving an F1 car, money talks.

Conclusion

All senses of morals say that a man in his position has betrayed the trust of his employer, wife, family and friends but that doesn't mean a jot and it outraged a lot of people who cannot understand how he keeps such a highly paid, high profile, ambassadorial job in a sport we love - in year when we have a British world champion to be proud of.

It makes you think it's a sport, much like banking, that is unhealthily in the hands of very few people who make more money than we could imagine. Perhaps it's time they joined the real world and got some sense of values and perspective, then they may actually realise this wasn't about privacy it was about trust.

What Did Sub-Prime Have To Do with Me?

In a discussion with an old friend yesterday, he asserted that the cause of today's financial mess was the sub-prime market in the US. It is not an uncommon perception, after all it is one that Gordon Brown has been quick and determined to impress upon us all.

Just a Minute

The estimated cost so far of the global banking bail out is £4.5 trillion and rising. If I am not mistaken, the total cost of the daft sub-prime lending was a mere fraction of that figure. So why is it costing so much?

The fact is that that sub-prime was only part of what was a systemic failure by the financial industry. The current financial mess was caused by a scam that started from a simple idea that built in a long term time bomb just as soon as the whizz kids got their greedy hands on it. The trouble with the financial markets is that it is a closed shop - no-one ever questioned what was happening even in Government and we even acted to give them more freedom to do what they wanted and maintain self regulation effectively putting them beyond the law. Even as we wallow in the mire, the calls for heads to role have already subsided - banking will carry on as normal. In fact the global bail out will not only ensure that, we actually depend on it.

How Did It All Go So Wrong

Let's be clear - Northern Rock, HBOS, Bradford & Bingley, Barnsley Building Society all had little to do with sub-prime. Their mortgage base was almost exclusively in the UK. So how were they caught up in this mess and why does Brown tell us sub-prime caused their failure?

Banks are special companies and different to businesses generally they have a liquidity test they must pass daily. Some genius came up with the idea that because lending was cheap, all you had to do was borrow money from other banks at the inter-bank lending rate (LIBOR) and then lend the money out at a slightly higher rate and make your profit on the marginal difference which over 25 years could be a lot of money. Better still, because you now have people borrowing from you and owing you interest on an asset they have mortgaged, you have 'security' to borrow more money to lend out which allow you to borrow more. So why worry about how much capital you have in your bank or amounts of deposits? You can securitise your next loan on your last one.

Better still, why not lump together all the debts you have and sell them as a lump? Sell them to interested other parties like investment banks who can wrap them up in other debts and sell them on at a nice little profit and commission to another company who will lend them money to lend to someone else and buy more debt. Pretty soon everyone was at it. It was a no fail scam. The more money to loan, the more you can lend which means the more you can loan.

In order to make it more interesting and lucrative, any old debt was lobbed in. And the packages were traded and traded amongst each other so that pretty soon all connection to the original assets that were lent against were lost. Quite literally, no-one knew who actually owned which original debt as it it been repackaged traded many, many times and at each trade someone had made some marginal profit which meant the price of the packaged debt had lost all connection to worth of the asset and the interest it could yield.

Everybody Was Happy

Money was plentiful - it was a no fail scam as the value of underlying assets were rising. In Britain alone, average house prices rose a whopping 160% in just 10 years and the boom forced up pockets of Europe as Brits bought second and even third homes abroad plus buy-to lets so we could share in the bonanza. General spending was high as everyone leveraged the increase in their equity by remortgaging which was another debt to be sold. Incredible deals were offered to 'churn' mortgages as competition to lend money and make more 'profit' even on mortgages that lasted only for the duration of fixed rate deals. At the height of the fiasco, Northern Rock and others offered mortgages of 125% of the value of the purchase price and took account of several times the annual income of the purchaser. It made no sense whichever way you calculated it from our side but at the Banks it made plenty of sense as it was another 'asset-backed security' against which they could borrow more money......to lend more again. Any business was good business.

A House of Cards

Sub-prime was like a bucket of icy water on a slumbering drunk. It exposed the key issue. What if the original purchaser of the original debt could no longer pay their interest payments? And because of that, they have their home repossessed. And, because specific mutuals in local areas sold to many people on the same basis, the problem was experienced by many more. Pretty soon whole sections of communities had their homes repossessed and the local property prices crashed as no-one wanted to buy these repossessed homes.

What sub-prime did was merely illustrate the madness of the system. The problem then struck everyone - after all those exotic and derivative trades of packaged and repackaged asset-based debts who now actually owned those original debts and what they were they actually worth?

It wasn't the fear that Northern Rock, HBOS or B&B had loaned money to sub-prime borrowers in the US, that killed them. It was their business model, because what happened next was that all Banks suddenly stopped lending to one another for fear of the others owning some of those worthless assets. So complex was the problem based on such a simple concept, that the inter-bank lending rate rocketed and immediately meant that in order to fund their businesses, Banks would have to make large losses. But worse still - Banks simply stopped lending until the madness could be sorted out.

Without a ready supply of borrowing, Banks who had used the model of borrowing to lend rather than leveraging their deposits simply went bust. On paper few of these companies had actually done much wrong in lending to customers. They had had gone wrong in their own business model.

It meant, as every Bank bought and sold each others debt many times over in a revolving scam of epic proportions and at each trade more money was skimmed off, that one minor hiccup in the lending system caused by the exposure of its folly, would bring an entire House of Cards down.

Government Hubris

You can blame the Banks and the Regulators. But we had seen this sort of idiocy before in companies like Enron. Governments had stepped in and brought about new Corporate Governance rules like Sarbannes-Oxley. But Banks had conveniently waved a collective two fingers at it all as they self-regulated. They wrote their own rules and kept outsiders out.

Besides why would Governments act? GDP was rising quickly, inflation remained low as the cheap money drove spending to enormous heights and tax receipts were flourishing on all the extra VAT, Stamp Duties and jobs being created by the 'Virtual Boom' which lasted a good 10 years.

The warning signs were there. At the peak 49% of all new mortgages sold were re-mortgages. Average earnings per household were actually decreasing in real terms and more worrying the rate of savings were going negative to earnings and a long term pension crisis was looming.

Britons had quite literally mortgaged their future to fund the present.

Gordon Brown had his stable economy underpinned by this false boom and anyone who had a brain cell spotted that at some point there would be a hole in the finances - it was the safest bet since Red Rum. But Brown had a problem - he had to keep it going in order to keep the finances looking good - spoil that and the whole New Labour scam would be exposed. They had spent beyond all sensible proportions and over 1 in every 4 jobs in Britain was in the Public Sector. If the good times stopped, Britain was virtually ruined. Everything depended on house prices continuing t rise and its why a succession of Politicians, academics and experts were wheeled out on TV programs to say that we could not be affected by economic downturn in other countries or sub-prime because our economy was good because of our housing market. We tried to talk ourselves out of it. But there was no escaping the inevitable.

The Bail Out

Brown has been lauded for his decisive actions and the fact he has protected depositors. The £400 billion British bail out follows the rescue of Northern Rock and B&B. The Government waived competition laws to allow Lloyds TSB to buy the failing HBOS, only to have to lend Lloyds money to do so - how idiotic is that? RBS, with a massive £161 bn funding gap, is now 60% owned by the taxpayer. The money lent by the Government for the bail out is being borrowed and the collateral used to secure that borrowing is future tax receipts. This borrowing is then being given to the Banks to loan money to us so that we can kick start the housing market to refuel the boom and stave off recession (the one Brown told us would never hit us).

In other words we are paying for the interest on that borrowing to lend back to ourselves. So the scam has started again only this time we pay for it.

Britain had built its economy over the last 10 years on a false housing market - asset values could not continue to rise at that rate and only a minor adjustment in prices would hit us hard. But far worse would be if lending stopped generally and this is what Brown could not afford to happen. What Britons have described as decisive was indeed the actions of a desperate man. As Alastair Darling muttered doom messages to the press, Brown must have taken him to a dark room and slapped him with a damp kipper to snap him out of it. Mortgage Britain and we can convince them we are brave and honourable men.

Meanwhile, the IMF, OECD and Ernst & Young have clearly stated Britain is far too dependent on the housing market and that borrowing has been too high generally for at least the last 5 years. For that reason alone, Britain will fare far worse in this recession we denied for so long than most others.

By the end of this year, Britain will be borrowing over half of its GDP which itself is decreasing. Tax revenues which will pay for that borrowing are set to fall sharply in the same period which means we will have borrow more. Sub-prime did not cause this mess it was just an inevitable consequence of a financial scam worth $535 trillion - many think that zero-sum accounting means that the money cannot be lost. Maybe not but we will be the ones who pay for it.

Brown has borrowed massively in order to restart the housing boom, like a gambler who does not know when to quit and thinks the roll of a ball on a roulette table will save him. The odds at such a table on a single number are 35 to 1.

I really hope our odds are better than that.

Another Day Another Scandal

So you are invited by a Russian oligarch worth billions onto his beautiful £80m yacht moored in an idyllic setting off the cost of Corfu within sight of the holiday home of a well known wealthy banker with whom you went to University and as you arrive to take drinks you notice that Peter Mandelson lurks aboard also. At this point, should you have not made some polite excuses about a chicken in the oven and left sharply, knowing the track record of the man known amongst political circles as 'The Prince of Darkness'? Or, as with many politicians, do you stay and chat - after all there was no need to leave before the 'free lunch'?

'Omerta'

The old Mario Puzo books first alerted me to the Sicilian concept of 'omerta' - effectively silence amongst family, friends or associates, bought or not, no matter what heinous things you may know. Aboard that yacht, Nat Rothschild, a former University chum of George Osbourne clearly felt 'What goes on on Tour, stays on Tour' and was dashed upset when his old chum started ratting on 'The Prince' and suggesting his meeting aboard the Russian billionaire's, Oleg Deripaska, yacht had some hint of skulduggery. So upset indeed that Nat wrote a letter to The Times to point out that not only was Osbourne around but so too was the Tory fundraiser, Andrew Feldman, and whats more there was a blatant attempt to solicit a Tory Party donation from the Russian albeit via one his UK business concerns.

Ouch. The denials were 'robust' - that lovely political term that means anything but robust - and Osbourne answered the specific allegation. He was on dodgy grounds in denying everything but after all there is nothing wrong with a free lunch.

That was tantamount to calling Rothschild a liar and since we have had a cacophony of statements from Deripska, Rothschild, more drivel from Osbourne, suggestions that David Cameron was flown free of charge to Murdoch family parties, and EU statements that Peter Mandelson had met Deripaska only as far back as 2006 and of course after the EU's decision to ease import duties of Russian aluminium, for which Mandelson was cleared of any wrong doing as he had first met Deripsaka after the vote.

The Clanger

Ah, that is where there might have been a slight but 'understandable' misunderstanding as that EU statement came out when the now Lord Mandelson, formerly an EU Commissioner for Trade, was actually moving from Brussels to London (no don't mention the fact he will continue to draw his £200k+ salary as if he was still in Brussels hob-nobbing with billionaires and 'doing a good job' for 3 more years - and we pay for that) and was rushed in for an emergency medical procedure. So he could not have corrected the 'understandable' misunderstanding that he had first met Deripaska in 2006. You see, Lord Mandelson, as EU Trade Commissioner had indeed met Deripaska as far back as 2004.

Of course, that was before the crucial decision by the EU to ease those pesky aluminium duties on Russia. And Lord Mandelson was the EU Trade Commissioner at the time of that decision.

What? Are you suggesting that the EU thought that Lord Mandelson had not known Deripaska before that decision and therefore had somehow read his diary wrong or misinterpreted the dates he told them leading them to believe he could not have been 'influenced' by any 'free lunches' aboard yachts or otherwise and affect his powers of judgement in the matter of EU import duties regarding aluminium and Russia? Heavens above, no. Lord Mandelson has an exemplary record in such matters and 'always acts in the public interest'.

So what

I have no time for Osbourne and his puerile jibes - he got what you get if you also cavort with rich Russians who want to influence you. There are no such things as free lunches. The fact he was trying to open a sleazy theme about Mandelson is irrelevant - he was tarred with the same brush and rightly so by Nat Rothschild. He should fall on his sword and get lost - he would make a useless Chancellor anyway.

However, Lord Mandelson has been brought back from the EU with fat pay offs and salaries at the taxpayers' generosity to take a seat in Government the only way that was possible for a non-elected MP, and that was as a sitting peer in the House of Lords. A desperate move by a desperate man, Gordon Brown, has once again opened up the weeping wound of New Labour sleaze.

Denial - The Power Behind Politics

The Power of Denial, about which I have written before, is a huge force in politicians and business people. Lord Mandelson clearly sees it as no public matter that he met Oleg Deripaska in 2004 and in 2005 he was EU Trade Commissioner at the time of the decision to ease import tariffs on Russian aluminium - the very commodity with which Deripaska had made his considerable fortune. No doubt Lord Mandelson will squirm his way out of this mess as he always does, but the stink of corruption follows him whether justified or not. When it comes to bad judgement, George Osbourne is guilty. But take a look at the King of Bad Judgement, Gordon Brown. It was a huge gamble rehabilitating 'Lord' Mandelson to heal the Blairites - it has blown up in his face as it surely would.

Then again, like the financial mess we are in, there are many who would have told him that bringing back 'Lord' Mandelson and getting more dubious scandals was inevitable.

There is no such thing as a free lunch, particularly on the private yacht of a billionaire.

Denial - A good business weapon or stupidity?

There is a great article in this week's London Evening Standard ES Magazine Page 23 by Helen Kirwan-Taylor.It basically states an anecdote of someone attending a meeting at a certain Global Bank and asking the executive how was the bank coping in the wake of the credit crunch. The reply was that the bank was pretty lucky not to be affected by it. The same bank had recently written off £12bn against sub-prime lending. The executive of the bank was in denial.

Was he being downright stupid to be in denial or was this a useful coping mechanism in business?

The article goes on to argue that in the extreme this is how African dictators or wife-beaters cope with their wrong doing - it is self-deception which conventionally is thought to be a sign of moral ineptitude. The article argues that this may not be the case. Denial is a defence mechanism by the body in response to fear or anxiety by pretending the problem doesn't exist. By doing so the body can channel its energy and focus elsewhere. It is the body's way of coping with trauma and stress that if left unchecked could lead to depression.

Researchers have shown (Peter Kim at Univ Southern California and Donald Ferrin of Singapore Management Univ) that groups of students were asked to rate trustworthiness when told an applicant for a job has behaved fraudulently at another job. They were shown videos of the applicant being confronted with the problem and either denying or admitting it. When the students saw the applicant deny the transgression saying it was a mistake but apologising they rated him trustworthy. When shown that he admitted to it, he was rated untrustworthy. The conclusion was that most people already assume others are imperfect and are prepared to deny flaws for the sake of maintaining a relationship.

The article goes on to say that denial is essential factor for maintaining a positive point of view. Michael MCullough of Univ Miami claims that 'There is increasing evidence that memory can be updated or changed' and he cites examples of how politicians can selectively push positive aspects about themselves while putting negative things into the background. With the spate of recent 'Blair Years' biographies and TV programs around, it is very topical. I personally watched some of the 'Blair Years' TV program and got very angry about how it seemed to be a blatant attempt to rewrite a history I had lived through and somehow make a nation remember things differently. More recently, I heard John Prescott (he was actually being interviewed about Hull City's forthcoming date at Wembley) saying that he 'should be judged on his record' and I had to pinch myself to make sure if I was dreaming or him. I also remember people leaping to the defence of Jeffrey Archer when he was convicted of basically lying to get substantial damages from a Newspaper saying that 'He was a lovable rogue' and therefore should not go to prison. Denial, it seems, can be a powerful thing.

And so to business, is it healthy for a senior executive to use denial to paper over problems? Should we rate people as trustworthy who deny transgressions?
I would like to hear your views on this. For my part, I have to say I worry a great deal about companies who use denial. At a customer service level you see it day in and day out - companies who put out marketing statements that their products and service are superb yet when you call them with a problem they are useless - things do not get better by denying issues at that level. Remarkably, Willie Walsh at BA presided over the debacle at Terminal 5 but managed to turn in large profits at the same time - and he was then rated by some authoritative magazine as one of the top executives in Britain. It must have been cold comfort for those forlorn travellers who suffered the lunacy of BA and BAA ineptitudes. I have strong views on such a culture in business that rewards failure but that's another subject. We all have our stories on this.

As another example to stimulate thought, we see MPs rushing to cover their tracks on their expenses (the average MP annual expense bill is £136,000 and there are over 600 of them!), we see large companies enforcing low pay rises on staff yet the CEOs are earning large salaries and obscene bonuses, we see merchant banks paying out many £million+ bonuses to certain staff yet are writing off £billions for poor decisions many of which are linked directly to the culture of greed in those that earn the large bonuses. Denial is more powerful when there is money at stake, it seems.

Yet, perhaps by denying all these problems and dilemmas, the executives actually can steer their businesses more effectively? Maybe, that's what makes them good at their jobs and therefore good for their staff and shareholders? I am sure we all have examples - I would appreciate your views.

Since publishing - I had some great feeback from Robin Cole-Hamilton who is based in Syria and cannot access blogs so he asked me to post his excellent contribution here. Robin has rightly picked up that many responses have confused straightforward deception or lying with denial and he illustrates his points really well:

On 6/4/08 5:35 AM, Robin Cole-Hamilton wrote:
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Nigel, one of the most common areas you'll find it is in sport, where the practice of positive thinking - blanking out the negatives - looks to observers like denial or delusion, but is essential to getting the mind in the right frame. See Bob Rotella's books for lots of stories.

In business, the answer to your question is, as usual, one of degree and timing. I remember fondly a museum director in 1998 cheerfully describing a huge and expensive collaborative project that had no consensus between its partners and no funding as "running on optimism and adrenalin". Sometimes there's just no other way to get a bold and innovative vision into play but to shut out the doubts and go for it as though it was as good as done. In which case, sometimes the bigger the better.

The trick of course is to know when it isn't going to happen, and how best to retreat. When people don't have that sense of timing, or can't accept reality, confidence can turn to denial, organisations get stuck in a game of diminishing returns, and knives get sharpened.

Good luck

On 6/4/08 5:35 AM, Robin Cole-Hamilton added the following clarification:
When I started the project I'm running in Syria I was told by a senior cabinet minister that what I was proposing was "nothing but a dream". To him I was in denial - refusing to realise the realities of the situation. We just kept on going, and today he is one of the most enthusiastic advocates for what we are doing. I was told that by the then Governor of Damascus that we would never be allowed to build a discovery centre on a particular brown site in the centre of the city. To him I was in denial because I wouldn't accept his preferred alternatives. We just kept on going, and today he has been replaced and we are master-planning the entire 16 hectares for a new public park. Denial can sometimes take the form of a necessary and productive stubbornness, but as I say, you have to know when to call it quits as well.


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