The Nature of The Beast

'Banks are in a dangerous frame of mind: they feel isolated, the whole system of mutual support and syndication has broken down and they are not doing what the government tells them to do.'

The words of Lord James of Blackheath, or to you and I, David James the renowned Company Doctor. Interviewed in this month's Director Magazine from the IOD he insists that in over 55 years in business he has been through 8 recessions and has seen nothing like this one.

At Christmas, a good friend of mine had a very good business, growth was good year on year, his customers seemed buoyant and he was very dismissive of how the recession could affect his business. We talked about diversification and protecting customers by offering them extended deals early but he dismissed this as he 'had never offered a discount in his life'. In February he made 5 people redundant justifying it on the grounds that the chosen people were poor performers. By the end of this month he will have made a further 7 people redundant - in total nearly half his workforce has gone in a single quarter.

Here's the rub. He isn't short of cash - he's short of sales. In a single quarter, his major customer indicated he was no longer in the market for his services and then a few more hit with the same message. Of course, he had reviewed the pipeline and tried to reason that each deal was good but he had failed to talk to his customers early and address the issue of those who might actually not continue to buy. By the time he had realised what was happening, a massive drop in sales left him with no course other than to cut costs radically.

Economic Shock

I have blogged before on the extreme speed at which this recession has hit. But there are survivors, there are losers and there are winners in the tumult. While Sainsburys reported a recent rise in sales, Marks and Spencers have just announced a 4% like for like drop - they have already announced the closure of many of their smaller outlets which had so much captured the public's eye at service stations and the like.

David James asserts that anyone who tries to expand through bank borrowing is likely to find their funding withdrawn - and this echoes concerns I raised yesterday that many small businesses are not getting access to the Enterprise Finance Guarantee (EFG) scheme as put up by the Business Secretary which made sure banks were only liable for 25% of any loss on lending. Yet little of that money has been released to businesses while banks are busy converting current lending to the scheme by offering small top ups and then getting 75% of previous borrowing covered.

It's a blatant scam and as usual the Government's implementation of what on the face of it was a decent idea has been incompetent to say the least.

The emphasis from senior business luminaries (and not people like Ruth Badger) is to look at cash-based rather than sales-and-margin-based sales. This will put a pressure on the social cycle we all want like suppliers paying on time, which has been an exaggerated problem in the last few months for many, but the advice is that we should also pay our suppliers on longer terms and conserve our cash while offering incentives for sales which bring cash in quickly. In the same breath we are advised to cut capital spend, cut people, take no risks, do nothing novel and batten down the hatches or go bankrupt. This is the advice of Jon Moulton, founder and Managing Partner at private equity firm Alchemy.

As he puts it, 'When there are seven of you and only five seats in the lifeboat, what else do you do?'

Risk in A Recession

No one could argue that Moulton's advice is not sound. In the teeth of the worst economic recession since the 1930s, it would be suicidal to start taking daft risks. However, that does not mean that there are not opportunities out there. Yesterday, I gave the example of Richard Branson seizing the opportunity to sponsor the new F1 Team Brawn who had formed from the ashes of the Toyota Team. With two decent drivers and a team, Ross Brawn has developed a car that is not only competitive at the first time of asking, but actually qualified in positions 1 and 2 on the grid and finished the race in the same order. Branson, not even an F1 geek like some sponsors, seized on the fact that there was not a single logo on the car and signed a hastily put together, tentative deal by his standards, to sponsor the Brawn cars. It could not have been a more spectacular coup for a man known as the master PR expert.

Virgin will be in pride of place at the next race, at the top of the driver and constructor tables and feted as the saviour of the team. Such bold risk taking in hard times is a priceless gift.

Business Myopia

The car industry is an example of a tragic crash in the heart of this recession. Hit by the dual cosh of lack of credit and lack of sales, production has slumped dramatically and this means that the car makers are quite literally in survival mode. Promised a £2.3bn package of rescue by the Business Secretary, none of that money has yet flowed to the companies, and across the UK it is estimated that over 800,000 jobs are directly or indirectly dependent on the industry. In the '80s, Sir John Egan epitomised Margaret Thatcher's industry boot-boy who got out and kicked the unions and slammed Jaguar back into shape after years of fattening under state control. He improved productivity by some 70%, slashed the workforce by 40% and exceeded the cash targets set.

As Egan said recently, 'For all but the grandest companies, cash will be more important than profit right now.'

John Mumford, a former BP executive and now at risk of my haranguing for being on the board of several companies, claims that companies he has worked with, large and small, suffer from what he describes as 'business myopia' - a lack of empathy with introversion regarding what is going on in the real world. I can only agree - too many companies I have spoken to recently who poo-poo'd the recession and claimed that they were having a record year, had a recession-proof business and thought people like me were 'talking up the recession', have had to lay off staff at minimum and, in some cases, tried to get emergency loans.

Mumford believes there is a 'high level of dysfunction in terms of talking to outsiders and seeing problems coming.'

Mumford also believes that in larger companies there is a level of 'group think' and that those who do not share the collective view are cast aside politically. In the past IBM suffered from what was called internally as managers giving 'Good slide' - a vernacular that described their ability to dress up the issues and results. In the aftermath of massive failure, it took a breakfast cereal executive to rescue the company and bring it back to leadership again, though never with the same dominance. Many would suggest that Microsoft could be going through the same problems, Apple did some years ago until Steve Jobs was brought back and more recently, Dell has recalled their CEO, Michael Dell, in the face of business problems.

Too often management just ignore the real world in favour of looking politically good and agreeing. Dissenters are seen as whistle blowers, pariahs or unnecessarily negative.

Company Politics Can Kill

The issue highlighted above does not have to be a large company. Medium and even small sized businesses suffer from inertia due to internal politics. There is an element of group think that suggests that no one should tell the Board or owner that he/she 'has no clothes on' and is out of touch with reality like the fabled emperor.

Sometimes it takes guts to challenge management views and get a taste of reality.

The best way I have seen this work is by staff actually talking to customers and feeding back their views. If you can combine that with some simple research about each customer, an informed report about the actual state of each customer and therefore the dependencies of deals becomes more fact than supposition.

This is vital in seeing the issues companies face.

There is no tried and trusted method as to who should do this. Sales Directors and managers who dare talk to customers about the potential of their orders arriving and state of their company are seen as 'making excuses' for poor performance often but if they can combine that with a realistic action plan then they may be able to be seen as forward thinking.

However it is done, Board Directors and executives need to take a longer, closer and more realistic view of their position and make sure that they clearly understand the implications to their future. The worst that can happen in any business, large or small, is that warning signs are ignored. Face them, act on them, communicate with everyone and tackle them.

After all, you don't want to be branded a real politician, do you?

Be A Dragon - Get An Ego

If you want a darn good read about those annoying people who have started 'building their own brand', then flip to Jane Simms' article in this month's Director Magazine from the IOD.

I am sure we have all experienced the same as she had done - attending some self-help or business guru's online or live seminar when they start off by spouting on about how many books they have written, what companies they have created and sold, how much their life is better than ours, yada, yada, yada.

I have read many of Thomas Power's (co-founder of www.ecademy.com with his wife, Penny) articles on how the web has gone through phases and is not at the 'Follow me' stage which is represented at the nth degree by www.twitter.com and I have to say that I am not convinced. It all reminds me of those clever adverts you would find at the back of newspapers which tell you how to become a millionaire for a small sum. If you reply to them and pay the money, allegedly you would get a book detailing how to take out an advert in a newspaper saying how you can make someone a millionaire for a small sum - hey presto you become a millionaire and so does the next person ad nauseum.

Tony Blair is at it although 10 years in power, some dodgy dealings and a new job he never turns up to might be seen as a drawbacks, but he's earning nicely thank you at £250k for 90 minute speeches, £4m+ advances for his memoirs, and around £4m per annum for advisory positions at financial institutions. Tony Robbins, Deepak Chopra and many more have made absolute fortunes out of our ability to get sucked into the promise of a fantastic career, personal fulfilment and large bank balance.

Big Ego, Big Career?

But all this presupposes we have the ego to go do it. Watching the new series of The Apprentice for just a few seconds and it reminded me of all that it is bad in management - this self-belief and lack of depth which seems to be so lauded by Alan Sugar and his gurus. Former Apprentice contestant, Ruth Badger, got her own TV Show doing a 'John Harvey Jones - Troubleshooter' and going in to fix companies essentially off the back of scowling when other people were talking to make them look small or retarded. Character assassination by sarcasm and facial expressions tend to go only so far in business and mercifully I have not seen any new series of such tosh. The late Harvey Jones, meanwhile, made his name building ICI.

Jane Simms points out that Rachel Elnaugh on Dragons' Den has one claim to fame which is starting and busting the company known as 'Red Letter Days' - great concept but poor execution. Yet she has risen from the ashes with a personal brand of some kind of entrepreneurial guru. The difference between many with failed businesses and her is sheer ego, yet why would a failure like Red Letter Days be of particularly good value to others as it was so badly executed?

Ah well, that's for you to find out on one of her smashing 'Entrepreneur Courses'.

There are some who do match ego with success. Simms cites Gordon Ramsay and Richard Branson and they are good examples of well manufactured brands with real substance. Last weekend, Branson flung himself, albeit tentatively by his standards, behind the phoenix-like formed new F1 Team, Brawn. The result was a spectacular PR coup for the master PR man - not only did Team Brawn dominate qualifying to get positions 1 and 2 on the grid but they also occupied the same positions at the race finish - in the team's very first race, and with a British driver at the front. Branson has a real knack of spotting an opportunity and laying out some risk. Team Brawn was hastily put together when Honda pulled out of F1 due to the recession - how they could have done with Branson's nose for an opportunity and stuck it out.

Meanwhile, Peter Jones of Dragons' Den has won a Government contract to set up an Entrepreneur's academy ahead of many an eminent person and team who know plenty about how to teach the skills of business, entrepreneurship and success. He is a man who has made a lot of money over time and has built a fantastic personal brand of late. This is a big risk for him to take as now he has to prove beyond the puerile facial expressions on the show and fats cars that he has more then one success inside him. It will be interesting to see the result.

Personal Branding And Success

It is certainly wise to build something of a personal brand. We all do it - it's the ability of a friend or colleague to actually say what they think we are about if asked. Our brand is the mark we leave on people. You can build that up more by using clever tools like Facebook, LinkedIn, MySpace, Bebo, Twitter, blogs, and having the front to build a business around yourself. The danger always is that there needs to be some level of substance behind it all as no one likes paying for something that does not add value.

So, do as Jane Simms recommends, brand yourself by all means but make sure there is something that underpins it.

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.