Bribery

The government is reported to be looking at changing the Bribery Act. No surprise there, because from the first seminars I attended following its introduction it was obvious to me that it was unworkable. So, what qualifies me to write about bribery? Well, I worked at a senior level in the defence industry. Next question.

Among my objections to existing bribery laws is the sheer hypocrisy. We all now that governments turn a blind eye when it suits them. If I asked every British reader to think of a current example of Her Majesty’s government’s involvement in large scale overseas bribery then I am absolutely certain we would all call to mind the same country, the same company and the same contract. And it’s not just governments. On a smaller scale I recall events in a large US (and so much for the famous Foreign Corrupt Practices Act) building supplies company which both then and now constantly blows its own trumpet about it’s high environmental credentials and yet regularly supplied payments in kind to the purchasing managers of large customers. Mind you, presumably as some sort of sop to their conscience, they often gave substandard goods that couldn’t be sold elsewhere to the individuals involved.

My own personal favourite bribery story was in relation to a mooted overseas infrastructure project. Our sales director was very bullish and, given our appalling track record of winning orders, I enquired as to why he should feel this way. He explained that it was because our local agent had bribed an official within the appropriate ministry and we knew what was in each of the sealed envelopes which were to be opened. This official had confirmed that we had submitted the lowest bid. Unfortunately, although this did turn out to be true, our man on the inside had not bothered, or been paid enough, to tell us that the ultimate adjudicator – a member of the local royal family – controlled a company which was the agent for one of our competitors. Our bid was judged non-compliant and the contract awarded to them.

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Return on Capital Employed

Last week I attended a meeting of the Institute for Turnaround hosted by Ernst & Young at which a presentation was made by E&Y restructuring partner Tim Kreatschman on the subject of “Delivering Profitable Growth in No-Growth Markets – Priorities for Capital Performance”.

During both the pre- and post-meeting networking the consensus was that members’ opportunities for turnaround work were being restricted by the issue of sticky valuations. Neither banks nor owners – especially private equity houses – feel able to lower the value at which they carry companies in their books. This resistance to taking a hit on previous investments also precludes any further injection of capital that would imply a lower value than that currently obtaining. The net outcome of which is the famous zombie companies lurching on hoarding unproductive resources while at the same time companies that are doing well are denied the extra investment that they need.

In his thought-provoking and well argued talk Kreatschman agreed with this hypothesis. He also took a very bearish line on global economic prospects, even given the recent rises in stock market levels. The main new element in what he said was his postulation that prioritisation of capital allocation should going forwards be achieved via a focus on Return on Capital Employed (ROCE).

Having gone away and reflected on that last point, I think that I have to express a mild – and respectful – disagreement with Mr Kreatschman. I’m not arguing with ROCE per se. Indeed the presentation included the type of hierarchy of accounting ratios that was beloved by the Institute of Cost and Management Accountants, as they used to be, when I was taking my exams and which I therefore internalised from the beginning of my accounting career. My problem is rather with the composition of capital employed. In a PE environment the assets of topco/newco/holdco/whateverco will include a large slug of goodwill caused by the purchase price being inevitably greater than the asset value in the acquired company’s books. In other words ROCE will be depressed by exactly the same sticky valuation issue discussed above. In fact the real use of ROCE in this context ought to be the reverse of what Mr Kreatchman suggests: the value of goodwill (and therefore the carrying value of the investment in the owner’s books) should be calculated as being as that amount which gives the appropriate risk and sector adjusted ROCE for the current level of earnings.

“In real life it is always the anvil that breaks the hammer.” – George Orwell

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“They want to see you right away.”

Over the years that I have been an interim manager I have developed a number of rules of thumb; generalisations about things that while not guaranteed to be infallible are still pretty reliable. One of these is that the more urgently a potential client demands to see you, then the less likely you are to get any work out of it.

Now this rule doesn’t mean that I don’t respond with alacrity every time that I’m summoned at short notice. After all a potential client is a potential client and there is the interim provider – a direct contact would never demand to see one immediately; there’s probably a moral there somewhere – to keep sweet as well. But I always approach such meetings with suitably lowered expectations.

Similarly it doesn’t mean that the meeting won’t be useful. Just a few weeks ago I was dragged somewhat reluctantly from an exhibition of modern art to an impromptu meeting regarding a planned MBI deal. While, as expected, nothing concrete resulted, it developed into a useful contact with a PE house that I hadn’t met before. And I don’t really like modern art anyway.

However, not only does the rule have enough validity to always be borne in mind, but there are a few corollaries which you should also be aware of. Firstly, the client will be a man; women just do not behave in this way. Secondly, he will almost certainly be of below average height; strange but true. Thirdly, there is a significant probability that not only will you not get the job, but that no-one else will either; probably because the main motivation for the meeting is the satisfy the client’s self-importance rather than to actually achieve anything.

You have been warned.

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Disruptive Technologies

I mentioned 3D printing in my last blog post and by coincidence there was an interesting article by John Naughton in this week’s Observer that uses 3D printing to illustrate the concept of a disruptive technology. The concept was introduced to the lay reader by Harvard professor Clayton Christensen  in his book ‘The Innovator’s Dilemma’; the lay reader and, via the media, the general public then did what they do best and got hold of completely the wrong end of the stick. The term disruptive technology (or more properly disruptive innovation) is often bandied about to simply mean something that is new. As Naughton points out the truly disruptive element isn’t newness and it certainly isn’t being better; it is though, definitely being cheaper.

I think the problem is that ‘disruptive’ sounds like it ought to be sexy, and cheap and cheerful (my phrase not Christensen’s) isn’t sexy. I did an assignment once helping a high-technology start-up through a fundraising round. The first time that I heard one of the company’s board state to a potential investor that the PE house already signed up had done so because they had a track record in championing disruptive technologies it was a great struggle to prevent myself undermining our side’s efforts with a loud cry of “Do what?”. Far from being disruptive, the technology was as clear an example of a sustaining technology as one could wish to get. It was based on a hundred year old chemical process which had been developed and industrialised over the course of the twentieth century (as it happens primarily funded by two of even that century’s most odious regimes) and which was now already in use on a gigantic scale. What this particular company’s very expensive, very sophisticated, very high specification plant would do would be to allow their target customers (one of the extractive industries) to do a lot more more of what they had previously done, while still satisfying ever-tightening environmental regulations. Disruptive? I don’t think so!

Mind you the product was also being pitched as ‘green’ and ‘cleantech’ so perhaps disruptive was the least of the crimes against the English language being perpetrated.

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Business shows

“Bloggers need to have fascinating material to hook their readers.” wrote Simon Hoggart in the Guardian last week thereby giving both a hint that he reads different blogs to me and the reason why I haven’t written anything for a few days. I have been to a series of business shows in and around Leeds and they were dull, leaving me without even the low level of inspiration with which I usually make do.

I’m not speaking of the very large trade fairs. During my career I have been invited to a number of these ranging from the Farnborough Air Show to Domotex in Hannover, and have managed to avoid them all without even a fraction of the regret that I still have for the assignment during which I declined an invitation to lunch with Danny La Rue. Anyway that, as they say, is another story. Rather I am talking about the parochial affair that sees the suppliers of stuff as varied as search engine optimisation services and low energy lighting imagine that if they takes stands next to each other in a room normally used for wedding receptions that they will somehow attract orders. The looks on the faces as I walked around various hotels and conference centres over the last fortnight or so suggests that they didn’t.

None of this is to say that I personally didn’t get some benefits from it all. I made some interesting contacts with diverse people in higher education and corporate finance and I saw a 3-D printer in the flesh as it were, for the first time. But I came away sad that the exhibitors didn’t seem to be getting value for money and that I didn’t find any material for a blog posting. Lose lose.

(By the way, in case anyone is wondering which big international trade fair that I would like to be invited to, it’s the Internationale Spieletage in Essen. Thank you.)

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Reputation

There was an interesting interview in Thursday’s FT headlined ‘Future Hiring Will Be All About Reputation’. I’m not sure that the subeditors did the interviewee, Belinda Johnson owner of WorkLab, or her interlocutor, Janina Conboye, any favours because the content is a lot more nuanced (and/or less concrete) than that. However, sticking with the headline, then the focus on reputation could be seen as reflecting the world of permanent work following on behind the lead of the interim management market.

“You are only as good as your last assignment” is an aphorism frequently quoted by interims and interim providers and, like all the best truisms, it isn’t actually true. In fact one is only as good as the reputation that one has built up with those likely to recommend you for a role, whether they are doing it for money or otherwise. Of course, the word actually means a widespread belief rather than an absolute fact, but whilst one can manage one’s reputation one can’t create it out of nothing. This makes it rather difficult when one starts (I always liken the interim management profession to Equity, the actors’ union; one can’t go on the stage unless one is a member of Equity, but one can’t join Equity until one has been on the stage), but does make life easier when one has a bit of a track record. Not only can one’s reputation, thankfully, withstand the odd blip, but it gives one something to polish (I nearly wrote embellish there – Freudian slip).

Some optimistic people think they can maintain visibility by things like tweeting and even blogging. I’m not convinced that it would repay the effort myself, but what do I know? Similarly, one can allow one’s name to go forwards for the  various obscure awards that are handed out around the place. I was once rather cynical about that as well, but since being named Interim FD of the Year at the Yorkshire FD of the Year Awards 2011 I have come to realise what an important mark of quality and achievement that these things are.

So, reputation already matters to some of us and will quite possibly come to matter to everyone else. But perhaps we should all bear in mind the words of Dag Hammerskjold “Time goes by, reputation increases, ability declines.”

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Operation Hedgehog

I am sure that readers will be as well aware as me that the use of code names for internal projects within business is essentially driven by the self-importance and pretentiousness of the managers involved rather than anything else. Older readers (in the UK at least – this blog’s main readership seems to be in Belgium and Luxembourg for some reason; possibly it is the beer) may recall a sketch performed by Mel Smith and Griff Rhys Jones in which the whole of a police press conference is taken up with an explanation of how they arrived at the name ‘Operation Hedgehog’; the main reason being that all the animals with more street-cred had already been used. Others may have smiled at the fact that crises in the UK are always handled by COBRA rather than simply by meetings held in the rather more prosaic Cabinet Briefing Room A; which I believe is the one that has both a fax machine and a kettle.

Anyway, all of this cynicism is caused by my reading about GlaxoSmithKline’s intention to sell Lucozade, and thereby recalling to memory my own peripheral part in a previous attempt to buy the brand. The owners, SmithKlineBeecham as they then were, wanted to also take the opportunity to dispose of a couple of other non-core brands. I was enlisted by a potential purchaser as a member of a slightly less than crack team charged with reverse engineering the costs of one of these makeweights. Sworn to strict secrecy, and issued with the crucial project code name, we accepted our mission and dispersed. Unfortunately, all of us independently had the same brilliant idea and overnight popped into various supermarkets, bought a pack of the product and set it on our desks the following morning. It wasn’t subsequently possible to move about the office on the following day without someone asking “Are we buying Horlicks then? Is that why you’ve all got some on your desk?”; a process which, for me at least, reached its nadir when Mary, the lady who poured the tea in the canteen, confidentially whispered to me that there was a big takeover going on, it was called Project so-and-so and that as soon as she heard the details she would pass them on to me.

 

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