Eldon-Online

Running Sore - Corruption In China

Recent reports from China suggest that social media has played a major part in bringing down a senior policymaker who had been abusing his position and indulging in fraudulent activities on a broad scale. So a victory for the people, by the people.

Let's be clear, it is no secret and neither should it be a surprise that China does not fare well on Transparency International’s annual list that ranks countries in order of merit. For the last three years it has hovered around the 75-80^th position out of about 180 countries surveyed. Even though it was 80th in the last published survey, at least its score had improved. (Perhaps, given the relative “noise” they make about standards, more surprising to me is the position of the United States and the United Kingdom. At least in the 2012 report the USA managed to move into the teens out of its previous rankings in the 20s, and be adjudged marginally less corrupt than Chile for the first time!)

It is perhaps understandable, though not excusable, why China should find itself in this position on the corruption table. When you have suffered from the deprivations of a closed economy for decades, and that economy starts to open up, you discover a lifestyle existing in the world outside that you could not have imagined. In some ways you want to be a part of it especially if you are sent overseas and get used to a way of living, only to find that you are unable to reciprocate hospitality on offer – and when you return home, you discover that your newly acquired lifestyle is unsustainable and unaffordable. So you seek out the opportunities to maintain that life. That, inevitably, leads to corrupt practices - although clearly not everyone should be tarred with the same brush.

As part of China’s ongoing reform process, the Chinese leadership have made corruption one of their primary targets. This was evident as a serious move when they appointed the outspoken and aggressive Wang Qishan as the Secretary of the Central Commission for Discipline Inspection. Wang was perhaps better known for his financial acumen (although he did a good job as Beijing Mayor) and would have been expected to take a post in that area after his election to the Standing Committee, but his no nonsense approach fits well with his current role. The fact that the measures being taken are having an effect can be evidenced by the food and beverage departments of China’s leading hotel groups, all of whom have taken a very substantial revenue hit in recent months as lavish entertaining by senior officials has been scaled back dramatically.

There is no doubt in my mind that a significant reduction in corruption can only benefit any country that gets it right - economically and socially.

So, while the tone from the top has been set and implemented it seems to be taking a much longer time to filter down to the lower ranks. I am being told by a number of different people I talk to from around China that corruption at party, municipal and village level has never been higher. These days you have to pay someone for every little thing – presumably to people who know that they have a limited time frame in which to create some wealth for themselves. But while corruption at the top is usually counted in large sums, paid by large companies with deep pockets – the payments made at the village level are by people who already have little, and can afford it less. But with the increase in revelations by social media networks, such as that experienced by Liu Tienan, it is likely to all end in tears – eventually. Nowhere to hide!!

With the focus on the example being shown by the Leadership, perhaps it would be as well to bear in mind the paraphrase of an old English proverb that says “take care of the pence and the pounds will look after themselves”. In other words, deal with the easy and small things first – corruption at the more widespread lower levels  - and the bigger levels of corruption will be dealt with over time as a matter of course.

And note, one can only talk about “curbing” corruption – eradication is not possible, as the Transparency International rankings will tell you. Developed countries have developed less detectable but nevertheless effective means of corruption – so it will never go completely.

It was Chinese philosopher Laozi (604bc – 531bc) who wrote  “a journey of a thousand miles starts with a single step”. If China is going to succeed in curbing corruption, then at least the single step has been taken. 

Initially ...

I was having one of those inane debates with myself the other day about the use of cc and bcc in messages on email. Why, I thought, do we still persist in using cc (carbon copy) when we are copying a message to someone else, when so many people around today have never even seen a sheet of carbon paper let alone used one. And of course the same goes for bcc (blind carbon copy). Why don't the Microsofts and Googles of this world change message formats to "ec", for email copy or perhaps being really innovative use "copy" or "copied" on its own? It's only two more letters.

While accepting a degree of pedantry in my thinking, (I know, get a life!) but to try and make sure I wasn't being totally antediluvian, I did ask a member of the next generation down for a view on the meaning to him of "cc" in an email - to which the reply came back "What's email? Everyone's on FB and WhatsApp!" Touché. And as is the case, even those as tools of messaging seem to be evolving. But then for good measure he threw in other anomalies like candle power to denote the strength of a torch beam, knots for the speed of a ship, and horse power in cars. 

But it was too late. Clearly I was obsessed about initials.

Let's face it, the use of initials to create acronyms (An acronym is an abbreviation formed from the initial components in a phrase or a word) as a form of shorthand, is not new. Those of us belonging to that older generation known as baby boomers grew up with things like PLUTO no, not the planet, but which were initials for the "pipeline under the ocean" - a World War II pipeline, and SWALK and BURMA written on the back of letters, which I presume are no longer in use as we don't send any letters now, but the first means Sealed With A Loving Kiss. For others particularly like SNAFU, you will have to look up yourself. I try and avoid any profanity here! And they were in use much further back than that too - think of SPQR (Senatus Populusque Romanus), that catchy little acronym that identified the Roman Empire.

[Just as an aside, in a rather dismaying discovery I have just realised I am two months short of being considered in the baby boomer camp! Too old, even, for that. And in trying to find out exactly which category of dinosaur is was being labeled, some market research carried out by one of my sons elicited a great response from a young girl who was asked recently how she referred to really old people, to which she replied "Mum and Dad"! Ouch!] 

But I digress. Back to the initials ... and before some pedant picks me up on the difference between acronyms and initials; I know! Acronyms are, as described above whereas initials are usually just abbreviations. But why spoil my fun?

Where do we go now? We are bombarded on the social networking sites with the latest initials, and the immediacy of the world in which we live is creating an informal and irritating manner of business communication. Some of the "newspeak"  is understood easily even if you aren't sure, but some, rather like its creators I suspect, is somewhat ambiguous. I mean how was British Prime Minister Cameron supposed to know that "lol" meant laugh out loud instead of lots of love when he sent messages to former News of the World editor Rebekah Brooks? Although having said that I see "lol" has now also acquired the second meaning. But BTW, BBL, WFM and WTF are all finding their way into common usage - well maybe not the latter!

Soon will we be receiving letters from the Banks which will be short and uninformative? (Oh, they are already? Sorry!)

When I started this blog I thought perhaps we were doomed to a life of initial acronyms. Now I am certain. Especially given the one I came accros the other day that read: SSEWBA (Someday Soon Everything Will Be Acronyms)!

"Big Data" - Big Help or Big Problem?

You just cannot be in business today without hearing the term "Big Data". Mind you, I blame the management consultants for producing yet another snazzy buzz phrase to tease their clients. To be clear, I am not against buzzwords just as long as they are relevant and convey the appropriate meaning. The "C-Suite", for example is pretty reasonable shorthand for the senior people in a company whose titles start with the letter "C" - Chairman, CEO, CFO, COO and so on. But this "Big Data" is leaving me somewhat cold by its ambiguity, and the real problem is that it has hit the C-Suite.

I heard a Chief Executive recently talking about the fact that he would in future have all the management information his company needed because they had embraced the idea of big data. He could save huge amounts of money because he would no longer need hordes of people like analysts in his back office, nor would he need to employ expensive management consultants. And because he had so much information he would be miles ahead of those companies that didn't understand big data. He was quite affronted when I suggested that big data might not be quite as much of a panacea as he was obviously thinking - and I spent the next 30 minutes discussing with him the merits - and otherwise, from my perspective! I hope I at least persuaded him that he might want to be asking quite a few more questions before he embraced it any further.

Don't get me wrong. I truly think that big data can be of enormous help to businesses - as long as it is understood and, even more importantly in my view, then used properly!

There are of course many people who know what big data is all about, (particularly at the working level) but for the less technically or business minded readers of my blog, let me just try an explanation. 

Simply put, imagine the biggest reference library you have ever seen or can imagine, and multiply the size by at least ten times. Big data is like that. It is a collection of data so large that it becomes difficult to find what you are looking for by using traditional methods of database management. As a result, work that was previously being done by using analysts is now being handled through creating a series of algorithms that "interrogate" the data and spew out the information you need. Or you think you need. This, for the business community, could be used to spot business trends, seek out inefficiencies, and provide clues to current customer behaviour - leading perhaps to future trends (of course only as long as the conditions existing today remain unchanged!) Sounds good, doesn't it? And it is a big help.

So far, so good - but with the huge mass of information you are receiving who handles it, who "interrogates it", and who is then responsible for creating company strategy?

But there are a few basic things to remember here. Firstly, is all the information you think you need actually necessary to make some decisions, or are you just accumulating information that is of little real value? Secondly, who is creating the algorithms to interrogate the big data to provide the results? Until computers can think for themselves (and yes, I know it's coming), you will still need people to create the right algorithms. People who know the business, and therefore have the ability to ask the right "questions" Remember that old saying from Economics Nobel Prize Laureate, Ronald Coase (who by the way is 102 years old), who said "Torture the data, and it will confess to anything!" Quite!

From my point of view it is surely valid for consultants to be pushing big data as a concept to companies, but there is probably a better case to be made for those consultants who can successfully help in the creation of appropriate algorithms, in other words creating the right questions, and the subsequent interpretation of the answers. Heaven help many Boards of Directors if they are left to understand this stuff on their own. And yes - that includes me!

While we live in an increasingly technologically driven world, the users of that technology still only operate with human brains - which frankly have their limitations. So until we catch up, corporations need to realise that big data aside, much of the "little data" they have is still sufficiently powerful to enable them to do a better job for their clients, and therefore their businesses, than they are doing at present.

As one of my sons pointed out in a comment recently, how is it that a financial institution with whom he has had a relationship for 30 years still addresses him by mail as "Dear Valued Customer". They will have enough clues to realise that he is now married, since he has a joint account, should have an idea that he has children as they have accounts of their own, and with this should know - and be able to customise easily, suitable offers to him. We have the capability to do all this stuff today on "little data". 

Other organisations do it - witness the slightly embarrassing story that came out of US retailer Target. (Do have a read - it's worth it, and it provides a lesson in what you can do today!)

So before we get hung up on big data, make a start by using more effectively the "little data" you already have.

But as for "Big Data"? - Sure, go for it and use it successfully but make darn sure those people in the Boardroom know what it's all about if they are being asked to commit millions of shareholder money in whatever currency into technology that might pay off - but might not if you don't use it properly! 

You've Heard Of The Three "R's"? ... Read On

What does the phrase "the 3Rs" mean to you? Chances are, depending on your age, you will recognise it as relating to a comment coined in the late 1700s, when Sir William Curtis referred to them as: Reading, Writing and Arithmetic. (No, I was not around at the time before you ask!). But even if you didn't know the phrase before, I am sure you will have picked up the irony of the fact that they don't all start with an "R". But they sound as if they do!  Nearly. 

So, moving swiftly to the 21st Century, I have an alternative version - not of "R"s, but "U"s - although sadly two of them do start with the letter "U" - but then we're not all perfect.

I refer to Unemployment, University and You.

First of all, what I am about to write is less likely to appear as an issue in Asia for some time to come, but then who knows..., particularly if unemployment becomes a more serious matter than it is already. The pressure on educating children in Asia has become quite obsessive and stressful to both children and parents, all in the hope that a great education, as long as you get into the right university in some countries, will lead to the best jobs. That is, as long as there are sufficient jobs to go round. But if not, then what happens?

Let me try and make some sense out of where my line of thinking is going. Succinctly.

In case you think I am having a go at universities in particular, but education in general, let me state categorically that education first and foremost is essential. A well educated world, starting with the children, are generally less likely to be proponents of war. If we neglect our duties to educate everyone, boys and girls, every race religion, beliefs, and colour, we are setting a bonfire that someone will light at some stage in the future.This is something acknowledged by a variety of leaders, many of them presiding over poorer countries or at least living in their shadow. Although this will take a long time, generations indeed, to achieve, it must nevertheless be undertaken.

In this Blog, though I am dealing with something more immediate. I am focused for the present on well-educated children who are joining a real world where there is a lack of jobs, and a growing phenomenon in the West by some potential University entrants to try and beat the system. 

Simplistically, you earn good grades to secure a good University place. You work hard for three or four years to come out with a good degree. But you emerge into a market where jobs are hard to come by - and you have a pile of debt.

 

Unemployment in developed and developing economies is not a new phenomenon, but in many places it is too high and is stubbornly refusing to come down significantly. When you add to this the increasing use of technology in many workplaces, the cost of paying people, and therefore the substitution of jobs by "robots", you have a situation that is not going to add many jobs any time soon. But please remember I am being quite general here. I am not talking about the important specialisations such as the medical profession although even that over time will surely be taken over by technology. With unemployment in the USA and the UK both over 7.5%, France and Italy over 10.5%, Spain and Greece at a staggering 27% - and others, there are no "quick fixes". Factor in the demographics of the unemployed by age and you have a good number of young people making up a large percentage of the numbers.

So you come to the question of how are people getting round it. Easy. They are opting not to go to University!!

Now, if you speak to many people especially in Asia such an idea is almost heresy. (Heresy, as in any belief or theory that is strongly at variance with established beliefs or customs). And some Western friends are also somewhat sceptical that opting out of University is likely to work, but here's the thinking.

If you work hard at school and get good results, to the extent that you would have been offered a place at a decent University, you opt instead to go look for a suitable employer and immediately enter the work force. If you are lucky enough to find an employer of course. And heer we are back to the old system of learning on the job. You start the process of taking any relevant professional exams which, given a fair wind you should complete in 3 years. Then, when your peer group graduate from University straining under the burden of having to repay a large student loan and apply with the thousands of other graduates at the same time to your company for a job - guess what? They already have on their payroll a trained, qualified, bright committed employee (who is doubly happy because they have no debt!) Possible? Why not?

If employers get creative and open their doors to potential advancement for early joiners - rather than only fast-tracking University graduates - then I see the potential.

So, what is the You part of this? Well it can be you as in the potential University entrant trying to decide on a pre-emptive course of action to avoid the debt and unemployment trap, or it could be you as in a potential employer looking for talent early on in the workplace and not believing that only University graduates are the ones who can do a better job because they are supposed to be intellectually superior - or some such nonsense. 

Mind you, as someone who left school at the age of 16 I suppose I might be slightly biased, and I used to feel a little disingenuous when trying to convince all my children they needed degrees to even get an interview!!

And You relates to every one of "us" really who is in a position to be open-minded about such a radical change, and also to do your bit to ensure we work towards an educated world.

Hong Kong - A SAD City?

You have probably heard of SAD ... or Seasonal Affective Disorder to give it a proper name. It means basically that if there is a lack of sunshine people get depressed and I am sure you have noticed it yourselves. How much happier do the folk around you seem when the sun is out? Many countries because of their geographic position will have a higher percentage of SAD sufferers than others. If you are in virtual darkness for most of the winter because it just doesn't get light for many hours each day you can understand the depressed feeling it would create.  Others suffer a change in mood because of unusual weather patterns. Dubai today, for example has a lot of glum looking people around because it is - somewhat unusually for this time of  the year - raining. 

SAD, as the name suggests, is supposed to be a seasonal affliction, but I am getting a sense that in Hong Kong we are beginning to suffer from the syndrome on a regular, even annual rather than a seasonal basis.

Okay, maybe in Hong Kong I have to admit perhaps we do have a lot of things on our minds that could be distressing. Pollution is never pleasant. Striking dock workers, a recent phenomenon and by the way where did their Australian brethren come from to support them? (I wonder whether the Australian dockers union knew that some of their brothers had an all expenses paid trip to Hong Kong. And were trying to compare wages in Australia with those in Hong Kong - hello; real world!) There is the threat of a new Occupy Central movement in support of Universal Suffrage - this is going to be depressing for the many commuters who will have to thread their way past the debris of such a movement that seems to have been created to provide "grandstand" opportunities for the politicians involved. Perhaps the Government could consider hosing down the streets at night to keep them clean.

And then there is "Government" itself - that re-branded (but hard working) civil service that occupies the Governmental role, unelected and unremovable facing off against the elected  de facto and permanent opposition who operate with no accountability for their actions.

Okay, perhaps there is a reason to be depressed after all. But has nobody got any good news out there? If we do, it is getting increasingly hard to find.

How many times did I hear former Chief Secretary Anson Chan, in extolling the virtues of Hong Kong in her promotion of the city overseas and indeed within Hong Kong itself, point to one our greater strengths - a "can do" attitude. This has become a rather petulant "won't do" attitude now. And it's not doing our future any good at all.

I am in the Middle East at present, where I visit from time to time, and where the attitude to the future is just a little different - despite the rain!! There is a recognition here that the world is not sitting on its hands and doing nothing. Investments here and in Sub Saharan Africa and In Latin America are growing quickly, and those who sit on their hands too long will get pins and needles. We are undertaking an exercise that looks at the future of the world, and the impact it is likely to have on business here. Business that is going to be done by younger people using technology far in advance of anything we know about today. Few older people running companies today have any idea as to how their businesses will be done in 10, 15 or 30 years time, yet they have to start putting in place the framework that will enable them to face up to new competition. Where new market players without traditional baggage, will be fierce competitors.

This is the sort of thinking that Hong Kong needs. As a City, even, not just its individual corporations.

The business community doesn't speak up enough, I get told, because they fear being "branded" as uncaring or sympathisers with the present form of Government, or worse, the Chief Executive who has still not been given much of a chance lets be honest (no pun intended), then the media will have a field day saying that comments from the business community - yes, the same community that creates jobs - are self serving.

Is the business community really willing to push the Government to do something about pollution, and no it does not all come from China, even if there are costs involved? Heaven knows, we tried a few years ago. But how come Tokyo and Seoul managed to clear up their heavily polluted cities (and please don't tell me it's all because of the wind that we are where we are!)?

But if we carry on doing things the old way, and if we allow a bunch of disruptive and grubby tents to be erected in the business district of Hong Kong, and do nothing about the levels of pollution, then we will be a SAD city in more ways than one.

Change ... Or No Change. Part II.

... as I was saying, sort of, are things around the world changing due to there being a lot of apparent activity, or does that activity result in nothing more than a gentle re-shuffle? As a result little moves too far away from where it started? 

In Part I, I had a quick look at the Middle East and Europe, of which the latter region in particular is looking clearly unwell ... but now if we hop the pond to the USA, perhaps we do have some real change. Okay we have had the re-election of President Obama so no change there then, but what about the economy? 

Fiscal cliff or no fiscal cliff, here we do have a country of which one might say the shoots of spring are beginning to show. Not consistently across the piece perhaps, but there are some positive signs that I find encouraging. Having said that, as the USA was the source of the Global Financial Crisis I suppose one should expect the earliest afflicted to have the earliest signs of the virus leaving. First in, first out. 

Anyway, America's unemployment level is down which is a good change, corporate results are selectively doing well - especially in the financial arena, and Warren Buffet has bought US household name Heinz. All signs that corporate America is raising its head positively. Hopefully it will last, because whether we like it or not, what happens in the USA still has an impact on other parts of the world. But lurking in the corner remains the ever present ultimate threat of inflation once interest rates start to rise, and that could be a harder task to manage. But overall, clearly here is a case where some of the activity that has taken place has resulted in some actual positive change.

Is Latin America changing? I am not sure it is much. Certainly Brazil is continuing to progress and Chile has been quiet and steady for quite a few years now. Argentina remains difficult, as do other areas of Latin America. And although nothing much stands out, look at the amount of commercial activity in the area of acquisitions being made by Chinese and Middle Eastern companies, as well as sovereign wealth funds. With the death of Venezuelan President Hugo Chavez perhaps there is some scope for real change, in that country anyway, but much will depend on who gets elected - hopefully in free and fair elections. (Unlikely say some of my Venezuelan commentators)!

To Africa, and what can one say about leaders with very dubious human rights records being elected (Kenya), a region providing a fertile breeding and training ground for terrorist groups (Somalia and Mali). A region steeped in poverty where inward investments are chanelled to the few and ignore the mass (Most places). Where investments from China tend to provide jobs for imported Chinese labour and the output, be it agricultural products or minerals, go to satisfy the needs of China leaving little behind in the host country. Nothing wrong with that strategy from a Chinese perspective - rather clever in fact, but will it be allowed to last? Lots of activity bringing about unwanted change in many cases.

But look, when I started on this current tour d'horizon which is deliberately brief and probably considered to be superficially generalist, (and currently missing Asia - of which more later), I came to realise that it does not address some fundamental issues that impact all of us. The most important of which, to me anyway, is the future.

If the suggestion I am making through the title of these two pieces is at least on the right lines, that despite all the apparent activity going on around the world there is in fact little change coming out of that activity, is it always going to be that way?

Don't get me wrong - there has been phenomenal change particularly in certain areas of technology, medicine, manufacturing processes and others. But there are also negative changes taking place in food and water supplies, and population growth. Putting a strain on our limited resources.

So I wonder whether the political and economic structures of the world today, such as they are, can actually cope with these changes? Are companies, those generators of employment and wealth, considering where they need to be in 20 or 50 years time to remain competitive? Do we in fact run around re-arranging the deckchairs on the Titanic believing that the traditional ways in which we do things today are going to prevail, or are they going to be swallowed up by newcomers who think and do things differently? It is all very well talking about the way things "should be done", but the new competitors will do things differently whether you like it or not. And what will be the role and impact of governments who think in terms of four and five year election cycles? Will those other political/leadership structures that exist elsewhere actually provide a different, and maybe more successful - model from the one we grew up with?

There are some really interesting studies out there today. Information that is readily available from a variety of sources but put together in one place so you can see almost at a glance where the problems and the opportunities exist. To enable you to consider the future, and think about how you can remain competitive.

But more of that - and Asia - in the third and concluding part.

 

It Takes Balls.

I should apologise for a slightly ribald start to the year but hey, one can only be conservative (with a small "c" of course) for so long. Rather like some Conservatives (with a big "C") in Britain who have also decided you can only be a Conservative for so long! Yes, you definitely need to break out once in a while.

So, what prompted my Blog title this week? It was a snippet, for want of a better expression, which caught my eye in a magazine explaining that apparently castration could extend men's lives? It seems, from a study of historical genealogical records, that eunuchs tended to live 14 to 19 years longer than other men! Thus, if the punishment proposed as being appropriate to some bankers in the aftermath of the global financial meltdown had been carried out, you might have had them living longer - but at least they might not have had the - well, balls - to go back to their previous ways!  

I am referring of course to the ability of the global Investment Banking community - reviled only 5 years ago for creating the global financial crisis, and who are now clawing their way back to a level of "respectability". Or are they?

Howard Wynn, in his excellent Lai See column in the South China Morning Post was quick to remind readers earlier this week that proprietary trading by investment banks is supposed to have been banned under the Volcker Rule. But it's not applicable to Goldman Sachs it seems, who have established a new unit known as Multi-Strategy Investing, which does ... proprietary trading. And back to the past we go.

So why are the investment banks getting away with it? Because the so-called high street banks are taking all the flak. And why are they getting the flak? Because they are the ones that deal with the man in the street and not in the atmospheric heights of big swinging corporate deals. They therefore attract the attention of the media, the public, the vote-seeking politicians - and the regulators of course, while the investment bankers deal in esoteric products that no one understands - or so it seems.

But there we are - all that rant from the merits or otherwise of castration, when I really wanted to talk about regulators and regulation.

Another year is behind us, and the financial services industry is still wondering what is happening with new regulations - both in the formulation of them, the implementation, the overlapping, and particularly the cost. There appears to be a lack of coordination in the policies of regulators, governments and central banks, none of which is helpful.

In the meantime business is being stifled. Lending and investment is reduced, economic growth is inhibited, and the bankers still get blamed. But what do you expect with these mixed messages? Governments desperately want economic growth ... and austerity. Banks are pressed to increase their capital ... and lend more.

And then there are the warnings. The IMF is concerned that ... five years on ... a safer global financial system is far from reality. And warnings from those great escape artists, the rating agencies, who have somehow escaped severe censure for their major role in the global financial crisis, who say they are sceptical about specific regulations.

Yes, on paper there seems to be some progress, but there is precious little consensus in practice. So what can we expect in the months (and years) ahead?

In mid-October 2012 the leaders of the European Union agreed to work towards the creation of a single banking supervisor overseeing around 6,000 banks in 17 euro countries ... and saying that the necessary legislation could be in place within weeks! The resulting Single Supervisory Mechanism would be up and running this year, 2013. If it is I will have to start believing in fairies!

Perhaps we will see the finalisation of Dodd-Frank. At the last count it ran to 8,800 pages of new rules in the USA - and estimates suggest that is only about 35% complete. So that doesn't look so imminent either.

And if you add it all up:

Dodd-Frank, Volcker Rules, the EU super supervisor, the Vickers Report plus Twin Peaks regulation in the UK, Basel III, the related unintended consquences and the extra-territorial implications it totals  ... yes, you guessed it, continued uncertainty! And that's only where the regulators are concerned. Regulators who are in many cases in the driving seat of the industry, thanks to the legislators, while being aided and abetted by the media who sense there is an opportunity to jump on the bandwagon.

But think about this! It ain't gonna change. As an industry you can try to fight against it or you can accept it as the new reality for the industry. You can see it as an opportunity to better understand regulatory expectations. To seek guidance when the rule setting agencies and regultors seem to differ in their approach. And as an opportunity to anticipate regulatory trends quicker. I think the best option is clear - even if you think it is all balls!  

 

 

Rising Above The Rhetoric - The IMF, China and Japan

 China's delegation to the annual meetings of the IMF and the World Bank inTokyo will not be led by its most senior finance officials, a report from state news agency Xinhua said on Tuesday, in what looked like a deliberate snub of Japan... [Reuters report]

The recent increase in hostility between China and Japan is beginning to unsettle the region as no one really knows how the dispute over some islands will end. And by "some islands", I do not mean to trivialise the matter or suggest that this is a spat over nothing ... it is clearly strategic, financial, and particularly emotional. Feelings in China are running high, it is true, with Japanese business in that country suffering all the way from retail to manufacturing.

The IMF, however, is a global body of which both Japan and China are significant members - and whose contribution is important to the rest of the world. It demands the attention, and therefore the attendance of the most senior delegates from each country if anything is to be achieved. And certainly, in the case of China, there is ultimately a bigger role for them to play in the future, even to the extent of leading that organisation.

For those who are unaware, the annual IMF meeting is held for two consecutive years in Washington DC and then on the third year it is held in an outside city. Recent hosts have been Istanbul (2009), Singapore (2006), Dubai (2003), Prague (2000) and Hong Kong (1997). It is the one time in the year, every year, where you will (usually) find every senior banker, regulator, and Finance Minister in the one place. The meetings that take place outside the official meetings are every bit as important as the formal sessions themselves. Therefore to deny access to senior Chinese officials, and vice versa, on an occasion like this seems to me to be a little short sighted.

This is not about China versus Japan, or it shouldn't be. Had the meeting been held anywhere other than Japan this year, I imagine that Chinese officials would have been present as normal. But on this occasion it is not the location that is important - the meeting is! And it is at times like this when there needs to be a realisation that there are some occasions when one needs to rise above the rhetoric and act like a senior statesman.

What A Difference A Year Makes.

"...and there's a more worrying thing going on in London right now. It's you Brits. What's happened to this grumpy national identity? All this smiling is getting annoying." 

(Good-natured comment from Australian restaurant owner in London on the Olympics.)

Who would have believed it? From the London riots of August 2011 to the London Olympics of August 2012, what a difference!

There were plenty of naysayers who opined that the Olympics in London would be a disaster. They ranged, of course, from the inappropriately critical Mitt Romney who provided London Mayor Boris Johnson with yet another opportunity to enhance his own reputation with the British public, to the man in the street in the UK who until recently appeared to be disenchanted with the whole idea.

Not today! With the closing ceremony only minutes away as I write (no, not here for the ceremony, but a good view from television!) the unbiased view as far as I can tell is that the games have been a success - without serious qualification. Ticket problems? Yes - some. Empty seats - yes but only at the beginning as the "Olympic Family" were taken to task for not attending events for which they had been allocated seats. Bad attitudes? Nowhere in sight.

London's transport system defied the odds. It worked!! Yes, it was very crowded at times and I can certainly testify to that, but it didn't break down! A game of sardines would have been really appropriate.

The security arrangements - jeopardised by the failure of a privately enlisted security firm to live up to their contract - but saved by members of the British armed forces who stepped in with good humour and efficiency, and earned the respect and support of everyone.

The "volunteers" particularly have received plaudits from every quarter for their humour and their willingness to help visitors.

And the spectators, despite their obvious bias towards British athletes ("...very un-British", as one of my neighbours said), have been enthusiastic at all sports venues - witness the turn out this morning for the Marathon where British hopes were more aspirational than real - with spectators 10 deep in places cheering just anyone who went past.

And the smiles? Well - they have really been evident. It helps because Britain has done well of course, with a record haul of medals. And I am sure they are partly because most of the Olympics have been held during the two weeks of summer they have just had! The start was a bit wet - and the close might see some rain, and the rest of next week is forecast more rain - but the last two weeks..?

Yes, Britain welcomed its visitors well.

But what now ...

I have never heard so much community spirit being expressed amongst people here, but can it be maintained?

And if you had told me that by 2012 the Monarchy would be respected, and even perceived to have a "human" side, I would not have believed you. But the wedding last year of Prince William and Kate Middleton, the outpouring of support for HM The Queen's Jubilee this year, and then her participation in the opening ceremony of the Olympics has certainly changed opinions.

Behind the beaming Brits at present - who by the way will continue to smile and provide support as the Paralympics get under way in a couple of weeks - is there something more sinister lurking? Will the smiles last?

The economy is not in wonderful shape, just like the rest of Europe, and unless there have been some great deals achieved by British companies during the last two week, nothing much has changed. The Americans are continuing to beat up the British banks, leaving a reputational issue out there, but frankly I think they may have overcooked it this time and people in Britain are getting pretty fed up with what appears to be posturing and electioneering by Americans with an eye on internal political positions.

Unemployment remains an issue in Britain, and there is no easy answer to that - you can't build Olympic venues all the time to provide employment.

The "trick" therefore, must be to harness the current good will, and provide some momentum and incentives to people who can create employment. I know that suggesting tax breaks is not welcomed generally in Britain today, but if they are well directed and not open to abuse they can create new opportunities. And I often wonder what the reaction would be to the abolition of death duties (inheritance tax) in Britain. I am sure that it would encourage wealth to be brought back into the country. If you have paid taxes all your life and met your obligations to the community, it just seems totally unfair that you should not be allowed to pass on your remaining wealth to your family, rather than having to hand 40% of it to the Government with no say over how it is used.

There is much to be done, and many lessons to be learnt for other countries out of the positive changes that have taken place in London over 12 months. Let's not waste them.

 

Banking On The Culture

Back in the days ... I know, here I go again into history but bear with me ... your average Bank Manager was considered to be the pillar of local society, rather than the pillock as they are being sometimes unfairly portrayed today (that is, if you can find one!). Banks, or at least those with which I was familiar, had something of an aura about them, and the people who worked in them were respected. You went to the Bank because you needed them more than they needed you. They knew all about you and your business anyway, because it was common knowledge in the town. Everyone knew your business.

If Mrs Jones went to see her Bank Manager it was probable that she would be sat down, handed a cup of tea and given time to talk about her most recent question about investing. The Manager was quite likely to say, "I wouldn't advise that one Mrs. Jones, there will be others". No business for the bank on that occasion, then, and no performance bonus for the Manager for not selling a product! There were no bonuses.

By the time I hit the banking industry as a filing clerk and then as a teller, I used to see my Manager arrive around 10  a.m, do a quick tour of the banking hall, go to his office and read the newspaper before heading off for lunch around 12:30. Return around 2 - 2:30 sign a few papers and be out of the door by 4 p.m. Looks good, I thought, something to look forward to in the future, if I get that far. But the banking industry was way ahead of me. When I first became a Manager I was in the office by 7:30 and left after everyone else had left. Visiting customers in the market, trying to attract new business and build up the existing ones - everything that commercial bankers do today, really. Act as salespeople. But back then - still no bonuses. In Hong Kong your "bonus" was a 13th month payment, paid to all staff, if the Bank had a good year.

But then there was this thing called "culture". The dictionary definition did not really do the word justice. It was rather cold and clinical. I remember an occasion as I had just returned to Hong Kong to take up a new and senior position, being asked by a journalist to define the "culture" of HSBC. It was all about values, discipline, honesty and loyalty. A remarkable lack of "office politics", a cohesion of thought and principles.

And it seemed to be the discipline, and an understanding about doing the right thing not just paying it lip-service, that were keys. About leading by example. Indeed, HSBC was seen by some as being overly militaristic, and was sometimes criticised for appearing out-dated, irrelevant, and less likely to attract the brighter university graduates. Hmm! 

But the outpouring of anger about banks and bankers behaving badly has had me thinking more about what changed. Why, today, do banks find themselves in a dark hole with steep sides and little sign of redemption?

And it seems to me that a negative change in culture is an underlying theme.

Frankly, there were fewer rules in the past because the "spirit" and the " fundamental principles" of proper behaviour were clearly understood. Then came the new rules, followed by the people who spent their time trying to exploit the potential loopholes, and thinking less about what was right or wrong. Or they were trying to gauge just how far over the line they could go without being seriously penalised. So it's the behaviour - the culture - surely.

As banks became larger, usually by acquisition, they sometimes allowed the acquiree to inflict some of their culture on the acquirer so they didn't feel totally shut out of the acquisition process. And if it was a slightly more relaxed culture, what was once rigid and well-defined became more opaque. And if that was acceptable at the top - it was by definition as sure as hell acceptable lower down the organisation. After all, the shareholders wanted ever better returns, the analysts were judging you quarter by quarter, the regulators were not exactly keeping up - and while things were going well, nobody turned a hair.

And as an aside, it is now somewhat interesting to hear Sandy Weill, the architect of mega banks, now saying that big banks should be broken up. Hindsight's a wonderful skill - although I am not entirely in agreement with the concept that big is less safe than small, for a variety of reasons.

But the biggest cultural change of all? Money!

We had got used to the idea of the investment banking community being paid bonuses - but those got larger and larger, as did our eyes at the amounts being paid out. We were used to the idea of dealing rooms being treated differently, and the traders being paid bonuses. But eventually it came to the turn of the commercial bankers - the high street banks - to be paid bonuses.

When the Global Financial Crisis hit us in 2008, we blamed the investment banks for being greedy. Bonuses were huge. Products had been created - in the knowledge they were unsafe - but it didn't matter. It meant money in the pocket of a magnitude unimagineable. 

But here's the final change; the commercial banking staff were becoming eligible for bonus payments. A new phenomena for them, and when there is money on the table for the taking, even if it doesn't match the investment banking pay-offs - what happens to the old style adviser/bank manager I mentioned earlier? It's out of the window with the boring but tried and tested methods, and on with the glitzy "let's sell everything" attitude because it affects my pay!

Yes, it's a generalisation, of course.Not everyone behaves badly, but it doesn't need that many to bring down the walls?

This is NOT all about an unwillingness to progress, or a gripe about bonuses. It is not about analysis, and shareholders and profits and governments and regulators and rating agencies and the media ... it is about behaviour. Plain and simple.

If the banks want to regain some of their dignity and reputation, they will have to consider their culture. And that starts from the top. Visibly.

Sadly, from my perspective, it seems that the investment banking community hasn't changed - and that will be up to their clients, collectively, to make them do so. But for the man in the street, and for the popular media who are busy demonising the commercial and retail banks, they will want to see positive change in their institutions (not necessarily all institutions are tainted), and see a return to a culture with which they are more familiar.