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Close-mouthed Carney lacks clarity on rate guidance

Mark Carney

19 Nov 2013 | Ikenna Chigbo, Global Reach Partners

Last week saw the release of the Bank of England's quarterly inflation report which as a whole has been perceived as an upbeat release from the central bank. In terms of the growth estimates, this year is expected to be 1.6% up from 1.4% previously thought, and for next year annual growth is anticipated to be 2.8% rather than the 2.5% predicted in August. These expectations are further signals that the economy is gradually getting back to speed. However, Carney did state headwinds remain and there is a "long way to go" before the crisis aftermath has cleared.

Elsewhere, with regards to the inflation levels in the UK, the BoE have now cut the near term inflation outlook on lower data and see inflation below the target from Q1 2015. If this does actually continue to cool, then the central bank will not need to rush and raise their benchmark rate.

Looking into unemployment, which is important as Carney linked this to rate guidance outlook, the bank believes there is a 2 out of 5 chance that the unemployment rate which currently stands at 7.6%, will fall below 7% by the end of 2014. Recapping back to Carney's first inflation hearing, he did state that the bank would not look at raising rates until the unemployment falls to 7%. However this time round, the governor went on to say that even when the unemployment rate falls below 7%, it does not automatically trigger a hike in rates.

Overall, what to take from this report is the fact that Carney has covered himself in all aspects with regards to the rate guidance and a non-committal approach. GBP has gained against all major currencies on the back of this event, given the upgrade in GDP estimates and prompting of speculation for earlier hikes in interest rates than originally anticipated.

Going forward no real affect expected for the British importers/exporters in the short term, given the current tight range that GBP is trading in against the likes of the EUR and USD. However, with dovish sentiment coming from Washington and a rate cut in Europe, the Pound could march on against major peers into the end of the year.

Ikenna Chigbo is a currency consultant at Global Reach Partners

Are finance directors the next generation of politician?

rosette-copy

07 Oct 2013 | Mark Lumsdon-Taylor, Hadlow College

IT'S THE END of the political conference season and everything from taxation to measures reducing the number of young people not in education, employment or training has been covered. Equally, conference season would not be the same without the occasion faux par or media sound byte that gets the News at 10 extremely vexed!

It has however, made me think about the 'day job'. The well used phrase 'well that saving can be deployed to fund that new development' regularly repeated to the extent that the so-called saving has been spent a number of times is more prominent than ever. A new bankers tax anyone?

For example the new government initiative, 'earn or learn' has real merit providing its all joined up. The parallel; ideas come up in business all the time, the finance director needs to ensure it works.....

On a serious note, the role of the finance director is as much an architect of change as a custodian of the finances and a political negotiator. He or she needs to be a consummate politician to ensure that the financial aims of the business are met while ensuring the organisation grows and develops, without being hindered. We manage expansion and we manage contraction.

I have found that some of the best strategies have been those of logical reasoning. When you eliminate the impossible, whatever remains, however improbable, must be the most appropriate course of action. This process can be time consuming, but invariable ensures all accept and buy into the process and most importantly the outcome.

In and out of the boardroom - more so that ever - is a challenging environment and the FD is the hidden negotiator. Like politicians, we are often the first port of call when things go wrong, and are in the public eye increasingly. Some of us have a strong back up team (for politicians read Sir Humphry and his team) that crunch the data, but often it all rests with the leader. Our role is no longer just in the back office, it is far broader keeping the troops in line, ensuring that whatever plan is devised it will work, whilst ensuring critical support to the CEO and the business as a whole.

The role has changed beyond recognition in the last ten years from boom to bust and now the times of economic recovery. It is crucial that we inspire our teams and the wider business as well as giving a confident air despite what may be going on behind the scenes, and making sure the day job is done.

The financial director is the fixer, a 'front man or woman', the negotiator, the number two, and more so than ever the consummate politician. Life is never dull....

Mark Lumsdon-Taylor is finance director at Hadlow College 

US dollar falls as government shuts up shop

whitehouse

01 Oct 2013 | Ikenna Chigbo, Global Reach Partners

SO it's actually happened...the US government has shutdown for first time in 17 years.

A stalemate was reached among stubborn US politicians and this has forced the government into a partial shutdown, causing some distress for the US dollar across the board in the foreign exchange markets. President Obama will now have to stop non-essential services, jeopardising just under one million US jobs and forcing many workers onto unpaid leave.

The main disagreement in the budget talks was due to the infamous ‘Obamacare' policy, which has caused a lot of flare ups since its inception in 2010.

If the shutdown continues to drag out it could have a damaging effect on the US economy and its general growth. In real terms, analysts are forecasting that 0.3% could be shaven of the third quarter GDP figure every week that the political turmoil continues. This would obviously have a negative impact on the US dollar.

This issue has already resulted in a fall in the US currency, with the Dollar Index initially moving quickly lower by 0.5% as the news broke. Allied with the no tapering announcement from the Federal Reserve last month, it has been a harsh couple of weeks for the dollar with the USD index falling 1.5%. If the parties finally come to an agreement this should provide some relief for the greenback but there is no indication as to when this might come.

What this means for the US going forward is that the country now has a looming deadline of 17 October before pushing the United States into a default on its debts - which would be an absolute catastrophe and cause a global financial turbulence. We have already seen this "cliff" approached in January this year and the impact on the currency markets was profound.

UK importers and exporters will have to navigate this potentially volatile situation with caution - especially as we approach the time of year when many businesses will be working out budgets for 2014. While markets as a whole continue to expect the dollar to recover, conviction is dwindling. Charts this morning suggest that we are in a new trading range and the outlook got the GBP/USD and EUR/USD crosses in particular are unclear.

Sensible hedging policies will win the day.

Ikenna Chigbo is a currency consultant at Global Reach Partners

Psyched in the workplace - Fear is the key

lawyerscared

19 Sep 2013 | Gavin Hinks

AFTER A FEW DRINKS I can get maudlin and can be heard to say things like: "I should have joined an investment bank, made some money and then downsized to grow shiitake mushrooms in the country." A fair indication of where my current neuroses lay.

But my sentiments about investment banks went through something of an adjustment recently following stories about the death of Moritz Erhardt, a 21 year-old German intern with Bank of America. He was found dead in his lodgings and newspapers reported his colleagues claiming he had worked for three straight days without sleep. Bank of America announced a review of working practices for junior staff.

Whether the death of Erhardt was related to his work is a matter for conjecture, but the incident certainly brought attention to the long-hours culture in investment banks and saw numerous comments online from other City interns claiming they pulled marathon stints at their desks for fear of losing out on a coveted job and because of the expectations and sheer aggression of senior staff. Other articles revealed research that appeared to demonstrate how unhealthy such a lifestyle is and we all wondered why anyone would put themselves through it.

But the articles implied a single factor. Fear. That's what this seemed to be about. Fear of losing the job. Fear of managers. And perhaps, fear of not making it. But how could this be in the age of the modern manager who understands his staff and what motivates them? Why would anyone want to work that way?

Which brings me to a book out this month Becoming a Better Boss: Why Good Management is so Difficult, from Julian Birkinshaw, professor of strategy and entrepreneurship at London Business school. For me there is a standout passage when Birkinshaw discusses what motivates employees, especially those in mundane roles with little opportunity for higher wages or promotion. It's not what I quite what I was expecting.

First a bit of background. Birkinshaw investigated the issue for his book by taking on a succession of jobs with "low pay and low intrinsic satisfaction". After questioning plenty of employees Birkinshaw comes up with a fascinating matrix of motivations which essentially lead to the conclusion that managers of people in such jobs need to understand that they come to accept the limits of promotion and pay and come to value their job for other factors like its inherent social life, the quality of the people they work or the flexibility of the job and its security (anyone who has seen it will be instantly reminded of the BBC series The Call Centre - Happy People Sell and note that Birkinshaw worked in a call centre as part of his research).

But then Birkinshaw makes what I see now as the stand out observation which seems achingly poignant in the wake of discussion surrounding Erhardt's death. "Compared to motivation, fear gets much less attention in studies of the workplace." Which seems a bit strange when you think about it, a view that Birkinshaw apparently holds too. It's as if we've decided to delude ourselves into thinking that fear - perhaps the most primal of all human emotions and motivations - had disappeared from the modern workplace.

Birkinshaw response (working long before the Erhardt incident) was to map our workplace trepidations. After a survey he finds the top five are 1. Fear of losing your job, 2. Lack of opportunities for advancement, 3. Fear of failing to deliver to expectations, 4. Lack of clarity about an organisation's vision and 5. Excessive change or turbulence in the workplace. Number 14 on the list, and the last, is a fear of being intimidated.

Birkinshaw concludes from his research among employees in a bank (I assume it's a retail rather than investment bank) that in a hierarchy of fears the biggest concerns are fear of meeting expectations and for opportunities to progress. The answer, he says quite rightly, is for managers in banks to spend more time on coaching to support individuals in achieving their ambitions.
But as I read this I wonder how investment bank employees would have responded to the research. The ones taking artificial stimulants to wrack up the hours, or the ones who [reportedly] had their boss throw mobile phones at them for taking a break. Their hierarchy of fears may well have seen "intimidation" rise much further up the list (if they were willing to admit it).

Perhaps, the most interesting question though about the psychology of fear is the in-built assumption that it is demotivating. Given the huge profits made in investment banks, and the readiness of many employees to log endless hours, it appears to work. Some of the time. Which makes me wonder if the psychology of investment interns is something akin to the mindset of base jumpers. After all, the working culture of investment banks is common knowledge, and people continue to step off the ledge.

That said I like Prof Birkinshaw's conclusions. We come out at the same place. I don't like fear, why would I behave in a way that caused it for anyone else? Going through it everyday seems to me to be a bizarre way to spend a career, even if the rewards are high. But it also seems to me to be a subject worthy of more discussion and study. The books say keeping people happy is the best motivation and yet some workplaces are built on intimidation and what now looks like extreme sacrifice.

I can't help thinking that fear goes beyond an issue about the psychology of motivation and the implied business case. I can't help feeling this is where we wander into the difficult area of ethics too. Being a better boss is not just about understanding the way your employees think. It's about doing right. In the high pressure world of investment banks these issues can become crushed in the rush for profits.

And as for me? Next time I've had a drink, I hope I remember to thank my lucky stars and forget about the money I didn't make at an investment bank.

 

Becoming a Better Boss: Why Good Management is so Difficult By Julian Birkinshaw is out this month on Wiley. Hardback £18.99.

Gavin Hinks is a freelance journalist and writes the Profits and Loss blog at http://profitsandloss.blogspot.co.uk/

Carney takes a leaf out Bernanke's book

markcarney

08 Aug 2013 | Ikenna Chigbo, Global Reach Partners

BANK OF ENGALND GOVERNOR Mark Carney once again laid down his mark yesterday publishing the first quarterly inflation report within his control.

UK interest rates, which currently stand at 0.5%, will now be kept low until the unemployment rate falls below 7%. Therefore, the governor has taken a leaf out of the book of its counter-part, the US Federal Reserve, by now linking monetary policy to a key economic target.

However, there is a caveat to this decision. Given the fact that inflation is the central bank's key mandate (the BoE is targeted with keeping inflation at 2%) if current levels move beyond the desired criteria then the low rate pledge will be withdrawn. So essentially, the bank could look to increase interest rates in order to cool inflation, the latest reading of which suggests UK CPI for the year is at 2.9% - above the 2% target.

Another point to take away from the announcement is the BoE's UK growth forecast. They now expect the British economy to grow 1.6% in 2013 against 1.5% which was projected back in May. Good news for the UK.

What does this all mean for sterling?
GBP gained convincing ground as the report was published. The pound rose fully three cents versus the US dollar following the inflation report as participants digested Carney's rhetoric. It appears market participants are somewhat relieved that Mark Carney has everything pretty much in control, outlining his intentions and targets for the UK economy. Furthermore, rates staying low for a sustained period should encourage borrowing and ultimately boost the UK economy. Indeed, Mark Carney saw huge success with this policy during his tenure as Governor of the Bank of Canada. This is all positive news for the Pound.

UK economic data has also shown a large improvement for over the past couple of months; manufacturing, services, construction, export and GDP have all met with if not beat expectations. All of this is supportive for the pound, but how long will current strength last?

The Pound is trading at the top of its range today which is affording a great opportunity to UK importers. The outlook is improved as a result of yesterday's report, but by no means certain. There are still major downside risks to the pound and any softening of the data will lead to GBP weakness. Similarly, if the current trend of US dollar strength is to continue, exchange rates could fall back.
Carney has done a favour to UK importers. Don't look this gift horse in the mouth.

Ikenna Chigbo is a currency consultant at Global Reach Partners

 

Deputy editor's blog: A little can add up to a lot

A Lotus Formula One car

10 Jul 2013 | Richard Crump

LAST WEEKEND I not only had the pleasure of seeing Andy Murray become the first British man to win Wimbledon while wearing shorts, but also to spend a day with the Caterham F1 team at the German Grand Prix.

While Caterham still has some way to go to achieve the kind of success enjoyed by Murray in their respective sports, I was struck by how both employed the principle of marginal gains. Famously coined by British Cycling's performance director Dave Brailsford the principle of accumulated marginal improvements has become a sporting given.

Yet, the theory is equally true for business. While on the one hand the Caterham's mechanics, technicians and computer analysts are harnessing the power of big data to improve the car's performance based on minute adjustments, much the same can be said for the running of the team's finance function.

Though decidedly less glamorous than the on track performance, the same focus on efficiency is taking place behind the scenes. Take for instance how the cars are painted. Caterham changed the paints/process and managed to reduce the cost by 80% but with the same quality of finish.

Similarly, the team partnered with Truphone - a telephone network that allows you to pay local tariffs on international calls - and managed to slash its phone bills. This might seem of limited importance to a team that is run on a multi-million pound budget, yet it is part of an ethos that runs throughout the team.

If finance directors were to adopt Brailsford's theory of breaking down everything that goes into riding a bike and improving it by 1%, it would add up to a significant increase when those small and seemingly unimportant gains are put together.

Maths and commercial acumen: the perfect marriage

Wedding

17 Jun 2013 | Mark Lumsdon-Taylor

NO LONGER just bean counters in ivory towers, the role of the finance professionals has evolved, and those who can marry the maths with commercial acumen are in high demand; more so now in the public sector than ever before.

There are many schools of thought on where the FD sits and how much the individual gets 'hands on' with parts of the business, especially the commercial elements. Some of the most successful leaders delegate virtually all the regular work to their staff, freeing their own time so that they can facilitate and orchestrate everyone else's performance and focus on key areas. This may improve morale and it may also result in a better product and a less stressful life for the FD.

When I was in Chicago a few years ago, I attend the Kellogg School of Management looking at brand positioning and consumer buying strategies. A big part of this was looking at our roles...."decision-making, negotiations, and team-building skills really are the essence of leadership." The logical extreme of building a team of trusted employees and focusing on the big picture is that leaders should "do nothing" when it comes to everyday functioning.

Rumour has it that on occasion I have been known as a "control freak", not because I don't trust the teams, but because I want to make sure that we deliver to the best out of ability....."What would it be like if all of your team members were living up to their potential? Where does the role of the FD fit then? Of course, that's a perfect world, we need to know what is going on in our organisations, the question is to what level?

Unfortunately, that is easier said than done. Walking the floor can be incredibly motivation for the staff whilst equally there will always been comments "doesn't he have a job to do?"

When FDs rise up the ladder, it is critical that we stop doing the operational detailed technical work and delegate in part. Successful leaders must shift and, literally, do less of what they used to do, even though they were good at it,they feel so comfortable using their old established skills.

The demands on financial directors times will always be challenging. In reality I spend more time on strategy and business development and a smaller proportion of time on detailed finance. However, the core job is always the cash and the bottom line. Is there an answer?

Mark Lumsdon-Taylor is finance director at Hadlow College 

Mavericks, they're everywhere

cowboy

20 May 2013 | Gavin Hinks

MAVERICKS: I am currently nonplussed by the frequency with which I read in the press that description of people, organisations and even whole countries. UKIP leader Nigel Farage is a "maverick politician", his party, well, a "maverick party".

Britain is becoming a "maverick state" in Europe; Quentin Tarantino is a "maverick film director"; Dave Fishwick, star of TV series Bank of Dave, is "maverick" for claiming that High Street banks are "shit", and this morning I read that Lonrho, the once mighty British conglomerate that is about to go private, was run by the colourful and "maverick" businessman Tiny Rowland, notorious for his battle with Mohamed Al-Fayed over control of Harrods.

Mavericks are everywhere. Intriguingly though, the term is used in both a negative and positive sense, applied as it is to people the press seem to favour and dislike. Sometimes it seems to reflect misty-eyed adulation. But most often it appears to have a negative connotation and I wonder whether that is the right way to see mavericks - as threatening, unpredictable, slightly dangerously bonkers.

As ever it depends on your point of view but "maverick", as a category, has not escaped the attention of academics. In 2011 psychologists Elliroma Gardiner, of the London School of Economics, and Chris J Jackson of the University of New South Wales, decided to look at workplace mavericks to figure out if personality and an appetite for risk taking were indicative of maverick qualities.

The pair defined maverickism as "a behavioural tendency to engage in creative, dynamic, risk-taking, disruptive and bold goal-directed behaviours." They then tested a set of hypotheses in an experiment with 458 men and women which sought to categorise their personality types and correlate them with maverick traits such as a willingness to take risks and "lateral preference".

Now, lateral preference is interesting because this proposition, taken seriously by academics, essentially says that if someone has a preference for their left ear, they are more likely to be maverick. Why? Because the left ear is closely associated with the right hemisphere of the brain and that in turn is associated with "visionary" or creative elements of work. So what did the boffins find? Well, the results are detailed and complex so here's a summary.

The outcomes, they say, suggest a combination of creativity and little fear of negative consequences "are at least partial drivers" behind mavericks' appetite for undertaking "unconventional" actions.

Ear preference points to a "biological" predisposition for risky behaviour, and mavericks are more likely to be "antagonistic' rather than altruistic, poor team players, extroverts and possessing "low levels of agreeableness". In short mavericks like to take their chances, don't really care what happens to other people along the way, and will keep taking the same risk in the face of strong opposition. Moreover, if their venture really does fall on its face they brush themselves off with ease and move on to the next venture with very little self-doubt.

The interesting thing is that we all know how valuable mavericks can be. In business they push ahead with their vision in spite of staggering opposition, losing friends, making enemies, and frequently win out generating vast sums of money along the way. They are the ones who will come up with the disruptive, outlier idea that nobody believes and yet against the odds turns out to be a winner.

So simply dumping, or avoiding, mavericks because they give you and your organisation the willies is not necessarily good business policy. All organisations need people who are willing to challenge, take risks, go against the tide. Gardiner and Jackson believe their work, identifying the left ear preference, may just give organisations a tool for identifying mavericks in their midst.

I can't help feeling though that this isn't the biggest psychological challenge. The big issue is persuading managers to discard their fear and apprehension of the mavericks in their midst and learn how to harness their natural dispositions, rather than viewing them all as problematic individuals who need to be controlled (though it should be noted that not all difficult people are maverick creative geniuses).

I once took part in a graduate recruitment drive. At the end of the day, in a selection committee, I was asked who my favoured candidate was. I picked a young woman who was bold, combative and strikingly intelligent. She questioned my questions and we had a tough back-and-forth debate which I enjoyed enormously. The committee unanimously rejected her as too difficult to manage.

She probably was difficult, but she probably would have brought "maverick" qualities that would have been invaluable. It was their loss, but another recruiter's gain.

Gavin Hinks is a freelance journalist and writes the Profits and Loss blog at http://profitsandloss.blogspot.co.uk/

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