Tomorrow's leadership – bridging the generation gap


14 Aug 2012 | Stuart Pickles,

"WHEN THE GOING GETS TOUGH, the tough get going". Let's be honest, it's tough out there at the moment and many of our leaders are not measuring up - Mr Diamond just the latest casualty.

And it's not going to be getting easier any time soon. Whether it's hitting your numbers for the quarter or the year, or solving the broader macro economic and global sustainability issues for the generations ahead - the leadership challenges are not getting any easier.

In many ways what is required of leaders and leadership is unchanging. The ability to map out a path ahead, and make it seem plausible and attractive to followers. The courage to take on big challenges and risks, when everything is at stake, and to make the tough decisions. The quality of judgement and the emotional intelligence to make the right calls with people and decisions - to maintain motivation and engagement, to listen and look to hear and see the full story, the whole picture - and to be decisive and move on. These things were as true of leadership in Greek and Roman times as they are today.

Leadership has always evolved. Leaders have to be relevant to their generation, to their cohort of followers. And they must adapt to new ways of being, new ways of living and working, and they have to be in touch and at the vanguard of the latest thinking and demonstrate this through purposeful communication, mindful of how people want to be led, how they want to follow and where they really want to go. How well are our leaders of today doing this? How are you measuring up?

What's getting in the way? Mind the generation gap

I recently attended the Tomorrow's Leadership Conference at Brecon, which was attended by a strong cohort of young leaders from the Global Academy of Wales, together with a significant representation of an older, experienced group of leaders from many walks of life. The key theme emerging from the vibrant discussions was how to bridge the leadership generation gap.

Throughout history, there has been healthy tension between the exuberance of youth, the responsibility of middle life and the wisdom of older age. As the problems of the 21st century seem to be mounting, and as our lives become more complex with the breakdown of social barriers and new technology introducing new ways of thinking and being, the differences between the generations seems to be accelerating - with a trend to greater assertiveness of youth and more self doubt of the older voice of experience.

The questions that still needed answering at the end of the conference were:

How can the older generation re-define, re-clarify and re-assert the old wisdom in the new paradigm and in a way that the younger generation embrace it and do not discard it completely - so that the baton of leadership can be passed on to safe hands; And how can the younger generation simplify and explain in language that their elders can understand, the positive opportunities which can be realised from thinking and being in the new ways which are enabled by technology and continuing social liberation. How can they access the power structures to bring their new leadership thinking to bear on the current reality and the very real challenges ahead?

Many young leaders struggle with traditional organisations and ways of working, but they will be alienating themselves if they do not engage, and discover in a flexible way how to bring new thinking on networked leadership and more consensus-driven decision making. At the same time, leaders who represent the establishment must already know that the openness of their minds to new ways of thinking and being are fundamental for the long term sustainability and survival of their organisations and their followers.

In one sense it might be said that voice of youth has always been louder and more exuberant (witness 60's love revolution and 70's punk). But today's generation of young leaders have something valuable to bring to the table - and they are going to have to do it quickly.

One area that the discussion did focus on is how decisions are made. The traditional approach orientates towards the "tell" mode - leaders should have the ideas and the answers and their job is to articulate this. Decision-making happens "behind closed doors" by those who have a handle on power. The new way calls for more consultation and sharing of ideas and thinking - a leader will be happy to admit he/she doesn't have the answers - the leader's job is to elicit the views of a wider group who know the reality of the situation and are well placed to come up with good answers. The age of modern social networking is breaking down traditional structures and ways of communicating, allowing more open, transparent and consensual decision making which happens in the public domain, with no secrets or hidden agendas. And this is what followers, people, and society at large want, expect and demand.

Ultimately we all share the same goal of making the future of our society more sustainable. The dilemma facing leaders of both today and tomorrow alike is to find a place where a true meeting of minds can take place, where the wisdom of both viewpoints can be heard, and the best leadership thinking can be forged on a clear path to a more enlightened future. Are you listening?

Stuart Pickles is the former FD of Foster's EMEA. He now runs and is blogging regularly for Financial Director

Image credit: Shutterstock

Long termism can leave companies blind to impending risks


09 Aug 2012 | Tim Ward

IT IS VERY easy to jump to conclusions. We have a knee-jerk reaction that short-term behaviour does not help companies when it comes to long-term performance.

The Kay Review calls for an end to mandatory interim management statements every quarter as an obligation for all listed companies. I welcome this and it is something I have been pressing the European Commission to change for some time. Through the review of the Transparency Directive they are proposing to do just this. Good news.

Our most recent QCA/BDO Small and Mid-Cap Sentiment Index asks whether quarterly reporting leads to short-termism by investors and companies. Small and Mid-Cap companies overwhelmingly agree that quarterly reporting does lead to a short-term approach.

Companies need to take a short internal view and produce regular management accounts; however, it is not the case that external investors need to be kept update on such a frequent basis as every quarter. However, in some circumstances companies will choose, because of the nature of their business, to report on a quarterly basis; this is a discussion to be had with investors. One reporting timetable does not fit all.

In the same survey, 62% of small and mid-cap quoted companies cite "lack of liquidity" as the main reason why they believe equity markets are hindering their development. One of the key features of liquidity in a stock is a high volume of trading in the shares. This requires a varied mix of investors who take differing views and who measure performance over a variety of timescales. In this situation short-term behaviour is as good and as necessary as long-term behaviour.

A company which has an excellent investor relations programme and attracts several long-term significant shareholders will find that it also needs to attract shorter -term retail investors to create liquidity in its shares.

Professor Kay wrote in his report that "short-termism, or myopic behaviour, is the natural human tendency to make decisions in search of immediate gratification at the expense of future returns, decisions which we subsequently regret." Sometimes we need such immediate gratification to create efficient markets.

If everyone takes the long view then no one notices the iceberg about to sink the ship.

Tim Ward is chief executive of the Quoted Companies Alliance

Keeping a bit aside for a rainy day


01 Aug 2012 | Caron Bradshaw

UNLIKE COMMERCIAL ENTITIES charities need to grapple with the question of reserves. In a commercial setting funds would not be stored for a rainy day or to guard against future failure; rather surplus money is invested into the business or distributed to shareholders. Although our driving values are not to create profit or distribute surplus for individual benefit, I would argue that we need to take another look at how we determine what we should keep aside.

Guidance on reserves often focuses on the role of finance teams and the notion of a pot of money to protect for a rainy day. The strategic importance of reserves and their relevance to the charity's overall financial strategy and proper resource management can be overlooked.

It has long been a myth that the Charity Commission dictates the levels of reserves that charities must keep. However, there is no set amount a charity should keep and in fact, there is no legal duty to keep reserves at all. It is the legal duty of trustees to determine what action to take in the best interests of their charity and indeed charity law requires that income is spent within a reasonable period of time. In Beyond Reserves, we argue that charities should assume that they should use the funds they receive, and be able to provide solid, considered justification for keeping any of these back as reserves instead of spending them. In other words there is a presumption that you only keep what you require to meet the needs of beneficiaries.

Proper reserves setting and management is not a cyclical action undertaken periodically, but rather an on-going part of an organisation's management of its resources and business model. Some trustee boards can have the tendency to only consider reserves when going over the year-end accounts - and even then discussion goes no further than making sure the charity has the ‘x' months' worth of operating costs their policy dictates. Charities should be looking beyond this and good management can only coming from truly understanding your business model, the risk profile of the organisation, the security or volatility of income streams and the organisation's need to adapt to changes in circumstance.

Charities have been dipping into reserves there is a lack of clarity over how reserves can be really made to work for an organisation and not solely kept as a pool of funds to draw upon in crisis. Research carried out by CFG threw up some challenges to the sector - do we hold too much in reserve through adopting a traditional "let's hold x months of operating costs" policy? And is this really the most efficient way of doing things?

The case studies we share in the research show us that perhaps we do. Indeed the British Red Cross determined it could adjust its reserves policy downwards from £35m to £15m, freeing significant funds into the charity. Clearly not all charities will reassess their reserves levels with such drastic results, and they might find that the sums retained in reserve are about right or desperately need to be increased, but these case studies demonstrate why charities owe it to their beneficiaries to refresh their view of reserves.

Democracy or dictatorship? Empowerment is a two-way street


06 Jul 2012 | Stuart Pickles,

IN THE WESTERN WORLD, most of us believe democracy is a better model for leadership than dictatorship. But in the UK with the recent jubilee celebrations, we can see there is strong support for a very undemocratic leader - the Queen! And in our day to day business lives, we do not live in a democracy either.

As leaders in business, we are not voted in by our people either - we do not have a mandate from them - we get our mandate from our bosses, and they appoint based on getting results, not on the support we have from our people. This doesn't mean business leaders are dictators, although at its extremes we know it is open to abuse - most of us have seen behaviour from business leaders which is not that different eg. bullying and cronyism to protect their position. That's a separate conversation.

Away from those extremes, this democracy analogy throws up three interesting questions in business: What does it mean as a leader to have a mandate from our people? How effective is a leader without a mandate from his/her people? And how do we as leaders go about getting this mandate?

Modern leadership thinking places strong emphasis on empowerment - if leaders empower their people, then they will get engagement and much higher voluntary productivity. Not many would have issue with this, even if it's easier said than done.

However, the question about leadership mandate turns this on its head - leaders need their people to empower them as well.

A mandate from our people empowers us as leaders to operate with freedom to decide and act, knowing people will follow. How much more effective is a leader who knows that people will follow - compared with those leaders we have all come across who are constantly having to go back to their people and either (1) build consensus retrospectively, or (2) just tell them to do it. How much is performance held back by the resulting resistance to change, delay, friction and dysfunctional behaviour that comes from situations where leaders push ahead with an agenda where they do not have the mandate of their people?

How interesting then to reflect on the very un-democratic leadership model of the British monarchy. Opinion polls show that the Queen has more support than our elected politicians. And why? The reasons people gave were her unequivocal sense of service to her people, consistency between her words and her action, and consistency of her words and action over time.

The queen is not elected, but she knows very well that she and the survival of the monarchy relies on an informal mandate from here people - and there can't be many better role models of how to do it well.

People will empower their leaders when they trust them. It's just a matter of being committed to serving your people and being consistent - as well as empowering them. Empowerment is a two-way street.

Stuart Pickles is the former FD of Foster's EMEA. He now runs and is blogging regularly for Financial Director

Image credit: Shutterstock

Desperately seeking growth: What the business outlook means for the UK

FD's Extraordinary Items blog

03 Jul 2012 | Mark Thompson, Global Reach Partners

AS WE HEAR perhaps a little too often, the government is keen to keep growth at the front of its business agenda. However, a recent report by the Centre for Business and Economic Research (CEBR) has cast a shadow over these plans, suggesting the UK will struggle to grow in any meaningful way over the next few years. This is due to predictions of inflation remaining high. As well as this, the move higher in the £/€ rate has put the dampeners on hopes for increased sales into the UK's largest export market. Europe is where around 50% of UK exports touch down.

It doesn't take a genius to realise the majority of households and businesses will have experienced squeezed finances and negative growth over the past few years; a direct result of consumer goods prices rising alongside falling incomes. Stagflation, as this scenario is called, presents a unique dilemma for central banks and governments. With their dual remit to tackle inflation and stimulate growth their nightmare scenario is to be presented with neither.

In a stagflationary environment the Bank of England and government would be forced to make stark choices; either to loosen monetary policy in an attempt to tackle the lack of growth through quantitative easing or rate reduction; or to hike interest rates. Doing this in a negative growth environment is necessary to prevent inflation from running out of control, but can have a further dramatic effect on growth, and not in a good way. Each of these outcomes would have a direct impact on UK business and the predicament facing financial directors.

It would however, be wise to look at the bigger picture before any business struggling to hits its target figures starts to develop its performance excuse plan. The situation elsewhere is not quite so dramatic. In fact the latest PMI (Purchasing Managers Index) figures for the UK show a different picture to that presented by the CEBR. Compared to the tales of double dip recession that followed our latest GDP release, the figures, which measure activity on the private sector, were more cheery.

The good news is that for now, the private sector is growing in the UK; helped in part by the recent strengthening of Sterling; this has led to slower growth in raw material prices. Despite this, the Bank of England and the Government remain anxious about the outlook for UK growth. A sentiment echoed by MPC "über-dove" Adam Posen who as recently as last week voiced his regret that he overestimated the UK's ability to recover against a backdrop of slowing global growth and a worsening debt crisis in Europe. For now the recent data is not supporting this view. And what of inflation? The current situation is not as bad as you might think. Recent CPI figures have shown a decrease of almost 2% in the annual rate since mid-2011. With the Pound on the rise again, it could be that imports into the UK will continue to cheapen. Stagflation is a threat, and something that all finance directors need to prepare for; particularly as the situation in Europe continues to worsen, but the time to panic is not yet upon us.

Mark Thompson is head of the corporate desk at foreign exchange experts; Global Reach Partners

A government with its head in the sand

A businessman with his head in the sand

28 May 2012 | Caron Bradshaw

EARLIER THIS YEAR, CFG, adopted a new name and strapline, ‘Inspiring financial leadership'. For me this means creative, innovative, confident and strong financial management. Easy to aspire to; more difficult to deliver in the absence of the right operating environment for charities. The truth is, many aspects of the regulatory environment need to change, and for this the government needs to take real action on some complex and technical areas.

It's not just the current news headlines of tax and philanthropy, where frustrations are being felt by those of us in the charity sector. Some of the less sexy but equally significant questions also need some serious attention - such as pensions.

‘Pensions' are often the elephant in the room, we all know they're there, but digging under the surface and working out the detail can be terrifying. The problem is that the issues are far more complex and go deeper than you would at first think. Our concerns are not limited to ridding ourselves of pension deficits (although that is one aspect of it). Legislation and regulation in many ways is not fit for purpose if we genuinely want to develop civil society and our public service delivery markets. It is time that the government stopped shying away from tackling some of the glaring inequalities and expressed a commitment to review the difficult issues.

CFG has recently shed light on some of the significant problems for charities part of multi-employer defined benefit pension schemes. Concerns with DB schemes are well known; with an ageing population and rising inflation, the benefits are not keeping in pace with the liabilities - giving rise to massive pension deficits. A major problem, but at least for bigger organisations with their own schemes, one they can manage themselves out of by closing the scheme to new entrants and gradually reducing the deficit.

However, the situation in multi-employer schemes is somewhat different. In an insolvency situation, organisations' liabilities stay on in an ‘orphan pot', which gets distributed amongst everyone else - until there is a ‘last man standing'. Unsurprisingly charities will want to avoid holding the parcel when the music stops, or for any other reason, may want to stop building up benefits in the scheme and cease to have active members. However, that will automatically trigger what is known as Section 75 debt. This is essentially the cessation amount, or the amount to buy-out of the scheme, and is likely to be more than your current liabilities. For many, such a payment would itself lead to insolvency. So charities are faced with no option but to stay in the scheme and continue contributing. Damned if they do and damned if they don't.

The recent high profile Wedgewood Museum case has brought to light what can happen when the ‘last man standing' ends up with a whole heap of pension liability. Having to sell the proverbial family silver (or in this case pottery) to settle the debt.

While the schemes were designed to bring benefits from joint ownership of pension liability this just doesn't work for charities, a point recently acknowledged by the government. And often charities are being put at risk because of shared liabilities with organisations they have no connection with.

Over the years many charities have become part of a number of multi-employer schemes, such as Local Government Pension Schemes (LGPS). It may have made sense or seemed like a good idea at the time. However, as time has moved on the problems have grown in significance and the liabilities ballooned.

A briefing paper prepared for CFG by David Davidson from Spence and Partners highlighted that up to 5,000 charities could be financially hurt by being part of these schemes.

On top of this we have TUPE and Fair Deal legislation - regulations that offer important employee protection. Perhaps justifiable on a philosophical level but when services are contracted to new providers such as charities that are unable to afford the costs problems arise. Charities may end up taking on staff with unaffordable pension contributions where the previous liability transfers with them, or are excluded from tendering for such contracts altogether. Consequently we end up with a market dominated by a number of private sector giants and a few not-for-profits taking on disproportionate risk, which does not deliver the open and varied public service provision the governments' reforms intended. This blocks innovative thinking and creates little in the way of new opportunities.

This is a complex issue that requires a well-considered consultation. The government has no plans to do this in the near future. Nor will they entertain an exemption for charities on grounds they fear changes would put member benefits at risk more widely. We're not advocating an exemption as a solution to the problem. Neither are we asking for a favour because we're charities. Society needs a root and branches review to make the legislation work better overall.

If government don't stop burying their head in the sand, hoping the problem will go away, and look at this issue with a fresh view, it will put thousands of organisations at risk, stifle development of public service markets and eliminate many possible mergers and collaborations. When it comes to LGPS and some other multi-employer pension schemes, the tax-payer bears the ultimate risk of doing nothing. We're ready to work collaboratively with government on this as we know the problem isn't just going to disappear - now we just have to wait to see if they want to work with us.

Caron Bradshaw is chief executive of the Charity Finance Group

US: Too big to fail

FD's Extraordinary Items blog

25 May 2012 | Eimear Daly, Schneider Foreign Exchange

THE US ECONOMY is staging a recovery. Economic forecasts are around the 2% level for 2012. This compares with the UK and many eurozone economies, which have entered a double-dip recession. Economies are faced with a ruefully ironic predicament: bond market pressures are forcing them to implement fiscal austerity; debt piles must be paid down and fiscal contractionary measures are part of the process. At the same time, their economies have been dealt a demand side shock and a contraction of credit supply. Expansionary policies are needed to correct these effects, but it is extremely difficult to find a balance between contractionary and expansionary policy. America seems to have escaped this predicament. It unapologetically enforced aggressive easing policy with no repercussions from bond markets. The result is ultra low bond yields and an economy on the mend.

It is easy to draw comparisons and suggest the UK should abandon austerity for an indulgent, easy economic policy. But we would be overlooking a huge economic buffer for the US economy - the US dollar is the global reserve currency and dollar-denominated assets, global safe havens. A global reserve currency necessitates running persistent current account deficits. And the US has obliged running a deficit every year since 1982 but one. The global economy needs America to spend more than it saves to provide it with a liquid pool of safe haven assets. If the US Treasury market failed to provide such abundant and liquid debt, the world would be saddled with a lack of safe assets and worldwide credit supply would be hit.

In perverse market mentality, not only do we encourage the US to spend more than it earns, we fund it. In a kind of "reverse aid", demand for foreign exchange reserves forces developing countries to transfer resources to the US. This facilitates financing the US balance of payments deficit. The US receives this financing at very attractive rates, as being the world's global reserve asset means US bond yields stay low. The US actually makes a net interest income as the US treasury rates are often depressed lower than the inflation rate.

A global reserve asset is obviously an enviable position but it is not easily replicated. In 2009, US interest rates were rising. China was one of the main critics of US assets as global safe havens. A building stock of debt undermined the safety of US assets. The easy monetary policy that the US ran to offset the effects of the Global Financial Crisis, was devaluing US dollar-denominated assets. As a result, the Eurozone experienced an unprecedented increase in net bond inflow. Foreigners were buying up sovereign bonds of Euro area countries. The Euro was a likely predecessor to the US dollar as a global reserve asset. The Euro is the second most liquid currency, behind USD. What is more, the central bank was founded on the primary principal of maintaining inflation, with its founding treaty preventing Quantitative Easing. Euro area bonds were viewed as a better alternative to US Treasuries that were seen as too prone to devaluing. Money piled in the Europe's debt markets, but imbalances began to show.

The eurozone is not one single indiscriminate bond market - individual national debt markets do not make the liquidity or the ability for investors to easily enter and exit. Individual bond markets showed up weaknesses in the system as large debt burdens built up on single member states. Had the total debt been supported by the entire economy of the Eurozone, the situation would have been sustainable. The bond market infrastructure wasn't there and the debt markets crumbled. Yields rocketed and locked nations out of funding markets meaning they had to turn to international aid.

US capital markets have powerful advantages over foreign alternatives, with high liquidity, size and transparency. Convention also supports the position of the US dollar as a global reserve asset. Nearly all commodities are priced and settled in USD, leaving emerging nations with large dollar reserves. Many countries manage their currencies against USD and the liabilities of many nations are dollar denominated. America's prominent position as providing military protection and international aid supports its position. The possibility of the Renminbi becoming the next global reserve currency are hindered by China's closed financial account, high saving rates of its citizens and its relatively small bond market. Disregarding the arguments for and against the Renminbi as the next global reserve currency, internationalisation of the currency and the expansion of its bond market will undoubtedly take a long time.

A global reserve currency is not as easy a status to sustain. The underdeveloped structure of the EMU could not handle the influx of capital. If the current crisis forces unification of eurozone bond markets, the Euro could be a contender to the US dollar. But it will take a long time for the eurozone to hold the kind of market confidence required. A global reserve currency also sets a precedent for its citizens to spend more than they save and inevitably leads to an economy that is overweight on consumer demand. This is an economy that is imbalanced and susceptible to internal demand shocks.

There is no immediate need for America to pay down its debt. In fact, America should complete its recovery before it begins to tackle its over-leveraged public sector. This should be a medium to long-term policy that is attuned to the current business cycle. However, America being too big to fail doesn't guarantee immunity. America should act in a defensive mode, begin to stabilise and steadily pay down its debt while promoting expansion of its manufacturing sector and exports. This will protect the US from a shock to consumer demand, pressure in bond markets or a threat to its status as the global reserve currency. Whatever the benefits of being the world reserve asset, it makes it easy for an economy to become over dependent on consumer demand and this must be balanced out.

Eimear Daly is a market analyst at Schneider Foreign Exchange

Drop the mask: perform rather than role play

A businessman taking off a mask

17 May 2012 | Stuart Pickles,

HOW MANY OF YOUR LEADERS and colleagues are really being themselves at work, all the time? And what about you? Or is there some role playing going on? Does it feel like people are wearing masks to disguise their true selves?

We might not like to admit it, but we all wear masks to pretend to be someone or something else. Let's face it, the stakes can be high. Performance at work means reputations are always on the line. Sometimes its lower risk to hide behind a communication that we think other people "want to hear", rather than put our true feelings on the table and risk rejection or failure. This is human nature and something we learn from an early age to survive in our complex social environment.

Why is this important? At the end of the day it's about performance. How much better can we tackle the really tough business challenges when we are connected with each other on a human level, rather than just as "colleagues in roles". How much more easily will we trust each other and take risks on behalf of each other? How does this ultimately impact performance outcomes?

In Japan, they call the mask "Tatemae", which hides the real person, "Honne". For all their recent problems, at the heart of the Japanese economic success story is their cultural focus on relationship building and "getting back to Honne" - there is a lack of tolerance of Tatemae and strong peer pressure to call it out. There is high value placed upon getting to know each other on a deeper level. Common business practices include socialising with work colleagues for long, drunken evenings, and weekends at hot springs where they will bathe naked together - to them even clothes are part of our character costume.

There are 2 challenges with "role play". (i) Acceptance - in some businesses there is total denial that masks are being worn - it can feel a bit like the "Stepford Wives". (ii) Change - how do you make a big shift when these habits are deeply set? Especially when you and the business are under so much pressure.

For both the answer is simple. It's about your leadership behaviour and the quality of conversations that you are having - with yourself as a leader, with your colleagues, and with your business.

1. Your behaviour is determined by how you are feeling inside - how connected you are feeling with your inner self? How much are you challenging yourself on this? How much time are you setting aside to regenerate yourself as a human being, doing the things you love most, to reinforce your sense of self, and remind yourself how important it is to remain true to yourself?

2. How hard are you really challenging each other as a leadership team, and holding each other to account for your behaviour? What quality time and space are you creating for these conversations and this trust building? At work and also beyond?

3. How are you projecting this behaviour and the importance of it to your wider business - what communication and interaction are you creating that will make people feel more comfortable to be themselves?

Of course this is all common sense, but the issue is that most of us are just too busy - as businesses and as individual leaders - and so we don't invest in this time and these conversations. And the mask wearing, roleplaying and sub-optimal performance continue.

It takes serious commitment, time and energy to make this kind of change - there are no "short cuts". But after years of cutting costs and streamlining, more and more leaders and businesses are now looking at this as an opportunity to really leverage their assets and make a step change in their performance and competitiveness.

Stuart Pickles is the former FD of Foster's EMEA. He now runs and is blogging regularly for Financial Director


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