Consumer confidence – the litmus test

One of the tests of the English legal system is “what would the man on the Clapham omnibus think?”- Basically this is the reaction to any problem or situation that could be expected from a reasonably educated and intelligent but non-specialist person.

In the current economic climate many companies would do well to ask “what does the man standing in the queue at the Clapham Supermarket checkout think?”

The problem is that many people running businesses (or for that matter senior politicians) are too removed from the realities of life to effectively understand the economic difficulties faced by the ordinary consumer.

It is a very easy exercise but a few minutes spent in the supermarket or on a garage forecourt will give a true insight into the problems and frustrations currently felt by the ordinary consumer.

Until such times as the man in the street starts to regain some confidence there is little chance of economic recovery gaining momentum.

 

Multichannel marketing

The retail sector is facing particular challenges at present with the survival of many outlets resting upon the results of their Christmas trading.

Much talk in recent times has focussed on the demise of the traditional British High St. with 30 shops a day closing down. There is a tendency to feel that all would be well if instead of the plethora of Charity shops, Discount Retailers and Pay Day Loan outlets they were to be replaced by Butchers, Bakers & Candlestick Makers.

In reality there is no going back to this perceived “Golden Age”. The new buzz word in retailing is "multichannel", loosely defined as a strategy that involves selling through stores, websites, mobile phones, catalogues, social networking sites, et cetera. Basically it is an all encompassing process designed to maximise sales revenues.

Not all business models can embrace this system but there has rarely been a time when the old adage of “work smarter” has been more relevant. As more and more obstacles are thrown up to threaten operating margins everyone in any commercial organisation must ensure that they are operating at optimum efficiency.

Whilst many Retailers are pinning their hopes on “multi channelling”, they are not the only sector having to radically re-think strategy in these turbulent times.

The inability to adapt to the requirements of the changing market place will inevitably see many companies joining the long list of corporate failures in the months ahead.

 

And now for something completely different

It has been revealed that the SFO had failed to get approval from the Cabinet Office and Treasury Pension and severance payments of £412,000 made to the former chief executive of the Serious Fraud Office (SFO) and have been ruled as "irregular".

The National Audit Office said the payments to Phillippa Williamson were "made without proper authorisation".

As a result, the National Audit Office (NAO) said it was "qualifying" the SFO's annual accounts for 2011-12.

Small wonder that organisations such as the FSA and SFO have become objects of ridicule at a time when the need for the most robust policing of corporate behaviour has never been greater.

 

Watching the defectives (with apologies to Elvis Costello)

Governance of the Bank of England is "defective", according to the chairman of the Treasury Committee following the publication of three independent reviews into the Bank's performance.

The three separate reviews, commissioned in May this year, looked at the Bank's emergency assistance to HBOS and RBS banks in October 2008 at the height of the financial crisis; the Bank's ability to provide funding to the banking system as a whole; and its forecasting abilities.

The first, by Ian Plenderleith, a former member of the Bank's Monetary Policy Committee, suggested in the run-up to the financial crisis there was greater focus on systemic risks rather than on the potential failure of an individual financial institution.

The report also said the Bank was dependent on the City watchdog, the Financial Services Authority, for information on individual banks' cash flow, but that this data was not detailed enough. It added that Bank was only insured against the loss of 12% of the total amount of money lent to HBOS and RBS - £51.1bn was not covered.

The loans "constituted amongst the biggest risks to the Bank's balance sheet in its history", the report said.

The second review, by Bill Winters, a former JP Morgan banker and member of the Independent Commission on Banking, questioned the "robustness" of internal governance at the Bank.

While the report acknowledged that "less senior staff are often willing to challenge their superiors... there appears to be some tendency for them to filter recommendations in such a way as to maximise the likelihood that senior staff will find the recommendation palatable.

"While this makes it easier for the governor, as ultimate decision-maker, to reach conclusions, it risks reducing the range of views he sees and, as such, might lead to a less effective overall outcome."

The final report by at the Federal Reserve, questioned the forecasting abilities of the Bank, saying they have deteriorated since the onset of the financial crisis, and are not as accurate as those made by external forecasters.

On balance quite an indictment of the people who had their hands on the tiller as we approached the perfect storm.

 

Credit line drip feed

Bank lending to businesses will hit its lowest level this year since 2006, despite government efforts to stimulate lending, a report suggests.

The Ernst & Young Item Club forecasts that business lending will fall by 4.6% to £429bn in 2012 from last year, the fourth consecutive annual decline.

In what can be described as a Catch 22 situation the Banks say demand for loans is low, while many businesses argue banks are unwilling to lend.

Latest figures from the Insolvency Service show that 986 firms went into administration, receivership or a company voluntary arrangement in the third quarter of this year.

There are many businesses stagnating - being kept alive by the forbearance of banks, rather than being shut down as they would have been during previous recessions.

Research shows 146,000 businesses are in fact 'zombies', whereby at best they are able to pay the interest on their debts but not reduce the debt itself.

After every credit binge there is always an overreaction but unless there can be a freeing up of funds to business then it will continue as a drag factor on the economic recovery.

Counting the cost

Swiss bank UBS has announced it is cutting 10,000 jobs worldwide as it tries to cut costs and slims down its investment banking activities.

The jobs will go over the next three years, and amount to 16% of its current workforce of 64,000.

Meanwhile the trial of a former UBS trader Mr Adoboli continues in London. Charged with fraud and false accounting at one stage he was in danger of losing the bank nearly £7.4bn. 

It was claimed that Mr Adoboli made false entries to make it seem as if the money he was gambling had been balanced by money coming into the bank. 

The trial once again highlights the basic problems of extremely poor level of Management expertise/control whilst furthermore illustrating the culture of greed which prevailed in the banking community.  

As the alleged fraud had been conducted over 3 years it begs the question where the controls both were internally and externally i.e. the Auditors. 

Before this latest black hole was discovered at UBS you can be assured that the trader responsible for this latest flame out was being lauded and applauded and the only calculations which were being scrutinised by the Bank’s management was the size of their forthcoming bonus payments.

 

Time to cut the cruise control

During my various assignments one observation holds true – whilst there are  undoubtedly many businesses where the strategy is fatally flawed there are  also many which would benefit from a fresh input.

One of the biggest handicaps facing any business is inertia but when you are personally involved it is not always easy to change direction or take appropriate remedial action.

This is where an “outsider” can be of assistance – an objective appraisal can very often mean the difference between merely drifting as opposed to decisively moving forward.