When a Co-operative approach is destructive at Board level …

Image Credit: Urbandigs.com

Image Credit: Urbandigs.com

It seems that Co-operative Group Board meetings may have been a little too much like tea and cake with the Vicar for an elite group of devotees to listen to and support the ideas put forward in a relaxed environment. In the same week that ex Chairman and Methodist Minister Paul Flowers admitted drug possession, Lord Myners found in his report on the decision making process at Co-op Group:

Effective governance requires a high performing board. The composition of the Co-operative Board, and the limited pool from which its members were drawn, made a serious governance failure almost inevitable.

He goes on to say:

It places individuals who do not possess the requisite skills and experience into positions where their lack of understanding prevents them from exercising the necessary oversight of the Executive.

In a Corporate setting governance is usually taken as the process whereby the interests of current shareholders are protected and a strategy for value growth is agreed. The London Stock Exchange in its report The development of the UK Corporate governance regime lists a number of key criteria for good governance that are not present in the Co-op structure. The report states the critical nature of Board balance and size: The board must not be so large as to prevent efficient operation. A company should have at least two independent non-executive directors (one of whom may be the chairman, provided he or she was deemed independent at the time of appointment) and the board should not be dominated by one person or a group of people. Furthermore it details, Board skills and capabilities: The board must have an appropriate balance of functional and sector skills and experience in order to make the key decisions expected of it and to plan for the future.  For larger companies it suggests at least 50% of the Board are qualified non-executives.

The Co-operative Board of 21 contains only 1 non-executive Director and comprises mainly regional representatives whose skills range from  a retired publisher and telecoms engineer to a self employed plaster.

So how did this situation arise in a diversified organization that is 170 years old which has flourished and grown across times of great change including two world wars and sits at the heart of many local communities. In 2006 its was voted the UK’s most trusted retailer.

Given its own statements that we are in business to serve them (our customers) and their communities, and our business is run for their benefit. We listen to member opinions and integrate these into our business activities and our social and campaigning agenda”, good governance should have been at its heart.

Perhaps the key lies in another statement from the Stock exchange report that the governance framework should be reviewed against the company’s stage in its life cycle, its sizeand its geographical reach. It seems that the proposed takeovers of Somerfield and Britannia in 2009 pushed the scale of the Co-op to a point where its governance needed change if failure was to be avoided. Challenge was required about the levels of debt and risk in the business and the regional representatives simply didn’t have the experience to understand those issues. Last month, the Co-op Group reported losses of £2.5bn for 2013, the worst results in its history.

A cautionary tale or modern business fable in the making? I sincerely hope that the arrogance and backward thinking that Myners experienced in his investigation abates and that the decision makers accept his proposed reforms. It is simply unquestionable that the unqualified can continue to have the level of influence over such a large company. If these reforms are not adopted not only will the business suffer but the wider co-operative business model will also have it’s reputation tarnished.

What can the 2014 General Election tell us about the future of the ANC?

Image Credit: Ceres.co.za

Image Credit: Ceres.co.za

We are here to honour our promises.  If we fail to implement this programme, that will be a betrayal of the trust which the people of South Africa have vested in us

So said Nelson Mandela (President 1994-1999) on the night of his election victory in 1994.  He had swept to power with a promise to “begin to build a better life for all South Africans.  This means creating jobs, building houses, providing education and bringing peace and security for all”.

Building upon the Reconstruction and Development Program (RDP), the ruling African National Congress party (ANC) set about realising Mandela’s vision.  Delivering change was an imperative not only for the ANC to remain in its new position of power but also to deliver stability for the nation.  Twenty years on from this speech, and with elections taking place tomorrow, we can consider to what extent the ANC delivered on those promises and upheld the trust shown in them.  Significant change has been achieved with the establishment of a non-racial, democratic state, education for all and greater access to decent housing, water and power than ever before.  However, much remains to be achieved especially in job creation with unemployment at 25% and wider definitions placing it at 35%.  Inequality has actually grown in those 20 years and just one in ten black pupils qualifies for university, compared with more than half of their white peers.  Whites, who account for 9% of the population, gained 42% of the degrees awarded in 2007.

In an attempt to mimic the success of the Asian Tiger economies and drive significant developmental change the ANC committed to the creation of a so called Developmental State.

It is the view of many that South Africa has almost no choice but to create a Developmental State due to the inherent problems of the region.  Arguably liberal economic thinking has failed in the region as ‘free-market’ forces will not enable economic transformation on their own nor is it the best method for development.  The region faces numerous issues by failing to focus on mineral wealth and economic diversification to encourage future growth, having weak and ineffective economic and political institutions and a business environment where there is little incentive to invest.

Corruption is widespread at all levels of society from the highest level down, this is perhaps best showcased by rival politician Julius Melama, using the defence of “Zuma has 700 charges against him, I only have one.”.

The Pistorius case has highlighted the extent of crime against women in South Africa. Rape levels in South Africa are the highest in the world with an estimated 500,000 rapes committed annually and the highest rates of reported domestic violence in the world.

The competence of those in office must be addressed in areas such as SOE’s, Heads of State, police and business which have been accused, with fairly substantive evidence, of corruption and yet the ANC maintains power causing concern for the future of democracy in the ‘Rainbow Nation’.  The honeymoon period for the ANC is over and things must change for the good of the country and those with the skills necessary for managing such endeavours need to take the helm.  Developmental States win legitimacy through results, not the ballot.  The ANC has almost the reverse situation delivering poor results yet maintaining the confidence of the people via the ballot.  However the loyalty of older voters is likely to return the ANC to power with a reduced share of the vote. The development indicators showing the health and education of the country along with the standard of living need to start improving quickly if the ANC are to maintain power beyond a further term and this will be impossible without tackling corruption and crime. Julius Melama’s Economic Freedom Party is experiencing a lot of popularity due to his firebrand style of politics. The EEF will undoubtedly do well and diminish some of the ANC vote, although not as well as Melama’s predicted 50%+ of the vote. This alongside the steady diminishment of the ANC’s majority by other parties will show the populations dissatisfaction with the status quo. I therefore believe that the 2019 general election will see the end of the ANC rule.

Peer-to-Peer lending: the future of loans and business funding?

Image Credit: Telegraph.co.uk

Image Credit: Telegraph.co.uk

In 1994 Bill Gates described retail banks as ‘dinosaurs’ controversially asserting that technology would simplify money management to the degree that the bank manager would no longer be required; the internet and computers replacing all of his functions.

Peer-to-Peer lending or ‘P2P’ is the process of connecting those with capital to those in need in exchange for debt or equity without the participation of a traditional financial institution. This innovation originated in the UK in 2005 and from 1st April 2014 peer-to-peer lenders will be policed by the Financial Conduct Authority (FCA).

Banks and other corporations are slowly beginning to understand both the threat of disintermediation and the benefits of P2P with Barclays Africa acquiring a stake in RainFin and Google backing Lending Club.  Currently around £1 billion, the sector is forecasted to explode in the next decade with Liberum Capital estimating the potential of the industry at £45 billion. The main driving force behind this explosion is the poor return from savings accounts that are eclipsed by the claimed 10% to 15% offered by P2P platforms.

P2P lenders lack the protection of the Financial Services Compensation Scheme (which guarantees your savings up to the value of £85,000). Since 2005 a few UK sites have come and gone demonstrating the inherent investment risk. There are no plans to change the regulatory protection but many P2P platforms are setting up funds using small slices from transactions to create a backstop protecting lenders.  As an investor immediate access to your cash is unlikely.  Rules differ, but your money might be locked away for months or longer in return for the higher investment yield.  At a recent CIPR event on P2P it became clear that market success belongs to the true innovators. Growth is in targeting specific areas rather than in the ‘purist’ methodology of micro-capital allocation between peers. Funding Circles usurped Zopa (the world’s first P2P lender) simply because it targeted SME lending rather than individual consumer loans.

The FCA will regulate this nascent industry through its growth phase affording confidence to investors, crucial to mainstream adoption. A London residential property developer has recently secured the world’s largest P2P loan of just over £4m and with Lending Club expected by many to IPO, 2014 is set to be an exciting year which will build on the success of crowdsourcing as a means of funding startup companies in a peer to peer structure.


Automation: The demise of the low skill worker?

Image Credit to: workingtropes.lmc.gatech.edu

Image Credit to: workingtropes.lmc.gatech.edu

Over recent years the mix of our labour force has changed dramatically as manufacturing moved aboard and technology replaced many roles. The problem of what to do with low skilled workers in the face of technological progress is a daunting one. The Economist recently restarted the debate again with this article and the issue has been furthered discussed at Davos , whilst technology such as drone usage for deliveries creates employment in monitoring and servicing that technology the lower skill delivery jobs suffer. This is especially apparent in the grocery industry. Job numbers have declined for frontline low skill workers as self-service and “scan as you shop” terminals are introduced requiring less on-the-ground support. As we see the further introduction of automation to frontline services such as robot check out assistants or window cleaners there will be a deficiency of traditional roles for those workers. Robots are improving some workers productivity such as in the Amazon distribution centres but how long is it before the machines replace the workers? The technological progress that removes some basic jobs such as bank cashiers  can also create more new roles in the form of phone based customer service jobs for online banking. While there are sure to be some roles created by the progress there will not be enough. How do we handle this fundamental shift?

We cannot simply enrol these individuals into the benefits system this is unsustainable – the experience of France shows that there is a level at which taxing the rich to provide for the rest just stops working. Retraining will work for some but not everyone will be suited to new roles, servicing and supporting technology, and there will just be fewer jobs in total leaving many without a form of gainful employment. Even skilled jobs in the low end of logistics will take a hit as big data radically reduces the need for multiple individuals to work. Initiatives such as Amazons anticipatory shipping  and fully automated warehouses will reduce jobs still further. Adaptation is a fundamental human strength and it is what we must do to ensure jobs for the future.

The last Labour government was relaxed about the loss of manufacturing jobs to China talking about how the UK would become a “knowledge economy” but we never adjusted what goes on in schools to match that. Now we could consider regulation on Corporations and the economy to try and minimise the damage to low skilled workers as an option. The UK should implement careful educational management to curtail much of the effect of automation. Specialist education for those unsuitable for the professions must begin early in the school journey and people should stay in some form of education (even part time) until they do reach some minimum literacy and numeracy standards. Benefits must also be radically reformed, current cuts are not enough and to remove dependency there really needs to be no real alternative to taking employment. There cannot be the situation where the difference between working every day and not working is an insubstantial sum. Paying someone for nothing doesn’t make sense, if benefits are to remain at current levels then those that receive them need to be mobilised back into the economy. We really shouldn’t have the situation of thousands of low/unskilled vacancies having to be filled with migrants. We shouldn’t have reports from employers that young school leavers do not have the ‘grit’ to succeed and lack ‘basic skills’. Optimising the output of our current population would be very beneficial in welfare savings and would also improve feelings of self-worth. This is not to say that migration does not have a place, it is after all incredibly useful in filling vacancies such as those in our tech industry.

The solution may seem simple but it is complex, optimise education as we have begun to optimise every aspect of our lives. Use big data analytics to shape children’s educations providing alternative learning methods to best utilise their cognitive abilities. Unless we begin to look at how we might do this now for the future the effects on our future will be as damaging as the pension black hole I have previously blogged about. However, I fear that the short termism of our political system will not enable this to happen in time.

Historically technological progress has eliminated jobs but also created a raft of new ones. This trend will continue but it will not be in the unskilled labour market.

In 20 years do I think I will be hitching a ride in a driverless car and paying for it via some infrared laser beam shot from my eyes via google glass or a contact lens? The answer dear reader is no.

I do not believe that the future will become so bleak in the predicted 20 year time frame as such predictions are more unreliable than weather/economic forecasts. We haven’t even got a half decent phone signal; (3G or H+) throughout the UK yet (ask anyone that lives in the Home Counties!) and are yet to see fibre introduced to all homes. Driverless cars, though an exciting technology are unlikely to reach the level of penetration that puts multiple drivers out of work for many years due to cost, approval and required improvements. Even self-service checkouts first introduced in the 1990’s have not ousted the traditional check out assistant because well, they don’t always work effectively! Yes technology is advancing rapidly but the rate it disseminates into our lives is far slower. It is worth taking this as a warning, to continue economic growth and succeed on the global stage we need to have a mobile, skilled, useful and employed workforce! I think the real threat to low skilled work and subsequently higher skilled work is further off than is currently predicted because really automation can really benefit some industries but ruin others… I mean don’t you just hate automated call centres?


A few people have asked me to blog on this topic because I have studied South Africa, its development and politics, the ANC and Mandela and can provide a deeper analysis than commentators who just read the news on South Africa occasionally or have read “The long walk to freedom”. My interest started whenI first visited the nation and has been furthered over another 4 visits.  This post is directed at addressing the questions surrounding the future of South Africa post-Mandela. Whilst some might say that the post-Mandela era began in 1999 when he left power I believe that the ANC has been reliant on the ‘myth’ and sentiment surrounding Mandela and this rather than policy has been central to the ANC’s continued electoral dominance.  With Mandela’s passing I do hope that South Africa will be able to look towards the future and thus fully deliver much of the vision laid out by Mandela on the night he was elected in 1994 to “…begin to build a better life for all South Africans. This means creating jobs, building houses, providing education and bringing peace and security for all”

The following information is not an attempt to demean Mandela’s achievements or those of the ANC in ending Apartheid, just to indicate my criticism of how the country has been governed since the radical transformation of Mandela’s initial term as President.

The ANC played a vital role in ending Apartheid and indeed establishing some semblance of stability and reconciliation after the system fell. However, it was this exact same importance that has led the country down the wrong path. The precedence that the ANC gained from being the party that ended Apartheid caused in my opinion negligent handling of the country after Mandela’s term. The ANC essentially crafted a single party state where their share of the vote did not drop below 60%. With the one party state the only performance benchmark was to outperform the conditions seen under Apartheid. Those in power had no real experience at any stage of the legislative or bureaucratic process and this created a wildly optimistic legislative agenda with no real progression of goals and additionally created an environment that was ripe for corruption. Corruption may be the single most damaging issue for South Africa as the R30 Billion that is lost annually equates to more than South Africa’s annual education budget. Corruption has also increased the cost of goods by as much as 20%.

The ANC has been riding the coat tails of Mandela’s success for far too long. Even last year, this video shows how desperate ANC is to continually associate itself with Mandela. The aura of Mandela has sustained public approval following events such as Zuma’s rape trial, the Marikana massacre and the lack of delivery of services. I think most people agree that it was a clear propaganda piece.

It is my belief that with the passing of Mandela South Africa may be able to move beyond the ANC and look to a different party or parties to be able to finally tackle the country’s problems.  For years other parties have campaigned but have failed to gain wide support; 13 other parties are represented in Parliament. The country may now consider a wider range of parties and select the best candidate and not just vote for the ANC.  After all when looking at the track record of President’s Mbeki and Zuma we see that their terms in power were shadowed by economic failure, corruption, one of the most expensive yet least effective education systems in Africa, AIDS denialism and failure among other things to tackle the scourge of rape and violence against women. Of course these things existed under Apartheid but it is shocking is how prevalent they still are today. The ANC today does not consist of the nations’ most talented but of those put there by cronyism. Additionally some of Mandela’s great work for tolerance and understanding in race relations has started to become undone following the damaging example of Zuma who sang the controversial ‘shoot the Boer’ song  which however you try and justify it is at least incredibly inappropriate for the leader of a country with sensitive race issues to be singing.

Mandela once said that freedom from poverty was “a fundamental human right”, without going into the semantics of ‘rights’ we could say that measured by this statement South Africa has a pretty dire human rights record. The ANC has done little to lift its people out of poverty and has implemented successive initiatives that have each individually failed. South Africa’s Gini coefficient measure of inequality is 0.62 in 2012 up from 0.49 in 1975 under apartheid. To add some context a Gini score of 0 is perfect income inequality whilst 1 equates to total inequality.

Whilst Mandela’s role in ending Apartheid and leadership of the country were truly monumental, the continued reliance of the country on him and the ANC has been immensely damaging. I believe that with Mandela’s death, very sad though it is, that the country may feel able to look towards alternative parties to balance the excesses of the ANC and provide new ideas and leadership that may help it address challenges such as high unemployment, which is  broadly about 25%, even estimated to be as high as 50% in some studies. South Africa may have a bright future ahead of it, but only if the ANC becomes a part of that future and not the sole director of it.

A bright future? The post-Mandela challenges for South Africa

The Age of Irresponsibility

Image Credit to: Empireofthekop.com

Image Credit to: Empireofthekop.com

Recently I wrote about the decline of America as a Superpower. This post is about another type of decline, that of our individual sense of responsibility. In the UK we have a blame culture when people do not accept the consequences of their decisions and instead blame the government for their failings. This ‘weakness of self’ is perhaps best evidenced by nutrition policy. Corporations such as Morrisons, Subway and Nestle have signed up, under public pressure, to a voluntary ‘responsibility deal’ between industry and government. This deal means that suppliers will reformulate products so that they include less saturated fat. I applaud this decision, but I despair that the government has to create such measures. Individuals are acutely aware of what is healthy and what is not. Even if a survey of 2,000 people for Sainsbury’s found 84% of those questioned did not know how much saturated fat was a healthy amount; individuals still know it isn’t good for them. Nutritional information is also readily available on every packet of food; the front of food packaging has a colour code showing the health information and how much of your daily macronutrient allowance it contains.

We have freedom of choice, risks are known and we can consider those risks and make an individual decision. Of course if something is severely risky or dangerous it should be banned. But is taking the risk out of so many decisions healthy for the public? No, because by doing so you encourage an ignorant and apathetic society. The measures introduced in the ‘responsibility deal’ may save 2,600 premature deaths according to Department of Health. Is there really any hope of ‘saving’ people who lack the self-discipline to stop making an expensive, unhealthy choice to eat so badly that they shorten their lifespans? The statement that manufacturers are trying to ‘save face’ with the responsibility deal is repugnant because it absolves individuals from making reckless choices that can harm them. People are not ignorant about the issue of health, if they are making unhealthy choices they are doing so knowledgeably, because there is enough information out there. Manufacturers of unhealthy food cannot by law claim it is healthy and don’t try to.

Consumers have a great deal of power to direct the market, if they stop buying chocolate biscuits because they are high in saturated fat the food industry will respond by reducing it. Such measures don’t affect the majority, but the idiotic minority who eat enough If you cannot be bothered to take responsibility for your own health its unlikely that you are responsible in any other way. It is for this precise reason that obese families often have obese pets (incidentally something that amounts to animal cruelty) because as they cannot take responsibility for themselves they cannot be responsible enough to care appropriately for an animal.

A similar rationale can be applied to proposals to make cigarette packets less desirable by hiding them behind a screen and covering 75% of them in warnings. I see no reason for doing this, everyone knows that smoking is unhealthy and can cause everything from emphysema to lung cancer. At some point there has to be responsibility on the part of the individual to not smoke or accept the consequences of the action.

It is governments purpose to provide choice not force people down restrictive paths. I contend that the risks are known and that government and corporations are doing their bit, it’s cheaper and healthier to not each so much processed food and it’s good to exercise. Failure to do so when you know the risks is pure negligence.  We do not need to a ‘responsibility deal’ between government and industry but we do need a deal between the people of this country and the government that we will finally accept the responsibilities of our actions. Describing the deal as ‘a drop in the ocean’ is inaccurate, it is not companies that need to change it is the individual consumer and our attitude towards heath.

The US Deficit Ceiling and Reputation

Image credit to: Realityfail.com

Image credit to: Realityfail.com

Deficits are a natural part of running a country. In a similar manner to personal finance you borrow to fund improvements and then you service the debt you incur at with interest over a given period until the capital is repaid using surplus cash or a new finance instrument. Now the US debt ceiling has had global attention in even the mass news media in recent weeks with its partial shutdown of all but essential components. Yesterday the shutdown ended but it highlights a problem with the way the US is ‘doing business’.

How have debt patterns developed in USA and UK?

This is just a sticking plaster on top of a much larger festering wound. Governments both the US and our own have been letting our debt build up for far too long. http://www.davemanuel.com/history-of-deficits-and-surpluses-in-the-united-states.php shows that in the early 1900’s there was a fairly short turnaround between deficit cycles and surpluses. This is a responsible way of managing debt where improvements are made responsibly and without as many of the adverse effects on the wider country. As the 20th century progressed we see that the cycle gets longer, deficits year on year running from 1970 to 1997. The past decade has seen a huge deficit with it growing from $157.8 Billion to a massive $1100 Billion in 2012. The national debt has been slowly increasing not just in numerical terms but as a percentage of GDP. The problem is mirrored in other western nations to greater or lesser extents. Part of the explanation behind this problem and rising costs is social and the other part political. The public continue to expect more and more in terms of services and benefits and no increase in tax payments which is in itself rather unrealistic.

Politically the problem stems from reckless decision making driven the the need to won votes in the face of elections. How do you make the public understand that although they pay taxes in most cases these don’t actually cover off the bill for services they use. For instance some 60% of households in the UK are net recipients from the Treasury and I am fairly sure few of them realise this. This alongside inefficient spending and a failure to upgrade key infrastructure at the correct time e.g. Power generation  is now resulting in higher expenditure.

What does this mean for the US as a Superpower?

Many are asking what this particular event means for America on the global stage. A Superpower is defined as “an international governing body able to enforce its will upon the most powerful states”. This inability to manage its internal affairs calls and enforce an internal will calls into question its ability and competence to be dealing in international affairs. I mean you wouldn’t ask the guy who barely manages to pay his bills for advice on your own money nor would you put him in charge of important business. Of course that metaphor is overly simplistic but it still stands. Other global players are asking how a dysfunctional political system can come within a day of severely damaging the global economy. This has dealt another severe blow to the American reputation on a global stage and builds on the legacy of issues from Iraq and Syria.

Not only is this embarrassing on an international basis it is causing a breakdown of trust at home. Only nine percent of ‘Likely Voters’ have consistently rated the way Congress is doing its job as good or excellent throughout Obama’s term, this measure subsequently fell to 5% saying they support the decisions being made by government leaders. This 5% is slightly more Americans than earlier this year said they believed lizard people controlled the US government  as Politico’s Jonathan Allen has pointed out . An overwhelming 83% were rated as disapproving of their leaders according to the a recent poll.

How might this affect our future?

Historically the dollar has been the default global currency due to the position of the US as a Superpower. The World Currency is now speculated to include the Chinese Yuan and the Euro within a decade. The debt-ceiling crisis has led to renewed calls for the dollar to be fully or partially replaced due to the effect US domestic political instability can have on the borrowing costs of smaller nations. Many Central Banks have 60% of their reserves in dollars and so having that much of your savings subject to political brinksmanship combined with the fact that the Federal Reserve is a private bank is a real cause for concern. It is embarrassing for the US to have lost Foreign Affairs and Economic credibility in recent week to its rivals Russia and China. The one advantage the US had is that its debt was considered golden, with its ability to make interest and other repayments unquestioned whilst China was ‘untrustworthy’ this recent development has certainly damaged Pax-Americana and the American way of operating. Now of course there has been speculation that the US role as a Superpower has been on the decline for a while, often the US has proven those skeptics wrong but it will be interesting to observe how the US tackles these new challenges.

Chinese companies are being courted by the UK for investment in infrastructure projects and other companies. It is also important to understand that in September 2008 China replaced Japan as the biggest single foreign creditor of the US federal government. The US administration estimates that the China government holds at least $1.3 trillion of its bonds. However it is worth noting that China needs the US to fuel its growth with the foreign debt holdings stabilising the renminbi at an artificially low rate. China will continue to support its largest trading  partner in regard to debt. The economic relationship is one some have described as almost co-dependent. The transition of power on a global stage was historically effected with military power through invasions and through war, but in the 21st century it is perhaps economists, investors and bankers who control that transition through financial invasion rather than commanders and generals.