The “value” of trust

Image Credit: RapGenius.com

Image Credit: RapGenius.com

Monday’s trading update from Tesco revealed a fairly substantial £250 million black hole which caused the company to close 11.6% down that day equivalent to almost £2.2bn of its value. This shows how trust can have a very tangible effect on value. Whilst this ‘accounting error’ affects consumers, it is interesting to see the differing dynamic between consumer concerns and corporate concerns with regard to value. During last year’s horsemeat scandal Tesco’s share price fell only 1% the day after trading. Subsequently from January 16th when the scandal broke to April 1st Tesco shares rose by 10 per cent. This shows how minimal an impact consumer opinion can have on a share price although this is perhaps due to the widespread nature of the scandal, which also impacted most of its competitors.

Mistrust is widespread across industries with many consumers not knowing who to trust, this has led to a rise in challengers in industries which were previously stalwart oligopolies. Challengers in banking, energy and to some extent the grocery sector shows how consumers are beginning to vote with their feet and abandon the traditional in favour of relative ‘upstarts’ such as First Utility, Virgin Money, Zopa and Lidl.

The recent referendum in Scotland also showcases the value of trust. With one YouGov poll which indicated there may be a yes vote causing shares in RBS and Lloyds to fall by 2.8% and 3.3% respectively, other non-financial companies were effected with SSE’s shares losing 2.7%, this all combined to pull the FTSE down. This was the result of a lack of trust, the lack of faith that Alex Salmond and a Scottish government could bring the stability required to an independent Scotland.

The Edelman Trust barometer, an annual global survey, shows how consumers are increasingly doubting those who were once seen as the pillars of the country. Business, whilst still doubted by almost half those surveyed, is trusted more than Government with the gap seeming to widen in UK and USA. Consumers seek out their own truth with search engines becoming the most trusted form of media.

The share price falls of GSK and Tesco over the past year which are over 9% and 47% respectively show how vital trust is not just from the investment market but from consumers themselves. In part these upstarts in well-established industries are fuelled by a desire to obtain a better quality service. Complacency at the top means that companies are all too quick to forget about placing an importance on the trust of the consumer and a clear understanding of changing customer needs. The trust of consumers is central to what builds companies into the large successful market dominating companies. Once reaching that pinnacle it is all too common to see that same company shift to a market focus on profit rather than those who drive that profit. Whilst company bonuses and dividends may rise in the short term there significant vulnerability when sales start to fall as consumers look for cheaper, more innovative and customer centric alternatives. The old adage is true “people don’t buy from people they don’t trust”. Unlike the relative short-lived effects of the horsemeat issue, the loss of 47% share value in the last 12 months looks set to continue in a scandal that may herald a permanent shift in retail power.

Viral media – the good, the bad and the ugly?

Image Credit: Sentiment Metrics

Image Credit: Sentiment Metrics

 

The last few weeks have shown the power of social media to create a reach that traditional advertising and PR could only dream of. There have been two prominent social media trends over the past month; well three if you count the furore surrounding celebrities leaked private photos. This blog post rather than being about celebrities intimate photos will focus on the ALS Ice Bucket challenge and the use of social media by extremists. These two social media phenomena have showcased some of the best and the worst of human nature. Both illustrate how provocative content can create a spark of interest which generates a lot of attention for a cause, reaching millions in a short space of time and in a means that it its hard for Government to influence. Interestingly enough the two trends may be more similar than you realise…

Ice Bucket Challenge

The ice bucket challenge is the simple premise that an individual will empty a bucket of cold water with ice in it over their head before nominating other people to take the ‘challenge’.  To its benefit it has raised awareness of a disease that sadly many had never heard of. Two variants of the challenge have formed: one where you take the challenge to avoid donating and the second where you make a donation regardless but a larger donation is made when forfieitng the challenge. I personally can’t abide by the wastage of clean water to avoid donating but that nor how the ALS charity spends its money is not the point of this blog. The success of this campaign which to date has seen in excess of 2.4 million ice bucket-related videos posted on Facebook and over $100 million raised is largely down to its accessibility and reach across generations and gender. Being open to those who had access to a water source meant that a large variety of people could take part (of course roughly one in ten of the world’s population don’t have access to clean water). This fact alone makes it instantly more accessible than the #nomakeupselfie campaign which was fairly exclusionary to most men (who don’t tend to wear make-up). The campaign leverages what some would term our ‘narcissistic sharing culture’ where being seen to conform by updating every aspect of your lives on social media as opposed to fostering genuine altruism. I wouldn’t say this is endemic (or indeed specific) to our entire generation, but peer pressure is pervasive and made more visible by social media. It seems that with the right medium you can make any idea spread no matter its intent or risk. An example of this is the sometimes dangerous Neknominate craze. However, instead of occasionally being damaging causes on social media can be downright dangerous…

ISIS or ISIL

Terrorism thrives on the ability to generate fear in a target community and the support of another target audience.  Terrorists have now harnessed the viral power of social media to disseminate their messages. Sadly the issue has escalated with the execution of Steven Sotloff and the threatening of an as-of-yet unnamed British journalist. The actions of the extremist IS militants have been widely catalogued and shared on social media, specifically atrocities that they have committed in the name of establishing an Islamic state. Social media use by terrorists is nothing new and can be evidenced by the 2007 destruction of four US army helicopters as a result of geotagging tracking by extremists. I have previously blogged about how terrorists have been using social media and how they pick targets in order to maximise media impact.

The spread of terror takes advantage of people’s fears with a recent example being a hoax text message warning people of an attack on the London Underground similar to the 7/7 bombings. This too went viral prompting a response and denial from the Metropolitan police. Mimicking the ice bucket challenge the threats by ISIS specifically target individuals and both also utilise video as their method of message dissemination. Both campaigns also have awareness raising as the primary objective, however, fundraising and supporters will have also been gained in addition to this. Interestingly enough with the direct challenge element these campaigns enable individuals to address those in high office and await a response due to the high visibility of the issue. Both David Cameron and Barack Obama responded to the ISIS videos and the Ice bucket challenge when directly challenged over social media. This is completely different to the way politicians interacted with the public when war was announced in 1939.

The reach of such tactics is sadly remarkable a recent YouGov survey found that some 2% watched the whole James Foley video despite the fact that the Metropolitan Police have warned that doing so may be an offence under terrorism laws. 83% of those surveyed had heard about the video which most likely explains the 74 per cent who now reportedly think it likely there will be further attack on British citizens.  Proof that the terrorists have somewhat succeeded in their desire to spread a feeling of vulnerability in a Western audience.

As we can see with the right messaging and content that is shocking or challenging social media can propel an issue to the forefront of the agenda with a cost effective reach traditional advertising and the PR world could only dream of. The interaction and immediacy of social media has stepped up the timescale of response, unlike the ice bucket challenge which gives you 24 hours, politicians often have far less time before they are criticised for a slow response. It will be interesting to watch as events continue to play out on social media and how that affects the political response. Once a message is out there it can be very difficult to counteract it. Increasingly if you want support for your cause online seems to the most effective channel.  In their own way social media campaigns have the potential to be far more powerful than a petition, traditional PR or an advertising campaign.

 

As always comments are welcome below.

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?

south-african-flag

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