Bank Should Have Learnt From Soccer – Letter to the FT

This letter was printed in the Financial Times on Monday July 7th. You can read it on FT.com here.

Sir,

In Martin Wolf’s excellent guidance notes to Mark Carney (Comment, July 5) he writes: “The appointment . . . was a bold move. It is wrong to expect miracles . . .”  He does not appear to share the enthusiasm of the chancellor and others about what “the outstanding central banker of his generation” can achieve in the UK.

Maybe Mr Wolf felt reminded of the appointments of Sven-Göran Eriksson and fabulous Fabio Capello, who were supposed to revitalise the English national team and who were heralded by the Football Association in much the same fashion.

As a German, I find it equally incomprehensible to appoint a non-English person to either job. London prides itself, rightly so, as one of the most important world centres of financial expertise and the homeland of football – and can’t find suitable candidates?! Apart from everything else, where is the British pride?

Britain’s economic future will in any event not be decided by the financial wizardry of a central banker nor will the English football team’s performance be enhanced by coaches from abroad or home. Both have the same problem in common – the system under which they work is wrong.

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How Overseas Investors Saved UK Car Makers

As published in the Daily Mail, 14 August 2012

Britain’s car industry is booming. After decades of decline, the UK for the first time since the mid-1970s is making more cars for export than are being imported.

Investment is rolling in and production is up and rising substantially. Just this week Jaguar Land Rover announced its Halewood factory would move to 24-hour round-the-clock production for the first time with the introduction of an extra shift.

The car maker has created another 1,000 jobs at its Merseyside plant to meet demand for its ‘baby’ Range Rover Evoque – launched by Spice Girl Victoria Beckham who also created a special edition version and Land Rover Freelander offroader models.

Most of the UK car industry is now in foreign hands, and thriving. So how come, whilst it was in British ownership, the reverse was the case?

Some people blame the unions for their part in its downfall, but recently employees have shown themselves prepared to work hard and agree to flexible deals to preserve jobs, so it seems unlikely there is anything inherently wrong with the British workforce.

Others blame management for the failures. However, an analysis of the management structures of the German, Japanese and Indian car owners show that many of the managers in their UK operations are not only British but are doing a first class job.

So if Britain has top flight workers and managers, why did it all go so wrong in the past? The answer has to lie with the different corporate governance models that are used.

All the above mentioned car manufacturers are from countries where companies and their managements are not beholden to the Anglo-Saxon short term shareholder value model. This ethos inflicts a pressurecooker obsession with quarterly results on managers.

If boards are incentivised through share prices, they would rather pay higher dividends or try to please the markets with share buy-backs, takeovers or break-ups than invest in skills, modern equipment, new products, or research and development.

Professor John Kay alluded to the defects in the equity markets in his review for business secretary Vince Cable. He is clearly of the opinion that short-termism is not helpful to industry. However, his focus was just on the equity market and its players, not on the effects on manufacturing businesses.

The boards of BMW and Volkswagen can take a long view in spite of being stock market quoted companies, because they are not only responsible to shareholders but also to the other stakeholders, particularly the employees of the company. Their incentive systems are designed accordingly for the long term.

One does not need to look just at the car industry in isolation.

There are other examples of what corporate governance can deliver. Why, for instance, has JCB been so successful, weathered so many storms and seen its products have become world beaters? The reason is simply that JCB management can act like their opposite numbers in a German or Japanese company.

Another example is the Unipart Group, a buy-out from British Leyland that has blossomed under management and employee ownership and boasts now a turnover of around £1bn. Its strengths are its skilled and highly motivated labour force and management.

There are other examples – though unfortunately not enough of them. If Britain is serious about rebalancing the economy with a buoyant manufacturing sector, it needs to change the governance system.

The present one has been failing manufacturing in this country as long as I have been working in the UK – and that is for over 40 years.

It can be done, if a few people could jump over their beloved shadows.

Letter to the Times: Firing Up UK plc

Bob Bischof Letter to the Times June 2011
Bob Bischof Letter to the Times June 2011

This letter appeared recently in the Times and is republished here:

“Instead of accepting the CEO’s whining about high taxes and too much regulation, the Prime Minister could have interrogated them at the Times CEO Summit about their abysmal performance in world markets. As we heard, Britain has been exporting more to Ireland with 4.5 million people than to the BRICS countries (Brazil, Russia, india, China and South Africa), with nearer 4 billion people. German companies have to cope with far more regulation and carry substantially higher payroll costs, but have managed to reduce unit labour cost by more than 20 per cent in the last decade and raise productivity. Moreover, Germany was until 2009 the largest exporter in the world.
Britain, on the other hand, had a more than 20 per cent devaluation of sterling but British exporters have not taken advantage with higher sales volumes. Mr Cameron is right to try to turn bad regulation into useful regulation, but he should look at taxing profits which stay in companies and are re-investe in markets and products differently from those that are paid in dividends and share buy-backs.
In the absence of credit-induced consumption and state spending to drive the economy, growth depends to a large degree on our companies’ performance over the coming years. One precondition is to increase the skill base. Here again, should the Government beg companies to engage in its ambitious apprenticeship programme or should there be a training levy, against which companies can reclaim some of the cost of training? Either way, feeding companies carrots does not seem to work: more stick might work better.”

Universal Apprenticeship for the UK

Vocational Education Training (VET) – to be known as the Universal Apprenticeship – could offer a (debt-free) pathway from “shop to top” as an alternative to a university based education.

To make this a reality, certain changes have to be made to the present system regarding the content of the learning offering. In addition, it needs simplifying and a higher degree of standardisation to achieve the necessary scale, which in turn will make it more cost-effective.

These changes are of course primarily designed to make apprenticeships more desirable to youngsters as well as employers. A lot of what is on offer at present should stay in place and form the basis of an upgraded, attractive first step on the ladder of a career for young people.

Eventually the Universal Apprenticeship should replace all of NVQ1-4, Modern and Advanced Apprenticeships. It would need high level political and business support, together with a PR makeover.

Vocation

Vocational should therefore mean that young persons’ differing talents – academic, artistic or practical – are recognised as equally useful in a “Big and Inclusive Society”. Accordingly, young people need to be offered corresponding pathways – firstly, from school into the world of work and after a successful completion of the first step – the Universal Apprenticeship, further career progression opportunities to fulfil their aspirations may they be in trades, crafts, technical, administrative or other occupations.

Education

Education should mean that school leavers aged 16 to 19, by choosing the Universal Apprenticeship are not just taught the ins and outs of a specific job in a narrow manner, but that they continue their education in general terms, too.

Enhancing their social and communication skills would be some of the aims of this part of their further education. This will lay the necessary foundation to enable the person to move off “the shop floor” and reach “the top floor” of his chosen profession, whatever it may be. This part must be the responsibility of vocational colleges, as it needs real teaching abilities. Of the total college based part of the apprenticeship, it should be around one third of the learning program, whilst the other two thirds are the theoretical part backing up the in-house company job specific training.

Training

The largest part of the Universal Apprenticeship, namely Training, ought to be based on standardised frameworks of in-company/organisation learning.

This would typically be over a period of around 2-3 years, for which the apprentice and employer enter into a training contract. Ideally the frameworks should give the apprentice as holistic an insight into their work environment as possible.

This gives the trainee/employees more self-esteem, empowers them to work more autonomous with less supervision and ultimately is more flexible, cost-efficient and productive.

The apprenticeship training contract should be largely standardised and safeguarded by law. To complete an apprenticeship successfully there should be a recognised and meaningful certification process, to ensure successful apprentices achieve good standing in society as young professionals.

In short, a successfully completed apprenticeship should not be the end but the beginning of a career for those with aspirations.

Look East

Much has been made in the past of America’s superior productivity levels – 20 per cent ahead of Germany’s and France’s, with Gordon Brown’s Britain seemingly catching up. But all may not be exactly as it seems.

Much has been made in the past of America’s superior productivity levels – 20 per cent ahead of Germany’s and France’s, with Gordon Brown’s Britain seemingly catching up. But all may not be exactly as it seems.

The first mystery: how is a $700bn trade gap (6-7 per cent of GDP) reconcilable with the highest productivity in the world? As the manufacturing sector of the US, and for that matter the UK, has shrunk to somewhere just north of 15 per cent of GDP, the trade gap as a percentage of manufacturing output only is more than 40 per cent. When countries and companies are outperformed on world markets like that, the productivity story sounds less convincing. Strikingly, the trade gap is not just with the cheap labour countries of the Far East; it has been growing significantly with Europe, despite the dollar’s near 80 per cent devaluation against the euro.

Which brings me to the second part of the riddle. How are these productivity levels being calculated?

Read the full article as published in The Observer 08.06.08