Philip Whiteley's Blog

June 4, 2010

Wrong, wrong, wrong

Filed under: Uncategorized — felipewh @ 7:30 am

In late 2005, the then Chancellor Gordon Brown proudly announced a cut in ‘red tape’, by saying that the Government would not introduce an Operating & Finance Review for listed companies. Amid all the sea of useless red tape that his Government did impose on the economy, sadly this was not one of them. He could have done the world a favour and repealed every other pointless form and held on to this. It would have required fuller reporting of environmental risks and employee relations, to complement the financial data that still makes up 99% of the dubiously titled ‘annual report’. It fitted with the age of the boom years, the last puff of the 20th Century cult of ‘Total Shareholder Return’ and the ludicrous pretence that 28-year-old analysts could assess a company based on quarterly results, giving no time to such girly subjects as relationships and green issues, piling pressure on oil companies to minimise costs in their supply chains.

Less than half a decade later, two of Britain’s iconic companies face huge economic damage, and just possibly complete collapse, because of strategic failures in employee relations and managing environmental risk. BA and BP will very possibly lose every last penny of shareholder value because the cult of management is to look at the numbers not at the real business. I’m not exonerating the self-indulgent unions at BA for their ignominious role – the point is a wider one. It is that the way you manage staff is at the heart of the business, not some sideshow. Guiding a company using quarterly results is like trying to sail solo round the world when the only navigational tool you have is a free magnetic compass that came with a Look & Learn annual.

Sadly, the toxic myths continue. Jeff Randall in the Telegraph today proudly noted that Goldman Sachs cites the top three list of operating principles as: ‘People, capital and reputation.’ This is nonsense, because the second two are only by-products of the first. People are the only asset, ultimately. The BP oil spill will be found to have been caused by human error. Drilling at a depth at which you cannot carry out repairs is a basic mistake, that a school-child could have pointed out. Indeed, I increasingly think that an intelligent 12-year-old should be on the board of every major company and central bank – especially the European one. ‘But Greece is a completely different country than Germany! It shouldn’t really have the same currency,’ you could hear them point out.

It’s highly unlikely that the Operating & Finance Review would have prevented the crises at BA and BP. Even if required to report fully and accurately on their risks in employee relations and the environment, the bean counters in the investment community are trained to ignore them. It’s a much bigger, cultural change needed. But it would have been a good first step. And yes, some of us did say so at the time.

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