Archive for January, 2010

Bank Reform: Obama plays the populist card, Dave follows!

Posted in Banking on January 22, 2010 by Tom Leatherbarrow

No Drama Obama is not living up to his name. Yesterday’s announcement on banking reform was as unexpected as it was brutal in its detail. Limits on further banking consolidation in a bid to limit ‘Too Big To Fail’; limits on interaction with hedge funds which rely on market volatility to make big profits (or losses) and limits on proprietary trading (using the bank’s own money to invest in high risk investments) when they should be building their capital base.

Sounding more than a little bit peeved (presumably at the size of the combined investment banking bonus pot) Obama labelled much of what the investment banks do as “reckless” and sent this message “work with us, not against us,” continuing “If these folks want a fight, it’s a fight I am ready to have.”

The reaction from the financial markets was expected with banking stocks on both sides of the Atlantic being hit (although it was interesting to note that HSBC, which has always been far more conservative and was never heavily exposed to the mortgage CDO market, only took a minor knock on the London Exchange).

However, some perspective is necessary. Obama faces what is increasingly looking like a difficult set of mid-term elections in early November. There is unquestionably a political calculation here as Main Steet America remains furious with its banks. Over here the Tory party’s quick reaction last night welcoming the Obama initiative was equally as populist, with one eye on the General Election, while the Labour Government remains leaden-footed and cautious.

It is a strange world when the Tory party is aligned with the Guardian (today’s editorial “At last, action”) and the Financial Times (today’s editorial “A dangerous populist flirtation with Glass Steagall”) is more closely aligned with the Labour Party.

Warren Declines Chocolate Buffett

Posted in business on January 21, 2010 by Tom Leatherbarrow

Suddenly Cadbury gets interesting. News overnight from the states is that Kraft’s biggest shareholder has come out against the deal. That’s relatively serious for the Kraft management team in any situation, but when that shareholder is none other than the great Warren Buffett, CEO of investment vehicle, Berkshire Hathaway, then it’s potentially catastrophic.

Buffett told CNBC. “I think it’s a bad deal. I have a lot of doubts.” He continued: ““Irene [Rosenfeld CEO of Kraft] has done a good job in operations, I like Irene. She has been very straightforward with me, we just disagree. She thinks it’s a good deal, and I think it’s a bad deal.”

When Buffett talks the markets listen, probably more so than to any other individual, including the Chairman of the Federal Reserve. Although Buffett may still live humbly (in a three-bedroom house in Omaha Nebraska apparently) the man known as the ‘Oracle of Omaha’ is ranked second only to Bill Gates in terms of wealth (he gave most of it away to Bill and Melinda’s charitable foundation a few years ago). Berkshire Hathaway now holds significant or controlling interests in some of America’s biggest companies, including the Washington Post Company, American Express, Gillette, Coca Cola, Wells Fargo and Moody’s.

And, crucially, he is not afraid to wield his influence. Ten years ago he scuttled Coca Cola’s bid for Quaker Oats because of the soft drink maker’s proposal to fund the deal with stock, much in the same way that Kraft proposes to fund Cadbury.

Effectively the Kraft management team now has the world’s most successful investor wielding a sword of damacles over its head. Buffett’s problem, as I suspected yesterday, is price. Delivering value at 850p per share is a tough task no matter how talented the management team.

One to watch.

Cream egg on our faces

Posted in business on January 20, 2010 by Tom Leatherbarrow

I have hesitated to blog about Cadbury because, frankly, I haven’t been able to think of anything original to say.

When I first heard of the Kraft bid my view was that this was a done deal as long as Kraft came up with the right number. For the City, sentimentality about saving a great British institution was never, ever likely to come into it. The stumbling block has been Kraft’s initial part shares, part cash bid which was spurned by institutional investors and the Cadbury management.

The institutions are not fools, they know that most M&A actually destroys shareholder value. Also they would be investing in a US-listed company at at time when the US economy is, at best, in recovery. The message, loud and clear, was “if you want this company you are going to have pay cash, we want no part of the future.”

Have Kraft paid too much? I’m not close enough to the business plans of either company to make that judgement but it is interesting that neither Hershey nor Nestle have come in as a White Knight to rescue Cadbury. What is certain is that Kraft will now have to extract some serious ‘synergies’ from this deal (for synergies read cost-cutting) in order to make it work.

There is another wider issue here. As I reflected on this last night I couldn’t help but wonder what would have happened if the boot was on the other foot, if Cadbury had bid for Kraft or Hershey? When Dubai Ports tried to take over six port management operations in the US four years ago an unholy alliance of Conservative Republicans screaming “threat to national security” and trade union Democrats screaming “threat to jobs” defeated the deal in Congress. American legislators may not have been able to make the national security argument over chocolate, but you can bet they would have come up with some reason why it was in American interests to keep these companies in the homeland.

For that matter what would the French response have been if BPB had attempted to take over St Gobain instead of the other way round? The French have long taken a very protectionist view of foreign corporate raiders, famously declaring that yoghurt was a “strategic national asset” when a bid came in for Danone.

Contrast this with the UK where all of our listed companies have giant ‘For Sale’ signs hanging over them. It is precisely this situation which has led to many of our major energy generators, such as British Energy, being owned by the French or Germans. If that is not a threat to (energy) security then I don’t know what is.

The question we now have to ask ourselves in this country is, how much longer are we willing to let major British companies be sold off because the City loves a deal?

Beyond silo marketing

Posted in Marketing on January 13, 2010 by Tom Leatherbarrow

How many times have you phoned an organisation as a customer only to be told “that’s another division, you’ll have to phone another number” or “we can’t do that, they’re a separate company”.

A classic example of this is the UK financial services sector, multiple product companies which organise themselves by silo (mortgages, savings, current accounts, insurance etc) all with separate contact centres and customer contact details.

Let me give you an example. At the moment I have a current account, a mortgage, two ISAs and a long term savings product with the Nationwide Building Society. I am a good customer and they want more, regularly bombarding me with information about other products. I was in the Bromsgrove branch on a Saturday a few months ago and one of cashiers tried to sell me yet another savings product.

“What’s in it for me?” I asked.

“Well it’s a good rate of interest” was the reply.

“Yes, but its no better than what I could get by going online” I countered. “Perhaps if you offered me an incentive, an eighth of a percentage point off my mortgage for example.”

I know it was never going to happen, I was just feeling difficult, but you can imagine the reply.

“We can’t do that, they’re separate divisions.”

I was therefore intrigued to read a profile of the Santander Bank in this week’s Time Magazine. Buried deep in the profile is one of the secrets of Santander’s success, namely a computer programme, called Parthenon, which does nothing more impressive than group information by customer rather than product. That’s right, all of an individual’s interactions with the bank grouped in one place, no silos or separate divisions.

Parthenon has enabled Santander to strip out millions in costs from its acquisition of Abbey National, it has aided cross-selling opportunities and, crucially, enables Abbey to offer incentives in the form of highly competitive interest rates, to good customers.

Apparently, this is revolutionary for the banking sector, but there is a lesson for all business here. You may think you are being customer focussed by being terribly polite and attentive, but if you are forcing customers to navigate your own internal organisation then you are not and ultimately you will pay for it.

You’re making it up!

Posted in business, PR on January 11, 2010 by Tom Leatherbarrow

According to the Federation of Small Businesses the heavy snowfall of Wednesday last week and the resulting transport chaos which encouraged about half of the population, on the advice of the major motoring organisations, to not even attempt to go into work, will cost the UK economy approximately £1.2 billion (apparently that is a cautious estimate and the actual cost could be higher).

This is a staggering amount of money, but how did they come up with that figure? For that matter when we have a bank holiday how does the CBI come up with its traditional astronomical sum for how much it costs UK plc. No basis for these calculations is ever given, the numbers just seem to appear out of thin air and are greedily gobbled up by a media which loves nothing more than to wallow in negativity. We’re all doomed!

It is tempting to go along with this until you hear actual stories from the frontline. Justin King, CEO of Sainsbury’s reported on BBC Breakfast News last week that all his delivery trucks made their drops on Wednesday despite the snow and all his stores were open. Every client I called had either made it into work or was dilligently working from home, quite capable of carrying on with their home computers and mobile phones.

Of course some businesses will have suffered, many retailers have had a difficult time with the cold weather and leisure attractions have also been hit hard. But, I can’t help feeling that the publication of these apocalyptic numbers is reaching its sell-by date, not least because it does nothing for business confidence.

As a New Year’s resolution I choose to close my ears to this rubbish from now on.

PD and the DG of the BBC

Posted in BBC, PR on January 5, 2010 by Tom Leatherbarrow

I suspect the Director General (DG) of the BBC was expecting a cosy post-Christmas chat when he agreed to appear on the Today programme guest edited by the crime writer PD James on 31st December.

I didn’t listen to it myself (being laid up in hospital with a broken ankle I only had access to Radio Warrington General which was only marginally more bearable than the quality of food on offer) but I have since read an account kindly provided by the Daily Mail.

Instead of a cosy chat PD launched into a forensic examination of the current state of the BBC. A mere blog is not enough space to cover all her areas of probing (needless to say she was unimpressed with the quality of programming on BBC3, in particular ‘Help me Anthea, I’m Infested’) but there was one area of interrogation which will be of interest to all those in PR.

PD questioned the number of senior communications people the BBC has on its staff and their seemingly overlapping spheres of influence. The current count is that the BBC has four senior executives with responsibly for communications, audience interaction or brand. In fact there is currently a ‘Director of Marketing and Communications and Audiences’ and a ‘Director of Communications’ both in post.

Even more staggering is the size of salaries being paid. The Director of Marketing Communications and Audiences is currently paid £310,000 a year. The Director of Communications nearly £250,000.

The usual excuses were rolled out by the DG, ‘market forces’, fear of losing high quality people to commercial rivals, in line with the private sector etc.

I suspect most PR people reading this, even those in the heady echelons of financial PR in London, will be delighted to hear that they can expect to earn up to £310k at some point in their career. This by the way is exactly the same amount earned last year by the UK Managing Director of Northgate PLC, a FTSE 250, including bonus. Of course the difference is that Phil Moorhouse of Northgate is answerable to his shareholders, has forecasts and budgets to hit. The Director of Marketing Communications and Audiences at the BBC is answerable to er … well good question!

The DG is of course talking complete tosh and gives the impression he is completely out of touch with reality, which is not good as the Beeb is under pressure as never before.

I have documented recent BBC failings in a previous blog, but you can be sure that David Cameron has not let this one slip past him. Dave is a former Head of Communications for BskyB (you can bet Murdoch didn’t pay him £310k a year) and will be under pressure from his former employer to break up what News Corporation regards as a state-sponsored monopolist. The Beeb cannot afford this sort of public relations disaster, particularly at a time when scrutiny of public sector spending has never been more stark.

However, even in this debacle, you can see still why the BBC is a national treasure which needs preserving, but reforming urgently. PD conducted her examination of the Director General on the BBC Today Programme without fear of censorship or the heavy hand of interference from either shareholders or senior management. In the world of News Corporation this was akin to the The Times conducting an investigation into The Sun. How likely is that?