Just posted in the Financial Times Alphaville blog:

“It’s a sad day but we’ll get through it, and we may be better off for it… The company that is taking us over, or is merging with us, is a first-class company… That which doesn’t kill you makes you stronger. By now we all must be Hercules… We ran into a hurricane… There’s no anger; there’s simply remorse.”

Alan Schwartz, Bear Stearns CEO, speaking at the shareholder meeting which finalised and formalised the takeover of Bear Stearns by JP Morgan moments ago. The deal is due to close tomorrow.

Mike Riversdale draws a nice distinction between asking Why and How:

… “why” is past orientated and “how” is future orientated.

For instance, asking “Why do I do have an ‘open information’ principle?” will lead me to question my past actions, environment and experiences. However, if I ask, “How does having an ‘open information’ principle affect me?” leads me to talk about the future actions, behaviours and thoughts.

I’ll bear it in mind when I’m using my “6 honest serving men” - Messrs. What, Why, When, How, Where and Who (with their assistant Master Not). However while a useful distinction in the right context, this understates the usefulness of Mr Why, who is probably at his most powerful when determining what your total market offer is (and what it is not) and how you fulfil it (and how not). Ask yourself why (and why not).

Some years ago (in 1999, I think), I was invited to address the Royal Society in New Zealand on “The future of work”. I assumed that I’d been invited because of my profile as a tech company CEO, and that I was expected to espouse the vision of technology transforming work and the workplace. My co-presenter was noted New Zealand academic, Dr Norman Kingsbury. Norman’s advice to me was to “surprise them”. Unfortunately, I’ve lost my speech notes, but, if I recall correctly, the gist of my presentation introduction was:

• The exploding ability to store, find, order, and connect information of all types will radically increase our use of knowledge and enable more innovation and new types of business;
• Technologies will merge, so that a successor to both the mobile phone and PC will become your primary means of accessing that vast pool of information and services (albeit linked to physically restrained appliances such as displays, printers and high capacity communication links);
• The internet and the services available on it will eventually become so cost effective that few will bother with in-house facilities, other than access to those physical devices I mentioned.

This was standard fare, with everyone nodding as I reiterated points others had made on many occasions. However, my main theme was why people come together into teams, workplaces and cities to work. Fundamentally, it is to interact with each other and to gain access to services and goods. It is the bringing together of people in informal and formal regular physical contact that has enabled society to develop to where it is today. Workplaces, cities, and organisation such as companies are the means of doing that.

This led me into an attack on a myth popular at the time that cities were inefficient because of traffic, pollution, commuting time, etc.. Telecommuting and teleconferencing from smaller centres was seen as the great future for clerical and knowledge-based workers. It was a naive idea even then. Yes, there are and will be some who can work truly location-independently, but the vast majority will still be most effective in coming together in one place. I won’t reiterate the rest of the speech, which covered access to knowledge, goods, services and communities, but my conclusion was that work in the future will not be much different from work in the past. Tools would change; speed, reach, mobility and connectedness would all increase, giving companies and workers greater freedom of where/when/how to work; but fundamentally, most people would still come together in cities, organisations and workplaces.

This clearly wasn’t what the audience expected to hear, and some dismissed me as a Luddite. However, in nearly ten years, I’ve heard nothing to persuade me that I was wrong. On the contrary, I’m more convinced than ever:

• Companies are increasingly consolidating sites, campuses and offices into larger footplate buildings in fewer locations;
• Most phone calls, text messages and emails are between people within walking distance of each other. The second biggest category are between people within a short drive of each other (for social and business purposes).
• Rents and property prices in cities are still much higher than anywhere else (and have been less affected by the current property crunches in various countries). Most organisations and households clearly still choose to be located in cities.
• Contrary to popular belief, cities generate less carbon and other pollutants, and use less energy per capita than towns, villages and rural households. It’s only because cities concentrate such use that they seem worse.

We may become more mobile and connected, but workplaces and cities will still be our primary places to do work.

“… we’re moving back to a world of stuff, whether that’s vegetable oil or copper or zinc or cotton. Stuff that you can hold in your hand and drop on your foot.”

That’s a quote from an article in the LA Times last week. While that particular article looked at the renaissance of old-economy US commodity firms with the liberalisation and industrialisation of the BRICs (Brazil, Russia, India and China) et al, there’s another interpretation: that the world of stuff has always been the fundamental driver of the world’s economy, and that it’s reasserting its fundamental power over the worlds of finance and services.

I define the world of stuff in a pretty broad way: everything from food, water, materials, energy and manufactured goods through to electrons (power and communications) and those services directly associated with the delivery of stuff (e.g. shops, warehouses, transport networks, utility networks). Things get a bit vague when I start looking at films and bespoke software, but you’re a smart bunch; you can live with a bit of uncertainty. (OK, not the IT guys - never any good with shades of grey).

Although finance and services are essential elements of the world’s economy, and have been ever since their invention thousands of years ago (I’ll even classify politicians as part of the world of services), they are mostly facilitators of our ability to make, sell, buy and use stuff. Yes we do spend money and time on other things, such as education (arguably so we can achieve the means to get more stuff), entertainment, healthcare, etc., but those are afforded by someone somewhere producing stuff that others want. And when stuff isn’t being produced and purchased, the rest can go hang.

Those who look disdainfully at the world of stuff have a misguided sense of their own importance or self-righteousness. Civilised society owes its very existence to the world of stuff. Those in finance and services (including politicians) would do well to remember that connectedness.

PS. This isn’t an argument for every national or local economy to make manufacturing its cornerstone. The phrase “From each according to his ability, to each according to his need” springs to mind, but don’t mistake me for a Marxist. Each should do what it does best and buy what else it needs.

There’s an old story about a city whose rulers, facing a local food shortage, put a price cap on carters’ charges, to prevent profiteering. However, even though there was plenty of food in nearby areas, no-one fetched it because they couldn’t make money. The carters left town and the city starved.

I mention this in the context of much media and political comment blaming speculators for the sharp increase in oil prices. We’re now hearing calls from some quarters for oil market derivative trading to be banned. The Spectator’s Trading Floor blog dismisses this idea as insane:

All that would happen if it were implemented is that markets would move offshore: is that what anyone wants, that they be even less regulated than they are now?

Further, economics writer Tim Harford makes this point about commodity market players:

… if the speculators are any good, they’ll stabilise the oil prices. Profitable speculators buy low (driving up the lows a little) and sell high (moderating the highs)… If the speculators are incompetent, then they can exacerbate oil prices spikes - but we can take the modest consolation that they’ll wipe themselves out while doing it.

The answer to high oil prices doesn’t lie in oil-related regulation, subsidies or reduced duties. The answer lies in cost effective alternative fuels and technologies, coupled with smart and non-wasteful applications and processes. High oil prices make that more likely to happen; artificially restrained oil markets won’t.

Having been in the UK for just over a fortnight, I had thought to write a short post on similarities of current issues in Britain and New Zealand. However, Owld Grumbleton, who’s over here as well, has beaten me to it, so here’s his take:

1. The Labour-led governments are in trouble, after multiple terms in office.
2. House prices are stalling and predicted to fall, with owners of multiple highly-leveraged rental properties expected to be hardest hit .
3. The economy is faltering but not expected to go through the floor.
4. The retirement of the baby boomers is now starting to bite, with major gaps in most technical and managerial professions. Although the current downturn will alleviate the problem, it won’t help the solution as firms skimp on recruiting and developing young talent.
5. Violent crime, uncouth behaviour and increased alcohol consumption are constant features of news reports and general discussion.
6. School exam systems are still lambasted on all sides.
7. People expect lower taxes, but the government is proving stingy with minor reductions in this year’s budget.
8. Environmental awareness is growing, but government initiatives are often clumsy, inconsequential and fail to address the major issues.
9. City traffic is a nightmare.
10. The local wine industry is thriving. (Yes, you read that right.)

OG is more political than me, but it’s hard to dodge the similarities in attitudes to the incumbent governments. I’d add a few more similarities:

• There is heaps of cool stuff going on business-wise, if you look for it.
• Everyone’s screaming about petrol prices.
• The universities want more money (when did they not?)
• There’s really good food. wine, beer and cider, and and there’s really appalling food, wine, beer and cider.
• There’s increasing talk of protectionism, under the false flag of environmentalism.
• The countryside is beautiful.
• The cultural life is thriving.
• There are great people, nice people, naff people and scary people.
• The media tend to paint the picture darker than it really is.
• NZ sauvignon blanc and pinot noir rule their wine store/supermarket niches (pinot gris is starting to move up the ranks too).

Chris Dillow writes about a report (pdf) into the economic benefits of being tall. The report’s academic authors have estimated that every inch of extra height results in an extra 1.5% in earnings for both men and women in Britain. In part, this is attributed to better early nutrition (tallness and IQ are both enhanced), but even allowing for similar educational achievements, being taller still yields an earnings premium. The report doesn’t say why, but Dillow speculates:

One possibility is that employers taste-discriminate towards the tall. Another is that tall people - specially men - have more self-confidence and so are more likely to blag their way into good jobs. Or it could be that tall people have valuable skills not measured by formal academic qualifications; they are wittier, better-looking, more charming and - yes Megan - better in bed.

Like 6ft 2 Dillow, I find this third explanation the most compelling, as must the BBC, who wrote about similar Polish findings in 2000. However, She-who-must-be-obeyed, standing at under 5ft, might have different opinions to which I will of course defer. I also totally understood the proposition that CEOs would rather be tall and bald than short and hirsute, and that got short shrift from SWMBO too. Ouch! No dear, I wasn’t trying to be funny; honest.

Click Suite, the interactive media company of which I’m non-executive chairman, has been experimenting with a weblog, to share ideas, innovations and other cool stuff related to interactive media. They piloted it internally for several weeks, but have now gone public, and you can read it on their web site. If you’re interested in interactive media, you’ll enjoy what the Click Suite team has to say.

They also blog about fun stuff to play with, but of course you’ll only be reading it for the articles, won’t you?

Yesterday I wrote about the French term usine à gaz or ‘gas factory‘, a metaphor for overly-complex bureaucratic mechanisms that are disproportionate to the problems they are supposed to solve. Ironically, the term seems highly descriptive of the ‘cap and trade’ carbon emissions regimes being proposed by governments in many countries.

Every academic, economist, environmentalist, business leader and indeed politician with whom I’ve discussed this has said something along the lines that a carbon tax is the simplest and most effective way to penalise carbon emission, but that ‘cap and trade’ is the only way to get everyone on side. Even oil and coal executives seem to privately support a simple tax system. I assume they must exist, but I have yet to meet someone who actually thinks ‘cap and trade’ is a good way to reduce carbon emissions. It’s as if no-one in a national or international leadership role is prepared to be the first to say this is a stupid system.

What about the countries that don’t impose a carbon tax? Won’t that just see jobs and carbon pollution exported to them? I’d argue that countries that won’t impose a carbon tax are even less likely to impose a complicated bureaucratic system like ‘cap and trade’.

The most neutral system for countries that want to discourage carbon emmssion is to tax it - either at the point of domestic production or at the place of import; exports would be carbon-tax-free (i.e. the tax is reclaimed on exports, but taxed by the country importing those goods if it so chooses). Likewise the taxation point for international travel and shipping would be the arrival port. This would be neutral with non-complying countries, whose exports would therefore still be captured by the tax regimes of importing countries. Countries could be as aggressive or light-handed in their level of tax as they choose. Of course there would be complexities, like how to estimate the carbon content of imports, but still much less than the alternative.

However, the absolutists won’t buy the idea of carbon-tax-free exports, and so we have this nonsensical system of ‘cap and trade’. Someone needs to show some leadership on this. It would be nice if it came from both the green and carbon-producing sides of the debate .

Update: my idea is akin to VAT/GST which are consumption taxes neutralised at the border, and hopefully (I’m no expert) it does not break WTO rules on border taxes.

Olof from TelstraClear has saved the day, getting all our accounts restored and working as soon as he got into work. Thanks, Olof, for your help and speed of action.

It’s a shame that a common customer service task requires special intervention like this - and all telcos seem bad at it. Olof, like no doubt most other TelstraClear people, really wants to deliver great service. His company needs to build the tools so Olof and his colleagues can do so.

Following on from last week’s article on ‘the roof’ or krisha, a Russian colloquialism for a patron, today I learnt about the French term ‘gas factory’ or usine à gaz. Google’s translation of Wikipedia says:

“gas plant” is a derogatory term describing something very large, very complicated, even very expensive and which has been much talk(sic) but not used or not producing much in reality. It is used generally to describe something very disproportionate to its purpose. It takes its origin in the comparison made with a manufacturing plant of town gas, monstrous-looking, complicated and incomprehensible to the uninitiated.

What an apt euphemism. I came across it in Charles Bremner’s Times blog post on why French President Sarkozy has not canned the 35-hour working week in France. Apparently Sarkozy is trying to appease all sides in the debate by creating tax incentives and other inducements for those who work longer than 35 hours while not actually repealing the 35 hour week legislation. That would risk alienating those large elements of the electorate who have comfortable lifestyles and quite like the extra time off. Sarkozy is perhaps learning that quotation (or curse) of Bismark:

“Politics is the art of the possible, the attainable - the art of the next best”.

Another tale of how telcos do their best to infuriate customers who want to stay with them.

I’ve had an account and 5 users with TelstraClear, my NZ internet service provider, since the earliest days of Clearnet. All of our friends and family, our personal business contacts, banks, utilities, and many other people use them to get in touch with us. So they are very important to us. Two weeks ago TelstraClear was supposed to shift our account from cable broadband to dialup, while we were overseas. Today we lost access to all our usernames and email; which is doubly bad because I also had all my other emails from all my other accounts and domains forwarded to my TelstraClear user account.

I explained our situation to the call centre rep who processed our service request, and she promised to put a reminder in her system to personally check that the change had been actioned correctly. A botched service task is bad enough, so imagine how I felt finding that it hadn’t been done despite having been made that promise.

The web support contact system asked me to set up a new account when I tried to use it to contact TelstraClear today (presumably because my user name was not active). No joy that way. The latest insult: calling from the UK (at my cost of course), I am told that there is at least a 30 minute wait for calls to be answered. At international roaming rates, I don’t think so!

So if anyone from TelstraClear is reading this - get my account fixed pronto!

Meanwhile I can be contacted at Isambard, and I’ve reset all my emails and web stuff to go there (apart from my Clearnet accounts which I can’t get to).

Update: Fixed, thanks to Olof. 

No, I’m not talking about Icahn’s tilt at Yahoo’s board. I’m talking about the famed activist shareholder’s weblog, announced with much fanfare in January, of which nothing has since been heard. We were expecting fireworks, and so far we’ve had not even a fizzle. Why make an announcement about something people will be eager to read, build a site, and then not post a single article? Better not to have even raised the subject.

Mark Clare’s Valuecruncher has stepped up several gears. Originally offering a company valuation service to companies not covered by conventional investment analysts (I’ve used it), Valuecruncher now offers its tools free online to the general public. Valuecruncher is creating a community of investors, some of whom will take up its premium services later.

I’ve known Mark Clare for some years and I saw a preview of the new service earlier in the year. You input your own assumptions on key financial parameters for the company in which you’re interested; Valuecruncher’s algorithms then produce a share price projection. You can play with your projection and share it with others, who can comment on your assumptions and results. The user experience has been developed with the help of renowned web guy Rowan Simpson, who is known for his lean, uncluttered approach to website design.

In the words of Merrill J. Fernando from Dilmah Tea, “Do try it”.

Disclosure: I have no financial interest in Valuecruncher.

In The Huffington Post, Henry Blodget offers a crash course on how to be an economist:

1. Analyze what has happened.
2. Conclude that the future might be different…or it might be the same.
3. Pick one!

In Russia, whoever you are, you need a patron, someone who will promote and look after your interests and keep the bureaucracy and the bad guys off your back, in return for loyalty, business favours, partnership profits, etc.. Any foreign company seeking to do business in Russia needs such a patron, whom Russians call the ‘roof’, or krisha. It’s usually legitimate, and the financial arrangements can take many forms. McDonald’s has the Moscow City Corporation as their roof. Aer Rianta (the Irish duty free retail operator) has Aeroflot.

An article on The Spectator business blog was my first introduction to this concept, which I confirmed with my brother, who’s done several stints in Russia. He added that the need for a roof is less important for major companies these days, but it’s probably still a good idea for smaller players. Unfortunately, a roof can also be a local gang demanding payoffs. Make sure you pick the right roof.

There’s a big stink brewing in the beauty business. Dove, with its Campaign for Real Beauty, has a very popular ad which shows how a photograph of a, shall we say, normal-looking woman is transformed into an impossibly beautiful glamour queen. Now it seems that a freelance photography retoucher, working for a photographer, working for an ad agency, working for Unilever, Dove’s owner, boasted to a journalist that he’d retouched some of Dove’s photographs of ordinary women used in their wildly successful promotional campaigns. The retoucher says his remarks were taken out of context. The New Yorker magazine is adamant they were not. Dove will have to mount a massive recovery programme to avoid massive damage to its basic proposition. Expect some very public executions.

But the real question for me is why anyone associated with the Dove campaign would even contemplate having photographs retouched, for whatever reason, however well intentioned. It was a monumentally stupid mistake. It also illustrates that everyone working with your brand (staff, suppliers, distributors and subcontractors), everyone must understand what your brand stands for and, by implication, what to do and what not to do.

What damage might some well-intentioned idiot do to your brand?

I was chatting recently with the CEO of a promising technology company. My companion wondered whether to accept an unsolicited offer for his business, or to hold on and invest heavily in a major new product development which could double the value of the business in 2-3 years time, if it succeeds.

I asked for more information: the size of the development investment required (very large), the probability of it delivering a marketable and profitable product (likely but not certain), the likelihood of market success (reasonable but not certain), and the likelihood of someone being willing to buy his business in future (likely but not certain). On balance, the risk and time weghted returns from investing versus selling were broadly similar. Given he has venture capital investors who are desperate for a successful exit sometime soon, and he himself had always planned for a trade sale about now, the answer was obvious.

‘A bird in the hand is worth two in the bush’. Sell.

Arrived in the UK to find the sun shining and the land green. While I’m here, I thought I’d do an occasional series of UK factoids, for the edification of my readers outside the UK (and some in it). These are from yesterday’s BBC business report.

UK factoid 1: 27 degrees Celsius in London yesterday. No business reason for that; I just wanted my Antipodean friends to know, as winter starts to loom large.

UK factoid 2: More than half of the companies in the FTSE 100 (more accurately the FTSE 101) are non-UK companies.

UK factoid 3: 12% of the companies in the FTSE 100 are non-oil mining, yet mining makes up only a tiny fraction of the UK’s economy.

The primary exchange of choice for major non-US companies is now London. Why? The general consensus of the discussions I’ve heard since arriving:

• A desire for global investor credibility, by having to comply with the UK’s stringent corporate governance regime.
• A market more friendly to non-domestic stocks.
• The US exchanges, by contrast, are parochial, with stifling yet ineffective regulation.
• The FTSE 100 is not an indicator of the UK economy anymore, unlike the Dow still is an indicator of the US.

Blogging may be bit slack for the next few days.  I’m in the Koru Lounge at Auckland International, waiting for my flight to London, where I’ll be based for the next  3 months or thereabouts.  Having moved out of our place in Wellington, with all our stuff in storage, we’re of no fixed abode, with just our suitcases, cell phones and laptops. It’s a very strange feeling, almost like bunking off school, but not quite; I’ve got some business to do, in between being chief bag carrier for She-who-must-be-obeyed.  I’ve also signed up for the UK branch of KEA(Kiwi Expats Assn) to check it out for myself (everyone else seemingly is a fan).   Now, just time for one more pinot gris before boarding.