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Completely one-sided but good-fun spoof interview with Bill Nighy playing a banker trying to argue against a a Tobin tax (a charge on financial transactions, initially suggested for currency transactions but much wider application is being advocated in the wake of the most recent financial system crisis).
My Reuters news-feed gave me this rather odd piece of news: in the Somali city of Haradheere, pirates have set up an investment market to fund their ship hijackings
“We started with 15 ‘maritime companies’ and now we are hosting 72. Ten of them have so far been successful at hijacking… The shares are open to all and everybody can take part, whether personally at sea or on land by providing cash, weapons or useful materials”…
“Piracy-related business has become the main profitable economic activity in our area and as locals we depend on their output,” said Mohamed Adam, the town’s deputy security officer. “The district gets a percentage of every ransom from ships that have been released, and that goes on public infrastructure, including our hospital and our public schools”…
Piracy investor Sahra Ibrahim, a 22-year-old divorcee, was lined up with others waiting for her cut of a ransom pay-out after one of the gangs freed a Spanish tuna fishing vessel. “I am waiting for my share after I contributed a rocket-propelled grenade for the operation,” she said, adding that she got the weapon from her ex-husband in alimony. “I am really happy and lucky. I have made $75,000 in only 38 days since I joined the ‘company’.”
I wonder how long it will take for investors in guaranteed-rental investment properties, high-yield finance companies and other such exciting opportunities to jump in.
Further to yesterday’s post on the difference between me-too brands and real alternatives, Michael Gregg reminded me of one campaign where being an alternative is an overt strategy. Rabobank arrived in NZ some years ago focused on rural banking, as a way into the wider NZ banking market. Most banks would simply do full-range banking offers and me-too campaigns. Rabobank entered the retail market with a cunning twist: Rabobank doesn’t want your daily banking; it wants your online savings account. The brand personality is “your significant other bank”, with witty ads suggesting an extramarital affair. The strategy worked brilliantly, enabling Rabobank to quickly capture a significant share of cash savings without the high cost of a branch network.
Disclosure: I’m chairman of Click Suite, which played a major role in designing and building Rabobank’s online banking offer and promotional campaigns.
Contrary to popular belief, a wind farm is (barring its manufacture and installation) at best carbon-neutral. So how come my local taxi firm can buy carbon credits from a wind farm to offset the taxis’ use of fossil fuels, and claim to be carbon-neutral? It’s a nonsense.
And don’t give me that claptrap about avoiding carbon-emitting electricity generation. I haven’t seen any power stations closing recently. Even if it were so, the logic is still specious.
If you want to minimise or penalise carbon emissions, tax the emitters or their fuel suppliers. That includes the suppliers of coal, gas and automotive fuels.
Anything else is, to use the French phrase, une usine à gaz or “gas factory”, an unnecessarily complex and bureaucratic mechanism of dubious benefit for the purpose intended. The term seems seems highly appropriate.
KPMG has published a comparison of effective tax rates for people on US$100k a year in 86 countries (click here for the pdf file). US$100k is the entry-point for internationally-mobile managers and mid-level professionals. (KPMG also compares tax at US$300k for those further up the income ladder). The comparison excludes local government taxes and consumption taxes, and ignores what government provides in return (eg. healthcare). However, the figures are for a childless married income earner, not usually a big user of government services at this income level.
Once again, The Economist publishes an edited highlights graph. For my English-speaking readers elsewhere:
Kiwi entrepreneurs - startups and owners of established businesses - might want to be in Auckland for the afternoon of Wednesday 29 July. The ICEHOUSE has asked me to tell you about their free afternoon of seminars, networking and other events aimed at showing you what the ICEHOUSE can do for your business. If you’re not familiar with The ICEHOUSE, it’s a combination of business incubator, management educator and angel investment coordinator, run under the auspices of Auckland University, with support from leading firms and business luminaries.
See The ICEHOUSE in action:
- Hear stories from business owners who have experienced the award-winning ICE Bridge Owner Manager programmes and the phenomenal changes it brings
- Learn about life in the ICE Accelerator incubator and the pathway to start-up success
- Listen to ICE Angels talk about what they look for when they invest in businesses
- Get face-to-face with ICEHOUSE Chief Executive - Andy Hamilton, Chairman - Greg Cross, new Director of Start-Ups - Ken Erskine, Executives in Residence – Mark Hardie, Jaco Pretorious, Terry Allen, Duncan Shand, Owner-Manager Programme directing team – David Irving, Chris Woods, Deb Shepherd, Jo Clayton, Leith Oliver, Liz Wotherspoon and ICE Angels Chairman Trevor Smith, Founder of Start Up and Made from New Zealand Patrick Macfie.
- Meet and hear about how big businesses are helping smaller businesses grow in New Zealand (Boston Consulting Group, BNZ, Ernst & Young, HP, HR Partners, Telecom and Gen-i, Microsoft, Minter Ellison Rudd Watts and Telecom).
Back-to-back Seminars will run all day on topics including:
- The 3 Circles – the keys to unlocking growth potential in your business
- Will your idea pass the market validation test?
- Get ready for Angel Investment
- Design for Cut-Through
- IP Disasters to Avoid
- Social media
- What makes a “bankable” business?
- Marketing strategies
“Ideas Clinics” allow you to discuss your business ideas one-on-one with expert Advisers, Investors and Business Growth specialists.
Make sure you practise your “60 second elevator pitch” for Speed Networking at 4.30pm, followed by drinks. (Check out Andy Hamilton’s 60 second pitch about The ICEHOUSE for some ideas).
Economist Willem Buiter was an early proponent of the good bank/bad bank solution to take all those toxic assets out of the finance system without crippling the taxpayer and the ordinary depositor. Unfortunately, despite the support of many economists, that proposal was largely ignored by most governments, who instead lumbered the taxpayer with huge borrowing, printing money and other future-hocking solutions. Undeterred, Buiter has now turned his attention to a related major policy issue - banks that are “too big to fail” because they would bring down national and global economies. On his Financial Times blog, Buiter covers a broad range of options and concludes that “there is quite a list of effective instruments for cutting leveraged finance down to size“.
- Legally and institutionally, unbundle narrow [high street] banking and investment banking (Glass Steagall-on-steroids).
- Legally and institutionally prevent all banks (narrow banks and investment banks) from engaging in activities that present manifest potential conflicts of interest. This means no more universal banks and similar financial supermarkets.
- Limit the size of all banks by making regulatory capital ratios an increasing function of bank size.
- Enforce competition policy aggressively in the banking sector, by breaking up banks if necessary.
- Require any remaining systemically important banks to produce a detailed annual bankruptcy contingency plan.
- Only permit limited liability for narrow banks/public utility banks.
- Create a highly efficient special resolution regime [SSR] for all systemically important financial institutions. This SRR will permit an omnipotent Conservator/Administrator to financially restructure the failing institutions (by writing down the claims of the unsecured creditors or mandatorily converting them into equity), without interfering materially with new lending, investment and funding operations.
However, Professor Buiter reckons that governments aren’t facing up to this problem, either. Instead, it looks like the surviving big banks will get even bigger.
I’ve had this conversation several times, including with myself. Most businesses go through a major crisis occasionally. You just don’t hear about most of them unless they prove fatal. However, in this current environment, many business are financially stretched. The banks are being very tough on anyone in breach of their bank covenants (key financial targets which have to be met or the bank can call in its loan).
Assuming your business is salvageable, the best way to keep the bank from sending in the receivers is to be tougher than they would be. By that I mean that you should think like a receiver - drastically chopping expenditure, cutting staff, closing branches, taking a large axe to management, killing off non-profitable products and services, and so on. Not half-hearted measures, but really tough-minded ones. If you’ve got a plan that the bank can easily see is tougher than what they’d do, you’ve got a chance of staying in control - providing you actually do what you said you’d do. And you’ve got a better chance of preserving some strategic capability for the future (like key designers or young trainees). Once you do get the bank off your back, you can get on with the job of building your business, even if it is from a smaller base.
Of course, it’s even better if you get tough a lot sooner in the crisis, long before the bank gets heavy-handed. That way there’s a small chance that they’ll leave you alone and not impose all those reporting requirements, penalty interest rates and outrageous investigation fees which make the job of recovery even harder. A small chance.
You’d be surprised how many wannabee entrepreneurs haven’t thought about these basic questions before betting the farm.
Microsoft has announced that, after 17 years, it will stop selling its Money personal finance software at the end of June. I’ve always quite liked MS Money. It has its flaws, but it did the job reasonably well for our home accounts and investments, and I never saw anything else worth changing to (unlike small-business accounting, where I strongly recommend Xero).
When I opened my first proper bank account on starting university, the bank manager himself sat down with me to talk about managing my money. I don’t think that happens these days! The bank manager gave me a book in which I could record my income, expenses and bank balance, so I wouldn’t lose track of how much money I had and what I spent it on. It was a habit I never lost, and I still have all those accounts books. In 1996, MS Money came bundled with a home PC package and so I went electronic. Should someone ask what we spent at the supermarket in June 1998, or our expenditure in bars and restaurants last year, or the return on my investment in Telecom, I have the data!
Some day, someone will find these records and earn a PhD by analysing the minutiae of our family’s lifestyle as evidenced by what we earned, saved and spent. So now I need Rod Drury to bring out the personal finance edition of Xero, with investment functionality, please. Posterity demands it!
Disclosure: Isambard Investments owns Xero shares. My family trust owns Microsoft shares.
If you’ve thought much about why your business exists, you’ve probably come up with some worthy statement of business purpose. Good; but what about making money? I’m not denigrating high ideals of business purpose, but a business that doesn’t make money can’t achieve those ideals. Some business leaders seem ashamed to explain this fact of life to their staff. Indeed, in many companies, most staff do not understand how the company makes money or their responsibility and role in that. That’s madness. If your people don’t understand your business model and its key metrics, any targets you set may seem capricious or arbitrary. That can mean wrong operating decisions and a high probability of staff not taking responsibility for their own contribution (or lack of it) to the viability of the business.
Let’s look at a very simple business - hourly-billed services (basic labour or top-end professional services):
I assume that you are in a competitive industry, but your pricing of those 1400 billable hours hopefully reflects your actual 2080 hour costs (don’t forget training, insurance, office rental, IT costs, sales, management, administration, etc, etc, etc.) plus a reasonable profit. That 6.5 hours a day is the minimum required daily billable time from your staff. Importantly, if someone has a quiet day, the shortfall has to be made up quickly - there aren’t enough spare hours in the year to catch up a long period of low billable activity. Yet many of the people who work in hourly-billed services (and even some who run them) don’t understand these relentless numbers and their responsibility for achieving them.
Some business leaders don’t share their business metrics with their staff, perhaps because of unnecessary embarrassment about the profit motive or a concern that staff won’t understand. My experience is that people respond well to knowing these things. I once explained the company’s cost of capital to a group of electricity contractor labourers, several of them barely functionally literate or numerate. But simple examples in terms that were relevant to them got across the idea of relating risk and return. That, together with an explanation of depreciation, maintenance and operating costs, saw them volunteering many suggestions for simpler line maintenance vehicles - the most dramatic being a change from their ubiquitous standard $250k line truck with HIAB (onboard hydraulic lifting arm) to more $30k utility vehicles!
Everyone who works for you needs at least a rudimentary understanding of:
PS. If your pricing doesn’t cover your costs and a reasonable return on capital, you have to change something (your price, your product, your operations, your promotion, your tough-mindedness in customer negotiations, something) to ensure that it does. Otherwise you have to somehow get out of the business, or you’ll go broke. As the US auto industry is learning, harsh realities must be faced and overcome.
The OECD has just issued its annual survey of tax on wages using 2007/8 data. Some readers may be surprised at where their country of domicile ranks. However, these simple averages are misleading:
It’s a bit like comparing airline fare deals.
The good news keeps coming at Kiwi online accounting firm Xero, which has announced a partnership with BT, the leading UK telecommunications company. Xero shares, already lifted by MYOB founder Craig Winkler’s investment and winning global recognition with two Webby awards, rose 20% on the BT news before coming back slightly up on the open. The marketing channel agreement expands Xero’s relationships with leading national telcos targeting small business, including Telecom NZ and Telstra. Telcos can very much more easily reach millions of small business customers in ways and at much lower cost than just about any other channel. BT in particular is seen as the trend-setter in offering a comprehensive suite of products and services for small business, and Xero fits in perfectly. Rod Drury and his team have adopted a smart strategy.
Disclosure: Isambard Investments owns Xero shares.
US president Ronald Reagan once described the role of government in the economy: “If it moves, tax it; if it keeps moving, regulate it; if it stops moving, subsidise it.“ That certainly sums up government behaviour right now.
At at an Institute of Directors breakfast this morning, economist (aka. dismal scientist) Andrew Gawith spoke about the global economic crisis and the need for change. I had the mixed privilege of delivering the vote of thanks. I say mixed because, while Andrew is a nice chap and a great presenter, he had me grateful that the windows don’t open in the 5th floor dining room of the prestigious Wellington Club; otherwise his audience might have been jumping out of them. (Update: I was wrong - they do open. Eek!) Andrew’s presentation was largely a summary of the scale and causes of the current global crisis. He doesn’t offer much hope that we’re through it yet - 2009 will get worse and 2010 will be flat at best, he says. (One bright note for NZ readers - China and India’s demand for protein will keep climbing, and so Kiwi farmers will once again save the day).
I won’t rehearse Andrew’s case - you’ll be largely familiar with the themes by now if you read the financial pages of your morning newspaper. I will paraphrase some points he made regarding the role of government and regulation.
Andrew concluded with a strong message for his audience. The economic crisis wasn’t only a failure of regulation, but also a failure of morality. Boards of directors set and enforce the moral stance of their organisations; ethics, values and responsibility - old-fashioned virtues that are still highly relevant.
Disclosures: Andrew Gawith is a principal of economics consultancy Infometrics and of Gareth Morgan Investments, which manages part of my family trust’s investment portfolio. I am a member of the Wellington Club.
Those seeking angel or venture capital need to learn what’s in a term sheet - an agreement between investor and investee which spells out the key element of a funding deal. Guy Kawasaki has pointed me to leading Silicon Valley law firm Wilson, Sonsini, Goodrich, and Rosati, who offer a free online term sheet generator. It’s designed for USA venture investments, but it’s still useful for other countries, since it captures many of the key elements. Have a go - you’ll see some terms you don’t understand, but that’s good. Find out what they mean. Understanding this stuff is important, so you know what you’re signing up to and why.
Update: Here are some handy NZ guides.
Brazilian President Luiz Inácio Lula Da Silva proclaimed last month that the global financial crisis had been created by “white-skinned people with blue eyes.” Now Walter Russel Read, writing recently in Newsweek, has gone a step further and blamed it all on the Dutch:
The modern financial system grows out of a series of innovations in 17th-century Netherlands, and the Dutch were, on the whole, as Lula describes them.
Read’s brief history of modern finance looks like a review of Microsoft Windows:
This financial and political system is the operating system on which the world runs; the Dutch introduced version 1.0 in about 1620; the British introduced 2.0 in about 1700; the Americans upgraded to version 3.0 in 1945, and as an operating system, it works pretty well - most of the time… But the system has bugs - among them, a tendency to crash.
I’m kidding about the blame; Read’s article is titled “In Defence of Paleface Capitalism.”
The 300 years of liberal, global capitalism have seen an extraordinary explosion in knowledge and human affluence. Not everybody shares in these benefits, and there are environmental and social costs to the rapid progress. Still, not many of us would like to turn the clock back to 1610.
… Lula … understands that for all its shortcomings, the market isn’t the enemy of the poor. Brazil’s task, Lula believes, isn’t to make war on the market, à la Venezuela’s Hugo Chávez, but to harness its vast potential for the sake of the poor. This is new. Thirty years ago, Brazil, like most of Latin America, was polarized between a radical, antiliberal left and a radical, antiliberal right. Today Brazilian politics are different; both the left and the right are more committed to free politics and free markets than they used to be.
Brazil is better off for the change. Although the current crisis is beginning to bite, Brazil has overcome the stagnation and corruption that halted growth after the first oil shocks and the Third World debt crisis, and is now one of a handful of countries with the power to shape the new century. And this hasn’t just been the story in Brazil; more and more “developing” countries are turning into the pacesetters of liberal global capitalism. So Lula is right: the global crisis emerged from a system built, with all its many flaws, by blue-eyed palefaces. But if countries like Brazil can stick with their own versions of Dutch finance, the future of the system will increasingly be shaped by people who look more like Lula - and the palefaces are going to have to run hard to keep up.
I think Read includes China, India, etc.; but it’s still moot what capitalism will look like as they reach their full potential.
Courtesy of Capital Chronicle, here’s Global Finance magazine’s list of the world’s safest 50 banks. I’m glad to see that the list includes all the ones in which I have an interest, directly or indirectly. The list shows great variety in size and ownership. As Capital Chronicle observes, “public ownership or a cooperative structure certainly do not guarantee prudence.” In that light, NZ readers will note one notable absentee from the list - the so-called “people’s bank”, government-owned KiwiBank.
As this economic downturn continues, we’re going to see more news like this - a well-run company like Infratil divesting business units to free up cash and pay down debt. Even though the strategic concept for integrated mass transit (bus, ferry, etc) in NZ’s largest city might still be valid, I assume that Infratil’s bankers have been squeezing hard to get some of their money back. It’s a bitter irony that they would have endorsed the strategy in the first place, and been falling over each other to lend Infratil the money to implement it.
Still, every cloud has a silver lining for someone, and no doubt Brian Soutar will have bought the Fullers ferry business for a nicely discounted price. $40 million is a little out of my league, but if anyone else wants to sell an interesting subsidiary, please contact me. I’m in the market for a bargain.
Disclosure: my family trust holds Infratil securities.