Retail Banking – Why they don’t want your money!

The Basics

The fundamentals of retail banking were probably devised about 5 minutes after the invention of money.  It has been a business model that has remained relatively unchanged for centuries.

Simply the bank offers savers a return on any money deposited and then the same funds are used to source loans that are made at a substantially higher interest rate.  Profits are generated by subtracting the difference between the interest paid to savers from the interest received from borrowers plus any overhead, as follows:



To summarise:

Profit = Interest from Loans minus (Interest paid to Savers + Overhead)

Admittedly this is an oversimplification.  Payments are usually made on a monthly basis, but the principles are in place.

Banking Practices

All too frequently, with the possible exception of the UK, banks charge private customers for their services and especially on current accounts.  This seems to be doubly immoral from the author’s perspective because first and foremost customer funds are used to seed the bank’s profits and secondly next to no, or usually no interest is offered on such accounts.  In other words money from current account holders is used to generate profits and they are charged for it!

There are of course times when the bank should charge their current account clients for banking services.  The most obvious example being when a customer takes advantage of an overdraft facility – in this case the customer is actually borrowing from the bank and, as with any loan, interest should be applied.  The bank can also legitimately charge for any abuse of the account, so long as the bank demonstrates transparency, clarity and a clear appeals process in its practices.  Furthermore these charges should probably be punitive in nature, especially in cases of repeated offenses such as getting overdrawn or taking advantage of banking guarantees when knowingly exceeding limits

Interbank Lending

A great source of funding, in addition to customer deposits, has been the banks lending to each other.  This was a crucial element that contributed to the severity of the banking crisis of 2008.  When some of America’s biggest banks – for example Lehman Brothers – went bankrupt, funds that had driven the whole system dried up.  Many banks had become so dependent on interbank lending, even to finance operations, that this led to a catastrophic meltdown.  Coupled with bad investments and dropping share values the situation only became worse and bailouts were the only way to prop up the system.

Business Customers and Other Services

Banks also have the right to charge business customers for services provided, as these are additional services – beyond the basic – in accordance with the specific business requirements of the client.  Banks also offer an additional level of security and protection to any funds held and safeguard against money laundering or other illegal activities.  Banking fees, as expenses, can also be offset against profits for business clients to reduce their tax burden.

Why the Banks Don’t Want your Money!

However, for the main point I wish to make in this post, I must return to personal customers.  We have already established that retail banking uses funds from users – or so the theory goes – to generate profits and all too frequently they are charged for this.  The reality is that nowadays the banks don’t actually want your money!

How can I draw such a conclusion?  How could such a situation have evolved so that in the ten years since the banking system almost collapsed and the banks were screaming for bailouts that everything has so radically changed?

The evidence speaks for itself and without too much analysis.

Firstly, the banks offer interest rates to savers that are substantially lower than the inflation rate.  In other words keeping money in a bank account means that its value goes down in real terms.

You might as well keep your money in a sock under your bed!

Secondly, banks have to continue investing to grow and these funds must be sourced from somewhere.  Banks generate profits on the basis of interest collected on loans as well as wider more diverse investments, for example stocks and shares.  Funds can also be secured through interbank lending.  With this in mind the sums don’t add up.

Most of the banks that were almost taken down by the financial crisis of 2008 didn’t return to profitability until at least 2016, or in some cases as late as 2018, as they continued to haemorrhage funds.  So where did the capital come from?

It isn’t possible to draw any other conclusion other than the capital being used has come from the massive governmental bailouts, even if indirectly through interbank lending.  So taxpayers’ money is being lent to taxpayers to generate banking profits that are turned into owner dividends and excessive bonuses for senior managers.  The traditional way of generating profits for the banks was to use deposits to fund investments and generate additional income, but now – thanks to the bailouts – the banks have even found a way to bypass savers.

Now where is my sock…

© Richard Horton, Omega Support Services

The Financial Crisis – 10 Years On

Before starting it is important to make clear that I am not an economist nor am I a financial analyst.  However, I do hold some accounting qualifications and according to experts in the field I have more than a layman’s understanding of the subject.  Finally it is important to make absolutely clear that the opinions expressed within are my own and represent conclusions that I have drawn through observation and personal research.

Ten years on from the financial crisis of 2008, which almost led to a meltdown of the entire banking system it is worth re-assessing what went wrong and the lessons learnt with the benefit of hindsight.  I am convinced, ten years after the financial world crashed around us we had caused the problems ourselves.  This was compounded by the mismanagement and lack of regulatory control of the banks who lived by the motto ‘Greed is Good’.  This article will focus on two key elements that stalled the world economy and the resulting consequences that we are still living with today.

While less significant than the second factor I am going to start with the so called ‘Credit Crunch’.  In simple terms the Credit Crunch can be described as ‘maxing out’ our credit.  Credit had been cheap and readily available for such a long time and consumers had taken advantage .  This in turn had driven the economy and provided a lot of growth.  This sounds good until the inevitable happens,  As with domestic budgeting, if there is an overspend one month the belt must be tightened the following month.  In an economic cycle there comes a point when credit has to be paid back and more borrowing becomes unsustainable.  If enough people reach this point at a similar time demand for consumer products drops, growth is inhibited and the economy slows down.

Secondly and more significantly the domestic mortgage market ran aground, creating such deficits for the banks that losses became terminal.  This was particularly acute in the U.S. and a notable casualty was Lehman Brothers.  It is a well-known truism that when America sneezes the rest of the world catches a cold.

So how did this situation evolve?  In simple terms two things happened that cumulatively compounded the same outcome.  As often happens in economic good times a property bubble was formed creating a substantial overvaluing of properties.  This was further exacerbated by irresponsible lending when mortgages were been granted at more than the (already over-inflated) value of the property.  120% mortgages were not unheard of – the justification often being to cover renovations or refurbishing of the home by the new home owner.

Then the bubble burst.  The market went through a period of readjustment and house prices depreciated.  This created a situation of negative equity for home owners.  While not ideal this is not hugely consequential if only a few hundred or even a few thousand home owners subsequently default on their mortgages, but it becomes untenable for the financial sector when a million do so.  Historically, banks would have repossessed (or foreclosed) such properties to cover any potential losses.  What made 2008 so devastating was the perfect storm of overlending in a depreciating market that meant repossessed properties all too frequently did not cover the value of their associated debts.  The banks could only offload such properties cheaply and the resulting losses took the banking sector to the brink of collapse.

How was such a situation allowed to develop?

The simple answer is greed and irresponsibility on the part of the banks.  While some have suggested that the borrower is also responsible for borrowing beyond their means ultimately it comes down to the banks’ short-sightedness, focus on shareholder dividends, profits and greed.

To use an extreme example to make my point if I lend £100,000 to somebody who is unemployed is it really their fault when they default?  Yes of course it is and to suggest otherwise would be to avoid them taking responsibility.  However, if this is true it is even more my fault for not checking on their ability to keep up with the repayments.

Again –as above – let’s deal with the simpler issue first.  I would go as far as to say that the credit crunch was self-inflicted and tantamount to self-harming.

I first came across the term, Credit Crunch as early as 2002.  From time to time the media would run a story with dire warnings that catastrophe was impending, that it would come upon us a crunch and that we needed to get ready.

Forewarned should be forearmed!  Yet nothing was done to avoid or at least alleviate the crunch when it arrived.  In principle this is the same as getting a bomb warning and then ignoring it until it blows up in our faces!

This begs the question of whether anything could have been done.  The author’s view is a resounding yes, and what is more it may have reduced the devastating impact of the collapsing property market.

While tied to the base interest rate of a country, banks are free to set their own interest rates, but are restrained by the influence of the competitive market.  I would argue that an upward massaging of the interest rates would have had three positive long term effects for the banking sector.

  • Lending would have slowed down and greater control of borrowing would have been established, lessening the impact of the credit crunch.
  • Loans would have become more profitable and the banks would have earned more for doing less.
  • Customers would have been encouraged to save more rather than spend (see also my article on retail banking), which would have given bankers greater reserves when the bottom fell out of the property market.

So if a potential solution – or at least partial solution – would have been so easy to implement why wasn’t it?  The answer is stark in its simplicity.  Nobody did anything because everybody did nothing!

If a bank had unilaterally raised its interest rates it would have become less competitive and lost out as a result.  This would have impacted not only the profitability, but the share price, shareholder dividends and confidence in the senior management of the bank.  The responsible CEO may have realised it was the right thing to do, but the cost would have been their job and reputation.

Moving on to the collapse of property prices and the sheer number of defaulting homeowners the issue on one hand is more complex, but the solution is easier.  Banks need to lend responsibly and, as in the past bear in mind, two vital factors; the value of the property and the credit score of the borrower.  After these two factors are considered the bank should never lend 100% to give some contingency in the case of a collapse in property values.  The author suggests maybe 80%.  This will protect the bank in the case of a depreciating market while building a sustainable lending model.  However greed and the lack of effective regulation took over.  The more money lent the greater the profitability for the bank – or so the theory went.

Not directly related to this issue, but the media ran stories in the years following the crisis of banks deliberately creating a situation where small businesses wouldn’t be able to keep up with any loan repayments so the banks could then after  a number of defaults move in, acquire the properties and add them or revenues from their sales to their asset registers.  They were as trustworthy a den of thieves.

The whole banking system was sick!

What makes this worse was that the banking system had a warning shot of what was coming.  Not long before the whole system collapsed Northern Rock a small British bank went under for exactly the same reasons that brought about the financial crisis.  The message was clear from Northern Rock – adapt or die!

Particularly in the UK some banks were defined as being too big to fail and the government pumped huge amounts of finance in to stop the whole system from collapsing.  According to a TV interview with Alistair Darling (then the British Chancellor), Fred Goodwin (CEO of the Royal Bank of Scotland, the largest bank in Britain and one of the largest in the world) had warned that RBS was literally hours from running out of money*.  The British government agreed a bailout plan that ensured the survival of such entities.  In a similar way American tax-payer dollars were used to prop up the system.

The emphasis of governmental intervention was for the banks to continue to function, to lend and keep the economy ticking over.  Remember the now almost ubiquitous phrase ‘Keep Calm and Carry on’?  A little known and relatively obscure British propaganda poster from World War II had a new lease of life.

What did the banks do?  They virtually shut down the system.  They used the funds to consolidate and restructure (yes this was necessary), but they didn’t use the funds to keep the system going.  This issue is also discussed in my article on Retail Banking.  The world economy juddered and stalled while the banks licked their wounds, thinking only of themselves – this had not been the purpose of the bailouts.

Although impracticable to implement it seems to the author that the children should have their toys taken away from them for being very naughty.  Maybe the National Banks shouldn’t only set the base rate, but also set interest rates for the banks that are fair for all and take greater regulatory control of the whole system.

The cost would be the removal of competition from the market as the whole system is nationalised.  This opens a door that few would dare to pass through as it would increase state control of personal finances

A cynic could say, ‘The banks are rotten to the core anyway, so what does it matter?’

© Richard Horton, Omega Support Services 2018

* As seen on BBC documentary The Bank that Almost Broke Britian

Poland, Independence and the National Psyche

This article is based on generalisations and observations and therefore doesn’t apply across the board, however the author maintains that it largely represents a truthful perspective.  Although not the focus of this article Polish people have a lot of positive qualities too.

As the rest of the world commemorated the centenary of the end of World War I on 11th November 2018 another significant centenary was celebrated in a quiet corner of Europe.  The 11th November 2018 also marked 100 years since the re-emergence of Poland as a central European country 123 years since its disappearance.  This was also recognised elsewhere through the projection of the Polish flag on international landmarks (see images – courtesy of Facebook).

Polish Independence Day has become a controversial and frequently confrontational event in recent years.  Polish nationalists, egged on by populist politicians have hijacked celebrations and slogans like ‘Poland for Polish People’ and fighting has become a hallmark of the day, particularly in Warsaw.

However, before trying to understand how this has happened, it is important to provide some essential background that will also offer some keys to understanding Polish thinking.

Let’s start with this.

Polish people are often considered to be stubborn and proud and find it difficult to trust.  It is not uncommon to come across an attitude of ‘I will trust once it has been earned’.

This is contrary to how most people usually behave, as on the whole people trust until it is betrayed.  This trust is not a naïve blind faith, but can be considered in a similar way to a financial transaction.  I would happily lend an acquaintance £10-00, but think twice if I wasn’t paid back, but I would hesitate to lend the same person £100-00 until they established a track record.  All relationships start with a bit of trust, that grows incrementally as the relationship develops.  Can you imagine starting a romantic relationship with an attitude of ‘I will trust my partner once it is earned!’

Poles are fighters who will unite against a common enemy, but in the absence of such an adversary they will often turn on each other.  Although disappearing to some extent now, Polish people were often suspicious of others and success was considered only to be the result of corruption, criminality or some kind of unfair favour; the right connections or money.

Somebody once said to me, ‘Polish people are okay, once you accept they are basically rude’.  This may seem unfair but it is often borne out in real life.  At the risk of being unintentionally offensive, to generalise (and remember this is not in all cases – nor is it a purely Polish thing) Polish people seem to have a lack of awareness of others and a blinkered view that is focussed only on what they want.  Being walked into, or pushed aside by a supermarket trolley is not an uncommon occurrence nor is the incredulity that accompanies any challenge to any behaviours that demonstrate this lack of a wider awareness.

While this seems to be very biased and painting an unfair view of Polish people it is true enough to require greater understanding.  To do this we must understand something of how modern Poland came about.

Poland was reborn out of national trauma.  The 1795 partition of Poland had resulted in it disappearing completely from the map.  Consequently when World War I broke out in 1914 Polish soldiers found themselves fighting on both sides – some with Russia and others with Germany and Austria.  The interwar period saw Poland struggle to establish its national identity, and in doing so it bloodied Russia’s nose with an outstanding defeat and a moment of deliverance which is widely known as the Miracle on the Vistula.  Then just as the fledgling nation began to find its feet, its father, the hero Marshall Pilsudski, died.

In 1939 Poland was overrun initially by the German invasion and then finished off by the Russian attack on the east that destroyed any last hope of Polish survival.  In terms of percentages no country suffered more than Poland during World War II and in particular Warsaw suffered the consequences of two failed uprisings and the ensuing reprisals that left the city essentially destroyed and depopulated.

Poland then was ‘liberated’ by the Red Army and a Communist regime, tightly controlled by Moscow, was installed.  This regime remained in place until the winds of change swept through Eastern Europe in 1989 and the Communist Bloc collapsed like a house of cards.

So now let’s re-examine the Polish national and individual psyche in the light of this understanding.

Is it possible that Polish people have a problem with trust because historically they have been trapped in a vice by their neighbours?  Neither Russia nor Germany showed any regard to Poland or Polish self-determination.  Hitler actively sought to destroy Versailles which among other things re-established Poland and Russia was still smarting from its bloody nose in 1920.  Russia more or less reinvaded territories it lost during the 1920 campaign and never returned them – even to this day!  Even the partition of 1795 saw Prussia, Russia and the Hapsburg Empire cut up Poland with as much consideration as you would give to sharing a cake.

The Communist era would only have added to this breakdown of trust.  In non-totalitarian circumstances neighbours build (or don’t build) relationships with each other based on individual circumstances and there is freedom to build friendships or have disputes however it may be.

The Communist regime attacked the fabric of Polish society in two ways.  Firstly people were encouraged to watch their neighbours and the Milicja (the Polish Secret Police answerable to Moscow) were ever present.  How much informing went on, the author cannot comment on, but the risk of informing made people suspicious and unable to form normalised relationships.  Secondly the very nature of Communism that in reality meant some people were more equal than others meant that any success had to have come about as a result of ‘being in bed with the Communists’ or being part of the underground criminal fraternity– hence connections with success and corruption.

One of the great ironies of World War II is that Britain declared war on Germany in order to save Poland, but in the end Poland contributed greatly to saving Britain!  The truth is that nobody helped Poland in 1939 or provided any meaningful help in the Warsaw Uprising of 1944.  No wonder Poland (and Polish people) have trust issues!  Yet Poland contributed significantly to the RAF, most notably in the Battle of Britain and their troops bravery is still a matter of national pride with the outstanding victory at Monte Cassino.

And what about this lack of awareness of others?  Maybe this is not so much a lack of awareness, rather it is a very focussed self-awareness.  In other words ‘I will concentrate on what I need and that is my only concern.’  The older generation are at times the strongest example of such behaviours.  Imagine living in Poland – and particularly in Warsaw – during 1939-1945.  This was probably almost the worst place to live in the world during this time and if you were a teenager or a young mother at the time and went out to get bread jostling and fighting was the only way to ensure getting food to put on the table.  We would all agree that our immediate families come above others.

It is hard to change ingrained habits once established and when the war finished and the fight for necessities came to an end (bear in mind Communist era shortages too) the need to be combative didn’t.

Logically, Poland would seem to be the last place in the world for fascist views to emerge (remember Poland’s suffering).  However, there is little wonder that the far right in Poland use it as an opportunity to assert Polish self-dependence and national pride because they feel like they are standing up for Poland because no one else will.  Independence Day in particular provides such a platform.  While the author fundamentally disagrees with this nationalist stance it has come about as a result of the cauldron of national and personal experience that has defined Poland over the last 100 years. Stoked by politicians who are using nationalism for their own political gains (again sadly there is nothing unusual in this in the present day – consider both Donald Trump and Vladimir Putin) many of these people are unwitting pawns in a bigger game.

So to understand Poland and its people it is the author’s view that the individual psyche of many has been marked by the trauma of the nation.  We are all the product of our experience and this is reflected both on an individual level and national level.

© Richard Horton, Omega Support Services 2018

Populism- the New Truth

Over the last several decades there has been a move away from what could be called facts (although these weren’t always right in the past either – and I can think of some horrific examples) to this kind of ‘if it feels right it is right’ and while I agree perception is as powerful as reality we should always look for truth in our dealings with each other and the world around us.  Another way this manifests itself is that if the majority believe it then it must be true.

The majority opinion is not always the right opinion.  Most Germans supported Hitler until the last year or two of the war and he was clearly wrong!  Most people will just blindly accept this fact, but if you were prudent you would check it out yourselves and not just accept it at face value.  Go ahead… I dare you.

Fake news surrounds us and the discerning person needs to look behind the headlines.

A personal favourite of mine – because it is so bad – is the so called European refugee ship that was accepted by North Africa during the World War II.  I have reproduced it on the right.

It may seem logical that many Europeans attempted to escape Europe during the horrors of World War II and the message of our common humanity and reciprocation is indeed a moral one and thus rests easily on our consciences – so we accept it as true.

However closer examination reveals the truth.  It may not be obvious but the picture has been de-coloured which makes it look older.  The people are so small that they become featureless but if you were too zoom in it would be obvious they are not dressed in the style of the 1940s.  However, the biggest clues are the name of the ship and its home port.  It is the Vlora, registered in Durres.  Both of these are Albanian ports cities and what we are actually looking at is an attempted mass exodus from Albania after the fall of communism.  The ship crossed the Adriatic and ended up in the Italian port of Bari.

This meme became very popular and was viewed by millions though their social media accounts, but shouldn’t a moral message be rooted in the truth?

Wikipedia has become the most popular encyclopedia in the world and is often the first point of reference for many.  The intentions of the creators was honourable and while there is undoubtedly a lot of accuracy in their articles and they have taken steps to ensure authenticity it is inevitably flawed because of the populist rather than academic nature of its authorship.  I recall coming across degree level study materials that in one chapter stated that Wikipedia should never be used in serious academic research, but then a few chapters later quoted a Wikipedia article to support a claim the author was making.

However neither of these are the real target of my article today.  Rating sites are very useful, but also deeply flawed.  Typically they provide a forum for clients to express their views on the service they received from any given company.  Probably the most famous of these is Trip Adviser who can make or break a business.

In the past hotels used to display their star rating, but now it is also all too frequently accompanied by its Trip Adviser rating, such has the influence of the website become.

It is important that I point out at this point that to my knowledge there is no ill intent on the part of Trip Adviser the issue is the populist approach to the reviews.  I am sure most opinions are valid and a real reflection on the consumer’s experience of a hotel, hostel or restaurant.  However, some are not.

I know first-hand of a restaurant that was effectively destroyed by the views expressed on Trip Adviser.  I can state with absolute confidence that the views expressed were completely wrong as I was there myself for the New Year’s celebration on the evening in question and while the service wasn’t perfect it was nowhere near as bad as the reviewers claimed it to have been on Trip Adviser.

Of course people are entitled to their own views; however the issue is that these views were expressed with no accountability and this is dangerous.  If a view is expressed on a public forum it is only fair that the reviewer should be held accountable on the same public domain.  Sadly this is where most ratings sites are.  What is more it is easy to create a false email account and use this as your reviewing medium and thus hide your real identity.

Social media gave rise to trolling and writing unsubstantiated opinions with no accountability is fundamentally the same thing.  Please understand I am not saying we should never write bad reviews.  If a place genuinely deserves a bad review then it is fair, so long as accountability is built in.

After all it is a person’s livelihood that we are playing with and the consequences are life changing.  How would you like it if you were put under the spotlight and reviewed unfairly in your line of work.

It’s not nice – so play nice!

© 2018 by Richard Horton (Omega Support Services)

 

Shopping – The Revolution is Coming!

Technology is changing the way we do everything and next on the change list is the way we do our shopping.  Shopping has been a familiar weekly chore for decades.  The ubiquitous supermarket has provided us with almost everything we needed and smaller local shops filled any gaps.  Over the last 20 years supermarkets have diversified as they have added clothing and electronics to their range.  Prices have remained reasonable and in many cases gone down in real terms, especially with the arrival of low cost supermarkets such as Lidl and Aldi.  Sainsbury’s Basics range is about as cheap as anything else available, and this is from a supermarket that traditionally targeted the middle classes.

But we still had to go to the shop.

The revolution is already underway.  Online shopping has been around for a few years.  We simply place an order online through a dedicated app or through the supermarket’s online store and wait for delivery.  Simple!

But this is only the beginning!

Smart tech and the Internet of Things (IoT) is making more possibilities available all the time.

Smart fridges can monitor stock levels (and if fridges can do this there is no reason why other food storage areas such as cupboards can’t).  On the simplest level an app is now available that uses cameras placed in such areas.  The latest photo (which is taken based on opening the fridge door) is sent to your mobile phone so if you are in a shop you can check at a glance what you have in.

If a fridge can monitor what you have, it is not much of a step for it to monitor your consumption habits and create a smart shopping list that again will be available through an app on your smart phone.  As items are consumed your fridge can communicate with your smart phone and add items as they are used up.  Not only this, but the app can get smart by monitoring your usage and through a set of algorithms and variances (that are used in retail all the time to manage reordering of stock) get your shopping list pretty accurate.  This would include items that are bought rarely.  Of course the app would need to have a function in which you can add or remove items manually.

It wouldn’t be too difficult to develop a fridge with dedicated areas for certain products that could even weigh your products to help monitor how much you use.  For example milk levels could easily be monitored, by the actual quantity of milk you have left, rather than the number of bottles / cartons that remain.

Fridges are not the only technical items that can do this.  There are now even food processors on the market that can add to the shopping list by simply selecting the recipe you want to make (see for example the Thermomix).  The tech will then automatically add any missing ingredients.  Of course this may require some pre-planning.

The smart shopping list can then order your shopping online if you choose to and voila!

And there is more!

Assuming you still want to actually go to the supermarket an app is being tested in the UK that not only compiles your shopping list, but then, in coordination with the supermarket, plans the most efficient route through the supermarket so you can get through as quickly as possible.  In other words it acts as a kind of Sat-Nav for the supermarket.  Not only this but it also scans the items as you go round and then you can go to a self-service till and pay without having to scan everything again.  This seems contrary to the business model most supermarkets use, as they want customers to loiter and explore, so it can only be assumed that cost savings are made in other ways to make it worthwhile, presumably this means reducing staff costs.

However the previous example aside the overall direction seems to be to encourage online shopping.  If the shopping list app is tied in to the supermarkets’ stock databases there is no reason why it couldn’t divide your shopping list between 2 – 3 supermarkets to maximise your savings.  It is a false economy to save a few pence on an item to drive across town to get it from another supermarket, but if they are doing the deliveries it is no longer your concern.

In fact if you have created a link between your home storage, smart device and the supermarket databases, there is absolutely no reason why your shopping couldn’t be totally automated and operate using similar stock control logistics as commercial warehousing, including concepts such as FIFO (First in First Out) and LIFO (Last In First Out).  We can, with the exception of unpacking, leave the shopping to sort itself out.

Finally, if delivery scheduling is difficult the supermarket could offer a pick up service in which they put the customer’s shopping together and the customer then simply comes at their own convenience, for example on the way home from work.

It seems that the future of the supermarket it is as a distribution centre.

It sounds almost Utopian, in terms of time saving and economy, but it would mean relinquishing control and trusting Artificial Intelligence.  Are there any downsides?  Only time will tell.

The revolution has begun!

© Richard Horton, Omega Support Services 2018

A Right Royal Profit!

Harry and Meghan’s spectacular wedding grabbed headlines all around the world  It was the perfect fairy tale.  Although she was no Cinderella, Meghan; in many ways an ordinary American girl, fell in love with a charming handsome English prince.  It was the stuff of Hollywood, only it was real life.

Just a thought, and I am not particularly a royalist nor a republican although I have grown to appreciate the role the royal family play in ‘Brand Britannia’

The Sun claimed that the wedding of Harry and Meghan cost a whopping £32m [1].   I am not a Sun reader, but it was the first figure I found online. Whether this is accurate or not let’s work with this figure.

As with most things, it is not as straightforward as the headline suggests.  It was not that simply £32m was deducted from the public coffers and the poor long suffering taxpayer was exploited for a royal indulgence.  Why couldn’t they pay for their own wedding I hear socialists and republicans alike cry.

Much of the money spent would have gone on catering, florists, stylists, tailors, seamstresses and goodness knows what else.  This money didn’t just disappear.  It was spent supporting business and employment.  Not only this but these expenses incurred taxes.

Firstly, staff will have paid tax on their earnings using the simple PAYE [2] basis.  To the layman this is as though I gave £5 and got £1 back.  Assuming that staff costs amounted to a quarter of all costs the government claimed through PAYE approx £1.5m and this hasn’t even taken into account National Insurance receipts.

Suddenly it doesn’t sound so bad.

Secondly companies pay tax on profits, and not all of them behave like Amazon, Facebook or Starbucks. More money returned to the coffers.  It would be impossible to speculate as to how much, but it would be a significant amount that would be increased by the fact that a lot of these companies will also have paid net VAT (those whose turnover qualifies) on almost everything that was invoiced.

Then less directly there is the through trade particularly in Windsor and profits and taxes from wedding memorabilia – even if most of it is tacky (in my opinion). Profits for companies, taxes for the government, and horrible ornaments, mugs and other chintz for the general public.

Now – if you are still with me – there are the television revenues. It was truly a global wedding with worldwide audiences. Do you think each country had cameras in the chapel?

No – they paid for those rights. Let’s assume the big three in Britain (BBC. ITV, Sky – although we may wish to forget about SKY) had cameras in place.

I am sure other nations had cameras around but outside and probably just doing ‘piece to camera’ sets with journalists.

These international networks will have paid for the rights to broadcast. More money for UK broadcasters, more taxable income,

I don’t know it may just be that the government made a profit on the wedding and maybe even enough to put decent cladding on every tower block in the country to avoid another Grenfell.

Just a thought…

Now who is the next Royal we can get married off.

References:

[1] The Sun Online – How Much did the Royal Wedding Cost

[2] Pay As You Earn – Income Tax

Dealing with Dissenting Voices

A recent post on Facebook drew my attention to this issue and I thought it worthy of some further exploration.

However before dealing directly with the matter at hand I want us to remind ourselves of what Omega have written before concerning criticism as it may help inform the debate.  While the value of constructive criticism has long been accepted as a positive force we also believe that criticism can always be helpful in driving improvement and creating positive change.

Loosely speaking criticism falls into three categories and they should elicit certain responses, although responses to the second and third type are similar.

  • The criticism is right, I did something wrong, I behaved badly, it was my fault – or simply I messed up. The response is obvious, put it right, change your behaviour, upskill or go for extra training.  If you still can’t do what is required reconsider whether or not you are even in the right place and if not change where you work.
  • The criticism is right, but it wasn’t me! This is harsh and unfair, but there has to be a reason that the blame has been levelled at you.  Is it a personality issue? Does the person not like you?  Have they misunderstood something?  The truth is something went wrong and it needs fixing, so take a positive stance and look for solutions rather than finger pointing or even blame evasion.  Take responsibility and own the issue and at the same time do your best to be perfect in attitude and deed.  Deal with facts that can be empirically demonstrated.  The truth always outs in the end.
  • The criticism is totally wrong. The one who is criticising has the wrong end of the stick, they have been misinformed, have made a bad judgment call or simply are malicious.  As with the second case it is not fair, it is not right and it is unacceptable.  As with the second type of criticism described above the response is to deal with empirical facts and use the truth to create the correct perception.  Ask yourself why this person is playing the blame game.  Interestingly current research suggested that good people often leave their job because of the way they are treated by the person immediately above them in their vertical, in other words it is more likely to be the supervisor or team leader than the department head or CEO.

The second and third type of criticism has to be managed by shaping and improving the perception of those around you.  A few years ago I knew somebody who was the expert in his particular field in the company he worked for.  He delivered high quality solutions on time every time without fail.  In other words he was an extremely good worker who the company would be foolish to let go.  However, he had charged relationships with those around him and especially his team leader who was incredibly frustrated with him.   His work simply wasn’t enough for her.

So I found myself in a coaching situation with him and without any information from his team leader I immediately worked out what the issue was.  During our coaching sessions he would slouch in his chair and frequently sit with his arms folded.  Furthermore he would give minimal answers and look around the room.  Yes he would always answer my questions but his input was minimal and his behaviour suggested a lack of interest and engagement.  It was also clear that his behaviour towards me wasn’t personal – we got on really well and had a good rapport – it was just the way he was, very phlegmatic and laid back.  So at the start of a coaching session I told him to sit up straight, maintain eye contact and expand his answers beyond simple headlines.  The result was a revelation.  He became a different person, more engaged, more enthusiastic and more dynamic.  He reported back to me that he increased his level of engagement with his team leader and it revolutionised their working relationship.  His excellent quality, work rate and reliability did not change, only the way he presented himself and shaped the perceptions of those around him.  We all have the power to do this.

A final note on criticism is that ideally it should always be delivered positively and politely (pleases and thank yous as well as other polite respectful phrases cost nothing).  However even if it is badly delivered it is wise to hear the message behind the words used.

So now to the matter at hand – how do we deal with dissenting voices?

Before we start though we must remember that a little bit of disagreement is healthy for an organisation.  The ability to voice our own view is vital even if it is in disagreement with the leader.  A leader surrounded by ‘Yes Men’ is a formula for disaster.  The leader may steer the ship towards the metaphorical iceberg and the ‘Yes Men’ will hold the wheel on course!

Dissenting voices are often the consequence of dissatisfaction and the key to dealing with them is to understand the root course of this dissatisfaction.  It should always start with self-examination.

Is my vision and leadership style correct and appropriate, does the dissenting voice have some validity.  Should I tweak my vision and/or the way I communicate it?  Should I increase engagement and inclusiveness?  How much should I share and how much should I expect others to give?  Am I setting the right tone and providing an example of the values and working practices that I demand of my people?

Leaders should never be untouchable in their ivory towers.  A young man who I know, who has recently found himself in a leadership position has come under a lot of criticism, but having spent time with him he has the two key qualities that matter; he is teachable and humble and while he is still very much learning the ropes, these two qualities stand him in good stead.

Next we should examine the dissenter.  Why is (s)he dissenting?  Key to this is understanding the underlying motive.  Is the person a builder or destroyer?  Are they seeking to usurp power?  Do they just want to bring you down?  The answers to these questions defines our approach to how we deal with things:

The Arguer:  This person just disagrees because they know they can.  Although it is not in the capacity of leadership I have a friend who disagrees strongly on one of my views and he likes to engage me in this just to provoke debate.  It is pointless and a waste of time, I will never convince him to my view nor me to his.  Don’t use valuable time on meaningless activities like this and focus on leading.  Hot air is empty and the chances are if the leader doesn’t take him seriously then nobody will.  Don’t indulge him and he will give up.

The Influencer: This person has the respect of many and his voice carries a great deal of weight.  He is dangerous and can use misinformation and charisma to challenge the leader and direct others away.  People can often be easily influenced, just look at the constant bombardment of fake news that we encounter on a daily basis.  People will ultimately make up their own minds, but the way forward is to communicate the truth with clarity and no ambiguity.  A sound voice that gives clear direction will minimise the disruptive power of the influencer.

The Insurrectionist:  This person is gunning for the leader.  We know the type, they do nothing but tear down, they think they can do a better job, they gather a band of followers and poison them against the leadership.  He is a thorn in the leader’s side, a threat and a challenge.  This is the most dangerous dissenter especially if equipped with charisma and popularity.  You could present an opportunity to the Insurrectionist in that you give them something to do.  Create a sink or swim situation, while secretly hoping they sink.  But what if they succeed, even for a short period of time?  They become validated.  This is an unwise move because even if they do succeed their behaviour sets a template of behaviour for others to follow and it won’t be long until another Insurrectionist threatens them.  The culture of the organisation becomes destabilised and can potentially lose everything.  The insurrectionist cannot have a future in an organisation.  If they know better encourage them to strike out on their own and they can sink or swim and understand the consequences of their own actions.

Finally I would like to finish with a relatively well known story that brings things together.  I have paraphrased it slightly and glossed over and simplified some of the details, but the point remains.

There was once a king who had come from very humble origins and who by all accounts was a very good king.  However, after he had been ruling his kingdom for a while he became complacent and forgot about how he had risen to such a position.  One day he was walking on the rooftop of his palace and surveying all that he had and he saw a beautiful naked woman relaxing.  In his mind he immediately decided he must have her.  He was the king after all, so why shouldn’t he?

He soon realised that she was married and he contrived a situation where he was able to seduce her and furthermore to protect his secret he put her husband on the front line of the next great battle he faced.  Of course the husband was killed and the king had removed the threat.

Meanwhile because the king was distracted his son had positioned himself at the palace gate and was telling the people not to disturb the king as he was no longer interested.  It would be better if they shared their problems and injustices with him.  In time the son became a confidant to many and they trusted him with their secrets.  Eventually the son decided that he would make a better king than his father and led a rebellion that very nearly succeeded.

The king wised up just in time and moved against his son and quashed the rebellion.  The king lost his son and his kingdom was irreparably damaged.  His glory and the glory of his kingdom was never the same again and his reign became a shadow of what it had been.  Later when one of his surviving sons inherited the kingdom he was able to bring it to its greatest glory, but it was a short-lived golden age and by the time of the next generation it was faded and divided.  The remaining part of the original kingdom had some periods that were better than others, but it eventually disappeared into the mists of history.

Concerning our discussion there are three key things to observe.

  • The king was in the wrong. He had become distracted and lost his way.  He had become more concerned with fulfilling his desires than leading his people.  An early mentor of mine once said ‘it is a dangerous thing to spend time walking on the rooftop instead of engaging with your people’.  Leaders need to stay focused and engaged and not lose sight of their vision and responsibility.
  • The son was in the wrong, he set himself up in opposition and for a time offered an alternative. He was no leader he was an usurper who took advantage when the king was distracted.  To use a modern phrase, when the cat is away the mice will play comes to mind.
  • The people were confused. Lack of clear leadership meant that many of the people chose the alternative as it seemed to be accessible and presented what appeared to be the better option.

Ultimately it was the king’s fault.  His failure of leadership resulted in dissention and conflict.  If he had remained focused and consistent and even gone down to the palace gate instead of spending time on his rooftop disaster could have been averted.   So do not allow dissenters to destroy what you are building, but also keep an eye on your own leadership style and approach to others.  To make sure the message gets through I repeat do not spend your time walking on the rooftop.

Story Telling

Storytelling has been around since the dawn of mankind and was a great way of memorising traditions and history .  Oral tradition was the only means of keeping records before the invention of writing.  Writing which was developed in the Middle East (probably by the Sumerians in modern day Iran or Iraq) provided an alternative way to record the histories of people and it was a natural process for histories to become simply stories.  The Epic of Gilgamesh that dates from earlier than 1000 BC is widely considered to be the first written story and prior to being recorded it had been kept alive by oral tradition.  Later what we recognise now as the Old Testament was recorded that traced the formation and travails of Israel before moving into the New Testament.

Pilgrim’s Progress written in 1678

Stories don’t only entertain, but can be used to inform and educate.

While not unique among the ancients, for story telling, Jesus is widely recognised as an outstanding example through his use of parable and allegory.  John Bunyan used The Pilgrim’s Progress to convey the Christian journey and a similar trend has continued into modernity.  In the 20th century the Christian apologist C S Lewis picked up this theme again with the Narnia books and in particular The Lion, The Witch and the Wardrobe which is a transparent allegory of the Christian message and even references Old Testament principles in the light of New Testament interpretations.  Some elements were obvious like the sacrifice and resurrection of Aslan; while others were less so – such as the deep magic which represented the law that condemned and the deeper magic which stood for the grace of God

Away from Christianity a personal favourite, that I was introduced to as a teenager, was Pawn of Prophecy (Part 1 of the Belgariad series) by David Eddings, a  coming of age novel set in a fantasy world.  A key character is Belgarath the Sorcerer who is initially introduced as the Storyteller who provides the back story for the boy Garion as he starts his epic quest..  Eddings drew on real world oral traditions as his methodology for bringing the world to life with its vibrant history of the Wars of Gods and Men in their fight for supremacy as good sought to overcome evil.

Before I get too distracted I want to underline the point that story telling is an essential communicative tool and it has a role in the workplace too.

The best and most effective communicators have always used stories to help make their point.

So what do good story tellers do?

  1. Real life stories make the speaker more real and can help hold the interest of the listener when well delivered.
  2. Stories illustrate better than abstract principles and ideas.  A good story can be used as an anchor to make a salient point or simplify an idea.
  3. Stories can entertain and amuse and enable greater rapport with the audience.
  4. A good story should engage the emotions, build anticipation and stimulate the imagination.

Some Does and Don’ts for Story Tellers.

  1.  If you decide to tell a story or anecdote it must be short and make a point or illustrate something
  2. Don’t make the story too long because the story then becomes the dominant element rather than the point that is being made.
  3. Don’t allow the story to sidetrack you into a memory trawl.  Stay on point.
  4. Use stories sparingly as there needs to be real content behind the message
  5. Employ your full soft skills tool set to communicate and engage the audience as much as possible.  Do so as naturally as you can while avoiding repeated fillers and unnecessary sounds like ‘erh’ and ‘erm’.

Can you think of any more?  Please use the form below to let us know about any ideas you have.

Omega will soon be launching some training on how to develop and use Story Telling as a communicative tool in a business environment, so keep in touch.

Let he without sin…

On Saturday 10th March 2018 Manchester United beat Liverpool 2-1 in what has historically been considered to be the number one match in the Premier League.  Liverpool dominated English football in the 1970s and 1980s and Manchester United did so in the next two decades.  Former Liverpool defender Jamie Carragher, now a Sky Sports Pundit, was filmed spitting at fans who drove by while tormenting him about Liverpool’s loss.

What he did:

The obvious thing is that he should have ignored them.

Defending the Undefendable.

Jamie Carragher was wrong.  To spit at anybody under any circumstances is a social taboo and out of order.  It is black and white and his offense even more obscene because he is a role model and public figure.  In the mind of many what makes it even worse was there was a 14 year old girl in the other car who was not even involved in what some have termed banter.

So why am I ready to defend him?

The following day he appeared in a prolonged interview (reproduced below) in which he apologised totally unconditionally.  He described his actions as 5 seconds of madness and continually apologised.  When asked about the 14 year old girl he again said sorry with the glint of a tear in his eye.  He is not an actor and I do not recall him being interviewed particularly often post match.  The interviewer – quite rightly gave him a hard time and pushed him as hard as she could by invoking the example he had set to his own family, and the fans as well as those who he directly spat at.  When asked if he should keep his job he simply said that he couldnt comment on it one way or the other because anything he said could be perceived as an excuse or attempt to reason his unacceptable behaviour.  This was something he refused to do.  His five seconds of madness were replaced by immediate regret and remorse and a preparedness to face the music.

What he said afterwards

I am not particularly a Liverpool fan nor was I a fan of Jamie Carragher as a player, but the way he has held his hands up speaks volumes about his integrity.  Integrity is not about being perfect, but it is about taking responsibility and being willing to face the consequences.

Personally I really hope he keeps his job because ironically his example stands as a shining light to politicians and business leaders who have no shame.

Finally, we are all flawed so let he without sin cast the first stone.