Northern Rock: What’s Good About It?

February 18, 2008

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The Government announces its intention to take Northern Rock into temporary care. The story has been told as an outcome of poor leadership. Is it really a tale of all-round incompetence? Or has the crisis blocked out any thought of positive thinking about leadership or positive outcomes?

On Sunday February 17th 2008, Alistair Darling announced that Northern Rock was to be taken into public ownership. In many quarters, the decision is deplored as evidence of poor leadership.

The ubiquity of incompetence

As head of the Treasury, AD is taking much of the leadership pain. His political opponents have been quick to continue their attacks on the competence of The Chancellor and of The Prime Minister.

Gordon Brown stands accused of an old weakness, of appearing to be leaving someone else to shoulder the blame, when problems crop up.

Mervyn King, as Governor of the Bank of England has also been widely criticised for his performance. Although he came under serious fire, he has survived press and parliamentary scrutiny and retained his job.

Northern Rock executives CEO Adam Applegarth and Chairman Matt Ridley were also found wanting. Their fates was sealed as the enormity of the problems at Northern Rock became clear. Initial offers to stay on to stabilize things were no more than could be hoped for. Exit Applegarth and Ridley, seriously damaged.

Interim CEO Andy Kuipers who replaced Applegarth is seen very much as a stopgap. He seems to have done all that could be expected, and came up with a rescue plan that won support from institutional shareholders. Yet I have seen no positive commentaries on his leadership.

The Financial Services Authority (FSA) have also been found wanting and criticized for “systematic failure of duty“. Its relationships with The Treasury and Bank of England are now being re-examined.

Leadership reflections

Are these various individuals really such incompetents as they are being portrayed? I offered a different view in an earlier post, which suggested that Alistair Darling, for one, could be seen as having a coherent strategy which he was playing pretty well. He signalled that nationalization was an undesired option, but one that he would not hesitate to use. Furthermore, the position was made to appear more convincing with a timely placing of information about the fall-back plan and the appointment of a very able leader (Ron Sandler) to run any new nationalized outfit.

Unlike many political commentators I argued that Darling has been playing a very solid game under tough circumstances. Among the complications are concerns to avoid breaking EU regulations about State Aid.

The merits of creative thinking

Serious problems can produce a deepening sense of doom and gloom. The difficult becomes assumed to be the impossible. At such times creative thinking is called for.

Creative leaders have their own ways of encouraging the faint-hearted. There are general purpose techniques advocated that help discussions break out of the bleak mindset that is captured by the ‘automatic no men’ and their killer phrases.

Edward de Bono suggests the benefits of putting on a positive thinking hat, and exploring unexpected options, before subjecting ideas to critical evaluation.

There are emerging psychological theories which suggest why personal development can be enhanced through such a positive approach.

When a group has become bogged down, and is unable to find any constructive answer to its problems, I recommend it starts with an attempt to put on a positive face (or De Bono’s sunny yellow thinking hat) and address the question ‘what’s good about it’.

As team leader, or someone brought in to support its creative thinking, I would not imply that I had an immediate answer, and invite a response for others.

Here’s how it might work, from the starting position that Northern Rock is a basket-case, whose troubles have been brought on by ineptitude of leaders in a tough global financial market-place.

What’s good about it?

The company has escaped the worse-case scenario of going bust, and triggering off a wider national (and perhaps international) reaction, in which the mortgages, savings, and jobs of many thousands of people would have been destroyed.

A first class leader has been put in place for the interim nationalised institution. He is likely to be granted more powers from the Government who will try to avoid accusations of interference in its management.

The action offers the best chance that funds sunk into the rescue (some £50 billion) will be recovered. (These are increasingly referred to as tax-payers money, but that’s another story).

Even the shareholders will get more than they would have if the shares were evaluated at their technical value (something close to nothing).

We could apply a similar approach to re-evaluate the leadership performance of those classed as dummies. I leave that exercise for another time.


Alistair Darling plays Chess at Northern Rock

January 14, 2008

chess-players-daumier.jpg Alistair Darling has developed a counter-gambit in the chess game for the future of Northern Rock. The threat is to nationalize the company and to bring in Ron Sandler, former head and rescuer of Lloyd’s of London, to run it

The shareholder meeting is scheduled for Tuesday January 15th 2008. Shareholders have signalled their intentions of opposing plans to find a private owner at a price unfavourable to themselves. They intend to seek motions to prevent the board acting against the interests of shareholders.

These moves are understandable in view of the Treasury’s position, which seems to be committed to recouping as much as possible of the billions ‘invested’ in rescuing the back since the crisis days since September 2007.

The Treasury counter-gambit, if successful, is good for tax-payers, and also protects Darling and chums from accusations of incompetence and worse by that sharp-tongued Mr Osborne.

The Chancellor, while preferring the sale into private ownership to go ahead has to demonstrate that the Treasury is perfectly willing to accept the nationalisation option.

So it came about, that on the Saturday preceding the meeting, the news became public that the Treasury had a well-worked out plan for nationalisation. Why?

Demonstrating that you are serious

Darling has to demonstrate a convincing threat to the shareholders, the group he has identified the biggest threat to his own position, at the battle of Northern Rock. Threats are effective only if they are taking seriously, and not taken as evidence of bluster and weakness. We have written of how the most potent threats are like unsung melodies, shaping events but remaining in the background.

So Mr Darling does not want to nationalize Northern Rock. Neither do the shareholders. But if The Chancellor can convince enough shareholders that he might be forced into a nationalization by their further opposition, it may help avoid the outcome none of the main players really wants.

The threat

The threat involves several elements. A signal of intent. Evidence that it is not a shallow move or an idle threat. The signal deliberately leaked is necessary to convey the seriousness. It can be backed up in chess terms (and in military and political terms) if it can be shown that recent moves by Darling have been played to strengthen the impact of the threat if activated.

Once again, the intrepid financial journalist Robert Peston continues his high profile scoops.

So Mr Peston gets his story for the BBC. Mr Darling gets his signal accurately and prominently reported.

According to bankers close to the Rock, the Treasury has a fully developed plan to own and manage the bank, should a commercial solution be impossible.

The BBC has learned that Mr Sandler would become executive chairman of Northern Rock in the event that the troubled bank is fully nationalised.

The former boss of Lloyd’s of London is well known to Prime Minister Gordon Brown, and worked for the Treasury in developing the so-called stakeholder pension and investment products that were intended to help those on lower incomes save for retirement.

Mr Peston, through a leap of imaginative journalism, or perhaps through the way in which he had been briefed, then links the news with the upcoming shareholder meeting:

The coming week will be a crucial one for Northern Rock. On Tuesday, shareholders will attempt to restrict the ability of the company’s board to sell assets without seeking their permission.

Robin Ashby, of the Northern Rock Small Shareholders’ Group, said he would not welcome nationalization …

The shareholders’ action is regarded by the Treasury as potentially hostile to the interests of taxpayers.

Taxpayers are exposed to the Rock to the tune of £55bn through direct loans made by the Bank of England and guarantees to other lenders made by the Treasury.

A decision will also be taken imminently by the Treasury on whether to pursue a proposal by the investment bank Goldman Sachs to convert up to £15bn of the taxpayer loan into bonds, for sale to international investors.

If that proposal to raise new finance for the Rock flops, it is likely to undermine attempts to organize a commercial rescue of the Rock by either a consortium led by Virgin or by the Olivant Group.

[See how Mr Peston was also struck by the chess analogy in his recent blog where he enlarges on nationalization and partial nationalization options and implications.]

The Chess Game reaches a critical middle-game position

The chess game is reaching a critical position, rich in possibilities. To press too hard risks losing the entire game. Darling has shown he is willing to accept a gambit, and now offers a counter-gambit himself, using the Bank of England to capture Northern Rock for the nation. Making such a move may be risky to the Treasury, but it is even more damaging than other possible outcomes, for the shareholders.

[A counter-gambit: your chess opponent makes an offer as a gambit, which is expected to give you short-term gains for which you risk longer-term losses. You reply with your own gambit, which agagin offers your opponent short-term gains and for which there are the risks of longer-term losses. Playing a gambit often complicates a game. Playing a counter-gambit tends to lead to even more complex positions and greater uncertainties]

That is why I like the efforts made to demonstrate the seriousness of the threat to the shareholder forces. The announcement that Mr Sandler has been lined-up is excellent. Easy to check up on, little lost if nothing further happens. That’s what makes it quite a convincing move.

Acknowledgement

The Chess Players image is of Daumier’s masterpiece. It can be found on an excellent site on Combinatorial Game Theory


What can be learned from the ending of the Brown honeymoon?

October 14, 2007

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The Gordon Brown honeymoon is over. He has seen his party’s lead in the opinion polls whither away. His handling of the non-election has been branded cowardly and inept. His rival David Cameron scores overwhelmingly in parliamentary debate. What leadership lessons can be learned from the unfolding story?

This is the current situation. Gordon Brown is widely reported as having lost the initiative he held since his appointment as Prime Minister. The fall from grace can be located in time easily.

Prior to the labour party conference, the honeymoon period was continuing, and the main question was whether a snap election could destroy not just David Cameron, by maybe the Conservative party itself.

During the Labour conference, Mr Brown’s speech at worse did not seem to damage his or his party’s prospects. Yet the snap-election story continued to build momentum. At the start of the month [October 2007] it seemed to have been settled. There would be an election within a month or so.

Then the Conservative party conference, a well-received speech by David Cameron, and the news stories piled up full of bad news for Brown. The week following the election added to his woes in and out of Westminster.

You learn a lot from what surprises you

Over the last few months I have been frequently surprised by the ebb and flow of political events. So what were the surprises? What was the learning?

Remember the passing of Tony Blair from office? I was surprised at the time by suggestions that portrayed Gordon Brown as a person psychologically unfit to lead his party, or the country. The contrast with business leaders is quite stark. The literature of the dark side of leadership is mounting, and it is easier to find examples of leaders who do not manifest symptoms of narcissism, with a dash of other fancily-termed psychotic tendencies, than to find examples of well-balanced (‘abnormally normal’?) individuals.

Then I was surprised over aspects of the so-called Brown Bounce. That nice theory was made almost impossible to evaluate, because Gordon’s arrival coincided with a particularly turbulent time, during which the New Prime Minister acted in a competent and reassuring manner. [Remember the joke that had been told about him during his personal campaign to consolidate his election campaign? The trouble with Gordon, the ironic joke went, is that he is all substance. Ho, ho. ].

The honeymoon period is now over. One surprise is that no-one pointed to the curious contrast between the bounce, and the herd-mentality that had dubbed Brown a pathologically-flawed no-hoper for Labour, prior to election. The bounce transcended all those concerns expressed in the media?

Over the last two weeks, I have also been surprised by the speed at which opinions about Brown and Cameron have swung back. The ratings are now [14.10.2007] roughly where they were before Mr Cameron hit policy problems a few months ago. Now, Cameron is as a hot a favourite for destroying Brown politically, as Brown was for destroying Cameron, a few weaks ago.

I was further surprised at the damage politically the Gordon Brown has sustained over his assertion that his decision not to call an election had been nothing to do with opinion-polls in marginal seats. The statement has become taken as evidence that the Prime Minister is irretrievably untrustworthy.

The second event, the afore-mentioned pre-Budget speech by Darling, is similarly taken as a sign of Government duplicity, specifically over Magpie politics. Specifically, like thieving Magpies, the Government has stolen the shiny baubles plucked from the Conservative lips, including inheritance tax from non-doms.

There’s enough mud for everyone to play in

The speech from Alistair Darling infuriated the conservatives, and particularly the shadow Chancellor, George Osborne. Alistair is in the Brown mould (measured and a bit, how can I put it, non-dom Scottish). Osborne is more of the smooth but menacing inclination, unafraid to take the fight to the muckier side of the farmyard. His immediate response to Darling’s pre-budget statement was a well-mounted piece of aggression at the calumny of his immediate opponent and the forces behind him, all the way up to King Gordon.

The next morning he had simmered down enough to articulate the view that the public would now be able to choose between the party of principled and honourable statesmanlike politicians, (the conservatives) and the cynical duplicitous lot on the other side (labour).

Overall he had had a good twenty-four hours, and is evidently on the way of becoming a dangerous opponent for the new Chancellor. Nice one George. Nice, in the sense of dangerously nasty.

The various outbusts of anger left me conscious of the farmyard metaphor, that there’s a lot of mud out there, likely to spread itself liberally on to all concerned. Voters may find it confirms their suspicions if they are repeatedly told that there are a lot of cynical duplicitous politicians (CDPs) out there.

On the other hand, drawing attention to this will not mean they will buy the proposition that all CDPs are to be found among the ranks of Gordon’s followers, thus enabling the conservatives convincingly to claim the high moral ground as The Principled Party.

Leadership lessons?

Some are immediately apparent. Gordon Brown contributed to the way in which this story developed. I rather think he moved back towards damage limitation in claiming responsibility for the election frenzy. (However tempting it might have been to bang on about the media).

There was another misjudgment when he insisted that he would not have been influenced by opinion polls in his decision, even if they indicated a majority of hundred after an immediate election.

The leadership principle is to retain some of that valuable commodity, wriggle room, whenever possible. Put another way, practice the art of the Delphic Oracle.

Find a creative way of dealing with the question at two levels.
Avoid yes or no answers when these are over-simplifications (which they almost always are).

No-one will get it right every time, but the frequency of poor moves, and the damage sustained, is likely to be reduced. At least, that’s if you believe leaders are made not born, and are strengthened through learning from their mistakes.


The Branson Murdoch match: Round Two

May 25, 2007

James Murdoch for Sky TV and Richard Branson of Virgin Media continue to slug it out. Both companies have a capacity to damage the other’s competitive position. As a complete victory for one side seems unlikely, the organizations will have to find ways of co-existing and collaborating, as well of competing.

The dispute

The wider battle was explored by Jeremy Warner for The Independent in February.

It can be traced to the formation in April 2006 of Virgin Media, from the ailing NTL cable company. The move was presented as one which would offer a bundle of services to users. It brought the new company into more direct competition with Sky. Competition in this emerging multi-media context is intricately mixed up with inter-dependence, as services are shared and traded. Sky promptly acquiring a minority stake in ITV. This was seen as a protective strike, as ITV was a take-over target for the newly formed Virgin Media.

It is this move which led to complaints against Sky, and to the decision this week by Secretary of State Alistair Darling to refer the issue to the Competition Commission.

Background

In the last few months the dispute became serious when Sky and Virgin Media failed to resolve a dispute over re-negotiated charges requested by Sky. Customers of Virgin Media were deprived of the disputed bundle of Sky programmes previously accessed through the former NTL cable service.

It is tempting to portray the dispute as a battle between Richard Branson of Virgin Media and James Murdoch of Sky. We can predict Murdoch junior’s actions to some degree. He is unlikely to present himself as anything but the son of superdad Rupert. So tough and mean is likely to be the order of the day. Branson will continue to find ways of representing himself as a benign socially-caring figure.

Meanwhile, the dispute is a bit of a no-brainer. There’s evidence that the combatants have blundered into a messy situation which can turn out badly for all concerned. Corporate attention may be distracted from issues of running creative media organizations to political and legal efforts.

What happens next?

The least violent outcome is a period of increasing lack of progress, followed by some resolution, togther with a bit of cosmetic face-work for the weary warriors. There may even be some creative initiative accompanying restoration of Sky channels for Virgin Media subscribers.

More catastrophic solutions might include a regime change. But recent military history reminds us of the dangers of such a policy. Time-scale for significant developments? Weeks would be possible but unlikely. Months would be unfortunate, and not beyond the bounds of probability. But cash haemorrhaging is a condition which brings even the strongest of egos into line.


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