Does social networking rot the brain?

February 25, 2009


Social networking rots the brain acording to one lurid headline, citing research to back up the statement. Are we facing a neuro-crisis, or is this another example of bad science?

Just when I was getting into social networking I learn of dire warnings of its impact on the malleable brain. Or, getting behind the headline, the possible consequences for young people who spend too much time on the internet.

The publicity seems to have come from two fronts. One is from an empirical study by an American researcher, Dr Aric Sigman. The other is from a campaign led by the distinguished neuro-scientist Baroness Greenfield.

Professor Sigman’s website presents his perspective, and makes mention of its misrepresentation:

The original paper, Well Connected?: The Biological Implications of ‘Social Networking’ is published in the Spring edition of Biologist, Vol 56(1), the journal of the Institute of Biology. NOTE: This paper has been misrepresented by many news reports as claiming that social networking causes cancer or disease. This is not true. The paper addresses the extent to which time online may be displacing face-to-face contact, and that lack of social connection is associated with physiological changes, increased incidence of illness and higher premature mortality.

Professor Greenfield’s position was reported in the Telegraph:

Baroness Greenfield, director of the Royal Institution, said she has concerns that internet-obsessed children were losing the ability to concentrate and communicate away from the screen.

Regular web users displayed a need for constant reassurance typical of small babies, she said yesterday.

In an earlier House of Lords debate she warned that conversations in chat rooms, message boards and on networking websites were replacing the face-to-face interactions that are key to developing a child’s sociability.

“I often wonder whether real conversation in real time may eventually give way to these sanitised and easier screen dialogues, in much the same way as killing, skinning and butchering an animal to eat has been replaced by the convenience of packages of meat on the supermarket shelf,” she said.

“It is hard to see how living this way on a daily basis will not result in brains, or rather minds, different from those of previous generations.”

Earlier this month Baroness Greenfield urged more research into a possible connections between high computer use among young people and the rising rates of autism.

Teenagers spend an average of 31 hours a week online, research suggests. Social networking sites that allow young people to keep in touch with their friends, publish photos and post updates on what they are doing are particularly popular.

Scientists are divided about the mental consequences of the digital revolution; a study published last year showed that internet use could improve brain function and speed up decision-making but at the expense of empathy and the ability to think in abstract terms.

The debate rages on

The debate raged on into the BBCs Newsnight programme [Feb 24th, 2009]. Aric Sigman appeared with Ben Goldacre [author of Bad Science and the Guardian column of the same name] to discuss the claims being made.

Interestedly, The Guardian had made its own summary of Professor Greenfield’s account without supplying a comment from their own in-house expert on science and its public interpretation.

Unabashed, Ben expressed his perspective coherently and chirpily on a programme that can reduce intelligent commentators to gibbering apologists under the baleful influence of moderator Jeremy Paxman.

Overall, it became clear that some clarification of position was emerging. The media had exaggerated the claims being made of the implications of Sigman’s study. Baroness Greenfield does appear to have been blurring the boundaries between scientific comment and social campaigning. Ben Goldacre has the potential to become a media celebrity unless he is more careful of the invitations he accepts …

Thought leaders and the influence process

I am struck by the episode and its illustration of the influence processes exercised by thought leaders such as Baroness Greenfield, Professor Sigman and creative gadflies like Ben Goldacre. It deserves study for students of leadership and of influence processes in the management of change.

Reading the Sigman paper, and following the subsequent debate brings to mind the MMR vaccine controversy and the tragic consequences which followed. Sigman’s paper is couched in the cautious writing of the professional medical scientist. But in my view, it is also marred by its tendency to develop implications (including mention of cancer risks) which are too easy to be picked up and interpreted as proven findings.


Northern Rock: The dog that didn’t bark in the night?

February 23, 2009
”]Sherlock Holmes [Silver Blaise]

Northern Rock was arguably the harbinger of the credit crunch for many people in the United Kingdom. But where’s the evidence of the impact of its new leadership?

Regular subscribers will maybe recall the story as followed in Leaders we deserve (see below for the various posts).

In September 2007 its story was presented as one in which an ambitious regional institution had dynamic but misguided leaders who developed a dodgy business model which had brought the company low. Exit leaders Adam Appleyard and Matt Ridley to much fury and anxiety among small investors and mortgage holders. But in hindsight, the leaders escaped the subsequent humiliation, and accusations of cupidity and worse meted out on those who were directly blamed for the failure of the larger institutions.

Although accused then, and ever since, of dithering, the Government, and particularly Alistair Darling may be feeling a bit more comfortable now of their treatment of the case. Their de facto nationalisation of the bank is no longer regarded as an irreversible swing to left-wing politics.

Hunt the leader

More recently, the unfolding events at Northern Rock have been described with very little mention of its new leadership. A few months ago, the public mood equated bonuses for bank employees as utterly unacceptable. It emerged that Northern Rock was about to pay a 10% bonus to its staff.

A Northern Rock spokesman refused to be drawn on how much money was being paid out, but pointed out that the staff-wide bonus scheme had been announced in October [2008]. He also stressed that no executives or senior management would benefit. The reward comes after staff met targets on repaying the bank’s £26bn loan from the government.

Even Vince Cable, of the Liberal democrats, and one of the most respected and level-headed of financial commentators in the land, felt compelled to describe the scheme as “indefensible …bringing the worst of the City bonus culture into a public body.”

It was left to the Unite union to defend the management decision, pointing out that those involved were not fat cats but the workers whose renewed efforts under tough conditions agreed by The Treasury had helped secure the Government loans pumped into the bank.

Mortgage service resumed

This week [Feb 22nd 2009] the news broke that the bank was to resume mortgage lending

Northern Rock is to revive its mortgage business with up to £14bn in new loans by 2011, the government has announced. The Newcastle-based bank is expected to take on about £5bn in new mortgages this year and up to £9bn from 2010. They will be financed with money from new deposits, repayments on existing loans and more government money.

Investment analyst Justin Urquhart Stewart, of Seven Investment Management, welcomed the move and said Northern Rock could provide inspiration to other banks.
He told the BBC:

“They’ve been quietly off-market, being able to reconstruct themselves… to come back again and be able to provide a model – possibly as the world’s most boring bank – for the other banks to try and imitate. “And [it will] provide more capacity into the system so money starts being lent again and that’s what the British economy needs desperately.”

The story prompted the natural negative reaction from Conservative spokesman Greg Hands, shadow treasury minister

“We’ve been calling on the government for some time to free up credit in the economy and to make sure credit flows. However, for Northern Rock it is a bit of a volte-face because until now Northern Rock had been under orders to wind up its mortgage operation and essentially to close down business. I think there will be a contrast between existing customers who are facing repossession with all these thousands of new customers who are getting very generous terms.”

Invisible leadership

Notice that famous ‘absence’ in the emerging stories? Where’s the leadership coming from? Don’t we have here a puzzle like the mysterious case of the dog that didn’t bark in the night?

Perhaps there is a leadership story, but one in which ‘safe pairs of hands’ deliver a strategy under very difficult circumstances.

The unfolding story of Northern Rock

You can follow the unfolding story at Northern Rock in our earlier posts. From most recent to earliest:
Northern Rock: What’s good about it?
Alistair Darling plays chess at Northern Rock
Telling it like it is
Stone age economics

The Changing Face of Leadership Development: From Capability to Capacity

February 20, 2009


Since the turn of the millennium there has been a shift towards a perspective through which leadership is viewed more as a distributed or dispersed phenomenon, as opposed to just a leader-follower relationship. A conference on developing leadership capacities [July 2009] explores these concepts

This post has been contributed by Dr Gareth Edwards, of The Leadership Trust Foundation

As Ian Palmer and Cynthia Hardy, have suggested:

The argument that we are witnessing a shift from old to new forms of organising parallels a similar shift in the leadership literature regarding the need to move away from authoritarian to dispersed or distributed modes of leadership.

In principle, the concept of distributed leadership promotes the idea that the capacity to lead is within us all and therefore leadership or the potential for leadership is apparent in all facets of an organisation. This philosophy is built upon the notion of emergent leadership through which leadership develops through one’s personal power as opposed to one’s positional or authority power.

In addition, another broad perspective is emerging, which presents leadership as a socially constructed phenomenon.

The social identity approach regards leadership as a process that is influenced by the group or community in which it resides.

Never before has leadership been viewed in such breadth – so what does this mean for organisations? Well for one thing, it highlights the need for organisations to identify and develop leadership capability in a different light and in a broader sense. It means organisations understanding their leadership capacity as well as the leadership capability of certain individuals within the organisation. Leadership in this new post-heroic era needs to be viewed as a network of leadership ability, not just as high-potential people. With this renaissance, therefore, comes the need to re-think how we view leadership development. It no longer can be merely about developing individuals through self development processes. We need to look at how we develop ‘communities of practice’ to enable the development of leadership capacity throughout organisations, communities and society.

Leadership capacity

How do we know where organisations have leadership capacity? What methodologies should be used to develop this capacity? And, how do we evaluate leadership development initiatives, interventions and programmes? – are questions that may need to be redressed.

Furthering this line of research, The Centre for Applied Leadership Research at The Leadership Trust Foundation along with the Bristol Centre for Leadership and Organisational Ethics (BCLOE) at the Bristol Business School, will be holding a one day conference on Developing Leadership Capacity on 16th July 2009.

To go more deeply

Palmer, I., & Hardy, C., (2000) Thinking About Management, Sage,

Ellemers, N., De Gilder, D. and Haslam, S.A, (2004) ‘Motivating Individuals and Groups at Work: A Social Identity Perspective on Leadership and Group Performance’, Academy of Management Review, XXIX, 459-78

Haslam, S.A. (ed.) (2004), Psychology in Organisations: The Social Identity Approach, 2nd edn, (London: Sage Publications, 2004)

Hogg, M.A. (2001) ‘A Social Identity Theory of Leadership’, Personality and Social Psychological Review, V, 184-200.

Etienne Wenger. (1999) Communities of Practice, Cambridge University Press.

Does Carol Bartz disprove or confirm the glass ceiling theory?

February 19, 2009
Carol Bartz

Carol Bartz

The appointment of Carol Bartz replacing Larry Page as head of Yahoo has provided leadership headlines. Do the stories confirm the view that despite her success, prejudices against female executives still remain widely intact?

An article by the Economist on the appointment of Carol Bartz [January 17th 2009] prompted one irate reader to object of the double standards applied to male and female executives. The Economist painted a picture of someone driven by insecurities of early maternal bereavement who developed excessive discipline and who rejected notions of work life balance. For good measure the article added that at 60, she was “strikingly old” to lead an internet company.

A sympathetic and informative piece in Forbes by Carol Hymowitz

outlined evidence of her leadership capabilities at her previous role at Autodesk and makes the point that Bartz is one of

.. still just 23 woman at the helm of the nation’s 1,000 largest companies. Besides Bartz, only Paula Roseput Reynolds has been at the helm of two public companies–AGL and Safeco.

Hymowitz contrasts this with the frequency with which ousted male CEOs are hired into other big leadership roles. Her story continued:

[Bartz] was CEO at Autodesk for 14 years, much longer than most chief executives, whose median tenure is just five years, [where she] quickly imposed a more traditional management structure, with schedules for product launches and regular performance reviews. While doing this, she also coped with breast cancer, which she was diagnosed with just days after joining Autodesk Afraid to tell anyone that she had a “female disease,” she took off just a month from work after having a radical mastectomy, instead of the prescribed six to eight weeks.

During the dot-com boom of the late 1990s when Autodesk, many of her employees were suddenly being wooed to dot-com start-ups with the promise that they’d become millionaires. She convinced her best talent to stay put but also realized the Internet was radically altering business–and Autodesk had to adapt and learn to use the network to design, manufacture and market products differently.
As a business leader, Bartz also is known as someone who doesn’t hold grudges and is willing to change her mind. At one point, she fired Carl Bass, the company’s technical wizard at the time, over strategic disagreements. She quickly realized this was a mistake, hired him back a few months later and eventually named him her successor.
Bartz admitted she wasn’t ready to retire when she handed over the CEO spot to Bass in May 2006. “I cried my eyes out,” she said in an interview then. But she also knew Bass was getting offers elsewhere and she concluded that stepping aside was the right thing to do instead of spending years grooming another successor. “It’s very good to leave a job when you still love it,” she said at the time.

What do you think?

I know that female leaders in the business world have not been given the same sort of publicity as their male counterparts. I scan the papers regularly to add examples to my meagre collection. Carol Hymowitz argues that the glass ceiling is still pretty much intact. That is to say, the lack of case examples reflects a deficit of women in top executive roles. It’s an old argument. Is Hymowitz right that it is still salient? What do you think?

What’s the difference between Jeremy Paxman and Jeremy Clarkson?

February 13, 2009
Jeremy Paxman

Jeremy Paxman

Jeremy Clarkson

Jeremy Clarkson

Simon Mayo had mistakenly introduced his BBC radio guest as Jeremy Clarkson. To me, Jeremy Paxman sounded remarkably like Jeremy Clarkson. Which suggests that the two celebrities may have something more in common than a name …

Driving home this afternoon [Feb 12th 2009], I heard the familiar urbane tones of Simon Mayo on BBC Radio 5 live. He was introducing his guest, Jeremy someone. He then apologised for confusing Jeremy Clarkson and Jeremy Paxman. The guest accepted Mayo’s apology not totally happy with the start to the interview. It amused me to suspect that one of England’s celebrity broadcasters had been peeved at being introduced as the other, even through a slip of the tongue. A bit thin-skinned, which ever one of them was there.

Then something curious happened. I listened more carefully to find out which Jeremy was in the studio. My point of reference was an interview on the same show, also conducted by Simon Mayo a few months ago, with Jeremy Clarkson the self-confessed petrol head. I could not decide whether this was another Clarkson interview, or one with the Paxman the political journalist.

It was curious, because I (like many others living here in England) have to exercise the off-switch to avoid hearing one or other Jeremy on a near daily basis. But I had never remarked on any similarity in their speech patterns before. Now for quite a few minutes, as far as I could detect, the voice might have been that Petrol Head or Political Journalist. What’s going on? Did they really have such similar delivery styles? If so, why had I never noticed it before? And why should anyone care anyway?

Why might it matter at all?

It might matter if you are a friend of both Jeremy C and of Jeremy P and you get a phone call from someone announcing “Jeremy here, I want you to appear on my programme next week”. It would make a difference if you then agreed and found yourself on the wrong sort of programme.

For those us not in that hypothetical position, why might it matter at all?
Probably not a lot, but the unexpectedness of that interview today set me thinking about sense-making, and role-playing. I’m intrigued enough to invite subscribers to share their views.

Mandrill management

I have an interest in evolutionary models of human behaviour, as they throw light on leadership patterns. In this respect, Jeremy P has long struck me as a fine example of what I have called Mandrill management. The metaphor implies a highly developed power drive which ultimately takes its toll on the alpha male and those further down the order in the social group. If I had thought about it, I would have noted Jeremy C as having similar characteristics. Clarkson’s recent public outburst against Prime Minister Gordon Brown (“that one-eye Scottish idiot”) seems illustrative of the almost uncontrollable and habitual actions of the Mandrill manager in action. These are gifted but rather fearsome creatures who may be conditioned to act out their need to be alpha males in their public interactions. Under stress, the Mandrill comes to the party.

It turned out that it was Jeremy Paxman being interviewed. The following interpretation of the interview is even more speculative than my usual efforts. But [At first Mr Paxman] seemed to have a restricted range of delivery, but even a more exaggerated way of emphasis (compensation?). Later in the interview, the familiar wide range of tones re-emerged. The staginess at the start reminded be of an actor with a rather over-ripe style which was then replaced by the staginess of a consummate professional interrogator and public speaker.

Clarkson’s normal delivery is closer to someone acting out the on-stage heavy from a crime drama. Paxman’s voice at the start of the interview was closer to Clarkson’s explosive attacks on the English language. Perhaps the ‘threat’ of not being properly recognised triggers a surge of adrenaline in a Mandrill manager’s blood.

Maybe there are a few ideas about leadership behaviour to be gained from an episode in which one gifted radio performer made a little gaff, and another reacted in a surprising fashion.

The Terror Approaches: Sir Fred pleads for mercy

February 10, 2009

Fred Goodwin and Tom McKillop

The leaders of failed financial institutes are being dragged out of their chateaux and paraded through the streets. I can hear the distant rumble of the tumbrels

Or, to shake off that fearsome image, let’s start with the show trial which took place today. Erstwhile heroes of capitalism were called to account by that Robespierre of the New labour Revolution, the Treasury Committee chairman John McFall

The BBC covered the proceedings

The former bosses of the two biggest UK casualties of the banking crisis have apologised “profoundly and unreservedly” for their banks’ failure.

Former Royal Bank of Scotland chief executive Sir Fred Goodwin told MPs on the Treasury Committee he “could not be more sorry” for what had happened.

The wrath of the prosecutors was reported in The Guardian

Sir Michael Fallon: “You [McKillop] were in charge of this board. You’ve destroyed a great British bank.”
John Thurso: “… I have rarely never heard such anger about an issue … And that’s because so many sound businesses are at risk of going under because they can’t get funding. 99.9% of my constituents believe that if a black hole opened up and every banker, and every derivatives trader and arbitrage trader fell into it, the world would be a better place ….”
George Mudie: “…The anger that the public feels is because you’re all in denial.”

But the jury remained unmoved. Chairman Tom McFall dismissed their grovelling pleas for mercy.

“They did give an apology and it seemed fulsome, but, as the session went on, I think they were drawing back from that and saying ‘Well, look, there were events outside our control’. If you ask me my opinion – yes, they were advised to do it (apologise). Was there a hint of arrogance still there? Absolutely.”

The Terror begins

I can’t get that image out of my mind’s eye. It took the French Revolution over a year to get down to the really brutal stuff, the show trials and public executions. But that was then. No chance of public executions here …

But the public anger might be as intense, and approval for meting out the harshest punishment possible on those accused.

So far, the most virulent attacks have showered down on the Leaders of the biggest financial institutions, and then The Government. But there is a more general wave of anger directed to all politicians, and that ‘least worse system’ of representative democracy.

And who next?

Business Leaders? Entrepreneurs? Foreign workers? “Make them walk naked ..stand in public with clown hats. ”

It is coming. The terror. And intellectuals will not escape scrutiny. What training did these people get to equip them to run a bank? Well, the answer is, a great deal of training. So let’s reserve a tumbrel for the leaders of business schools. Once again, the cry will be heard. What did you teach the MBAs at Harvard Business School?

And after that the tumbrel. Stop, enough. I want to get back into a state of denial.

Scolari sacking adds support to distributed leadership theory

February 9, 2009
Phil Scolari

Phil Scolari

Chelsea FC fires Luiz Felipe Scolari after seven months in charge as head coach. One explanation for his relative lack of success at Chelsea is that leadership of a group often involves one or more unnoticed but important assistants

Today [Feb 8th 2009] two coaches of Premier League football teams were dismissed. Early in the day Tony Adams departed from Portsmouth. No great surprise, and this was considered a commercial decision based on poor results of an inexperienced manager.

Mid afternoon, and to a greater degree of general shock, Luiz Felipe Scolari was fired by Chelsea. To be sure, Scolari had failed to meet the aspirations of Chelsea’s billionaire owner Roman Abramovitch. To be sure Chelsea had drifted out of contention for winning the Premiership. The general surprise was based on a perception of Scolari as a proven world-beating manager. England had failed to secure his services at the time of the World Cup, when he had been managing the Portuguese national team. His earlier track record included winning the world-cup with his own national team Brazil. On arrival at Chelsea he had won over the Press with intelligent and amusing press conferences. So his image sustained belief in his leadership credentials after results began to dip. The financially minded had noted that Chelsea had been attempting to rein in the apparently ‘money-is-no-object’ attitude of Abramovitch. Even if there was a case for replacing Scolari, the club would eventually have to reveal the monster costs of buying out three managers in a financial year. Of these, Mourinho and Scolari were global figures with matching contracts.

How to explain what happened?

As the news was announced, a BBC reporter was put on the spot. How to explain what happened? He confessed it had been a great shock. Then, he honestly suggested that maybe the critical incident was the departure from Chelsea for West Ham of Steve Clarke. It turns out that Clarke was an outstanding assistant at Chelsea, to Jose, and that Morinho had considered him good enough to be his successor at Chelsea, recommending him to the new manager [September 2008] Gianfranco Zola at West Ham.

According to another report

Zola played with Clarke during his seven-year spell at Chelsea but has no experience of him as a coach. So he turned to Mourinho, who promoted Clarke from youth-team coach to his assistant after becoming Chelsea’s manager in June 2004. They won two Premier League titles, one FA Cup and two League Cups.
Mourinho, now at Internazionale, believes Zola would receive the same support and high-level coaching from Clarke as he enjoyed at Chelsea. Zola has told West Ham’s chief executive, Scott Duxbury, to continue the pursuit of Clarke despite the feud it has created with his former employers.
News of Mourinho’s intervention will no doubt infuriate Chelsea officials, who are making it as difficult as possible for Clarke to leave. The former full-back’s resignation was rejected on Friday before Chelsea, having agreed over the weekend to allow the 45-year-old to move, informed West Ham it will cost them £5m.
That demand has bewildered the hierarchy at Upton Park because Clarke has just two years to run on his £600,000-a-year contract and has been marginalised at Chelsea since Mourinho departed. They also see it as disrespectful to a man who has given the club almost 20 years’ service and wants a new challenge. West Ham are happy to pay compensation but are not willing to go higher than £1m and are prepared to take Chelsea to court.

The BBC reporter today pointed out that the move by coincided with a decline in performance at Chelsea, and a strengthening at West Ham over the next few months.

Distributed leadership

The point, it seems to me, is that we are still too easily swept away with the notion of leadership vested in the great leader, the special one. (I don’t just mean Jose Mourinho). So the contributions of a great number 2 get ignored. Until, that is, the facts just don’t add up anymore, and we have to find a different explanation.

And until someone comes up with a more convincing one, I’m sticking to the ideas of distributed leadership

To go more deeply

Mourino’s departure from Chelsea [Dec 2007]
Breaking news: English football isolated from Jose Mourinho

What Jose did next: How a leader can make a difference
Tactical imagination of Jose Mourinho

Fan who anticipated Scolari’s departure
One blog anticipating Scolari’s dismissal

Times account of the final blow
Luiz Felipe Scolari sacked as Chelsea manager after meeting with Roman Abramovich

Overview of Distributed Leadership
Distributed leadership

Jon Jacobs real entrepreneur and virtual nightclub owner

February 6, 2009

Jon [neverdie]Jacobs

Jon “Neverdie” Jacobs is a modern example of an old pioneering type, the entrepreneur. His plans to buy a virtual asteroid and run a virtual nightclub are bringing real rewards

Thanks to Leaders we deserve correspondent Alex Hough for spotting this example of movement on the boundaries of the virtual and real worlds.

In a Guardian report you can see a video clip of Jacobs explaining how the idea works.

The clip lasts around five minutes. Jacobs is not the most gripping of on-camera performers. He would have to stop flailing his arms around to grip anything. But his energy and vision are evident.

What’s his main point? Virtual world action will overtake the web and leave other technologies far behind. Why? Because in his words, anyone involved becomes both a consumer and producer of value.

His creation involved him buying a virtual asteroid (he said he had to mortgage his house. His real house, I presume). Now people visit the asteroid and set about doing things. They might mine for raw materials, and sell what they have mined to others in need of the stuff for their own purposes. Jacobs takes a cut of the transactions. (Nice).

Then there’s his virtual nightclub – open 24/7 naturally – which also attracts visitors and their assorted business venture.

And that real and virtual wedding

The Miami New Times gave a knockout account of the wedding, a real and virtual event and publicity stunt at which Jon marries his bride Cheri London surrounded (witnessed?) by high-tech equipment. After a few glitches they set off to other Universes to live happily ever after (he’s not called Never die Jacobs for nothing).

Maybe I’ll organize a flight with pioneering academics to found a Galactic University …

Cerberus is a Test for Old-style Capitalism

February 2, 2009


Cerberus had become a flagship for Private Equity, the dynamic but controversial approach to business success under conditions of old style capitalism. Will it remain an example of a successful business model in the current financial turmoil?

The fate of Cerberus over the next year or so will serve as in indicator of the robustness of what is now seen as old-style unbridled capitalism grounded in financial instrumentation, high risk and high return to stakeholders.

Leaders we deserve has come across two examples of its investments one large and internationally famed (Chrysler) , one smaller and UK-based (Focus DIY).

The secretive Cerberus acquired Focus DIY from Duke Street and Apax Partners two years ago in a £225m deal, which involved it acquiring the home improvement chain’s debt at a big discount and buying its equity for a nominal £1.

This is a drop in the ocean compared with the $7.4bn (£5.4bn) Cerberus spent on a 51 per cent of GMAC, the financing arm of General Motors, or the $7.4bn it used to acquire 80.9 per cent of Chrysler from Daimler in Germany. Cerberus has been forced to go to Washington with cap in hand, seeking a bail-out of Chrysler, which is in talks to sell a stake to Fiat in Italy after receiving $1.5bn of government loans, and GMAC, which received a $6bn lifeline from taxpayer funds

Paying dirty and the supply chain

If there was any doubt that retailing is a cut-throat business, current reports dispel them. The elegant business school models of supply -chains may have to be modified to capture a bit more of the nasties. ‘Dirty money’ another FT article called it.

“We are seeing more retailers shift their risk to the supply side and try to extend terms,” said a direct apparel manufacturer that sells to clothing chains, department stores, and discounters. “It’s been a minefield for vendors,” he noted, adding that the industry is bracing for a record-number of retail bankruptcy filings from February to March [2009].

Focus DIY

Focus DIY is feeling the crunch as its credit insurance dries up. Focus feels this is entirely to do with the seizing-up of the financial situation, and that its primary credit insurer Atradius [“Our mission is to enable you to achieve more”] .

Focus CEO Bill Grimsey has gone public about his dissatisfaction with Atradius

“I’m not getting anyone not co-operating, it’s just that it becomes hand-to-hand combat for a while. Those conversations are not helping us sell more products.” Mr Grimsey explained that he had written to business secretary Peter Mandleson and had also put together a letter from 20 Focus suppliers to all three political parties demanding an investigation into the Atradius’ business model.

“They are fair-weather friends who don’t go into enough detail, make unilateral decisions with short notice, and jeopardise the future of businesses.”

A spokesperson for Atradius said: “We have been in dialogue with Focus DIY for some time. Ultimately, our duty is to effectively manage the risks of our customers and we only withdraw cover as an absolute last resort.”

The insurer is not alone in withdrawing cover for suppliers to high street retailers. Its actions have been mirrored by two other leading credit insurers, Coface [who withdrew credit to Woolworths, recently] and Euler Hermes.

It’s not just Focus DIY

It’s not just Focus DIY, but an entire business model at risk. Banks will not support uninsured corporates. Our financial correspondent Dr Ismail Erturk writes

There is a good article by Froud et al on the private equity business model. Their view is that PE is not a superior corporate governance model that turns companies around with exceptional managerial skills but a conjunctual opportunity to extract value from cash-rich companies. As the conjuncture which lasted from the burst of bubble to the burst of housing bubble facilitated cheap leverage finance PE firms benefited. If PE was a truly superior form of efficiency then it should have continued under present conditions where there are lots of companies that need turning around.

Credit for healthy companies is very difficult to get although there is no obvious deterioration of their credit risk. Similarly, banks simply do not lend to almost anyone. If markets were efficient, such credit-rationing should not have happened. Clearly, most assumptions about efficient markets and efficient governance models are falling apart in front of our eyes. Much academic work published in the last two decades were based on these assumptions. So, this is not only a crisis in the material world, but also a crisis of cerebral activity in the mainstream academia on such subjects.

I think we are entering a new phase of capitalism where the balance will shift towards the social from the market. How quickly or how exactly the academic paradigms on markets will shift is another interesting question.


You can find more about the work of Ismail and colleagues on their Crest website
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