Alistair Darling plays Chess at Northern Rock

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

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

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.

Message from Northern Rock: Telling it Like it Is?

In a message from its CEO Adam Applegarth, Northern Rock communicates with its customers. The one substantive item is an offer to refund all penalties imposed if they re-invest within two weeks. The message is as revealing for what it does not say, as for what it does

Northern Rock for the moment is the safest Bank for investors in the country. The website, much maligned as an indication of the Bank’s inability to respond swiftly, shows signs of recovery. (Although that side-bar graphic of a deep-sea diver gently descending offers a rather unfortunate image of the company’s future …)

Mr Applegarth’s message suggests just how little wriggle-room there is for a leader in these adverse circumstances. Every scrap of information will be scrutinized minutely. A minimum requirement is the avoidance of any factual inaccuracy. I read it carefully, and was left with the impression of a company doing its best under exceptionally difficult circumstances.
One dilemma is how much honesty there should be about the future. Should the message tell the truth, the partial truth, and only the truth that encourages investors to return to the Northern Rock’s offerings?

It is a dilemma, because the marketing and PR impulse is to create the simple brand message. That is the brand imperative. The conventional wisdom is to draft and redraft until the final version has eliminated all traces of ‘off-message’ signals. In this instance, the short-term need is to get some cash back in.

But we know that these are exceptional times, and there has been plenty of evidence in the last week of the difficulty of finding a way of reassuring customers. Thanks to the actions of the Bank of England, in coordination with the Financial Securities Authority and the Government, Northern Rock can say without falsehood that

The Chancellor has made it clear that all existing deposits in Northern Rock are fully backed by The Bank of England and are totally secure during the current instability in the financial markets

But that truth is unvarnished, and yet carefully polished in the posting. Polished to remove any hint that mistakes might have been made, or that changes will have to be made that will be unpleasant for investors. The dilemma is the inclination to be honest about such matters. To treat people frankly. Doesn’t that help build trust? And is it really the case that it will be pretty much business as usual in the future?

A mischievous suggestion

Sometimes it helps to face reality by acknowledging what can’t be said. Suppose the reality is that Northern Rock has been in a near fatal accident? At the moment it is presumed to be wrapped up in a financial security blanket and unlikely to return to full health. No-one will turn the life-support system off until arrangements have been made for donation of the various organs. A first message is received from the bedside of the patient.

There has not been much time to reflect on how I arrived in the Accident and Emergency Room of the Financial General Hospital. I suppose I had been feeling a bit off-colour for quite a while. But I had always been in such good health before. Maybe that had prevented me from seeing those symptoms that something was going wrong.

In hindsight, I suppose my lifestyle was unhealthy in some ways. I’m just thankful to all those who helped keep me alive. The doctors tell me that I will make a full recovery. I’m not sure. I’ll probably have to change my life style quite a lot. Still, must put a brave face on for the sake of the family. There’s a lot more like me. That A&E department is working 24/7. I think I’ll say it’s business as usual. Except I suppose it can’t really be the same business again. Can it?

If you want to sit in judgment …

A lot of effort is going into trying to establish ‘who is to blame’ in the declining fortunes of Northern Rock. I would prefer to see whether there is anything to be learned from what’s going on. Would things have been better, say, if Robert Peston had been in change of Northern Rock? Or Will Hutton in charge of The Bank of England? Or if George Osborne, or Roman Abramovich, or Warren Barton had … Enough of that. Let he who is without sin cast the first stone.

Match Of The Day: Brown versus Osborne

Many of us missed Match Of The Day, Brown against Osborne, in the Westminster League. Although televised, the match attracted fewer viewers than the Manchester United/ Sheffield United Premiership football clash, which I watched. Sheffield United seemed to drag the front-runners down to their level. Meanwhile, at Westminster …

The Westminster match was a hastily arranged fixture in advance of more serious contests over the coming months. Brown had been challenged to defend his actions of a decade ago. It was to turn into a one-on-one battle between Chancellor Gordon and his Conservative man-marker, George Osborne.

Two hundred miles to the North West, Sheffield’s finest were at Old Trafford, where they were fighting for their place in the Premier League against the table leaders Manchester United.

Sheffield Manager Neil Warnock said that his team would be facing the best team in the world. While this would be contested by many fans from teams in the English league and beyond, he was effectively making the point that Sheffield were massive underdogs (you could have placed a bet at 14 to 1 for a Sheffield win).

What Sheffield did at Old Trafford

What Sheffield did at Old Trafford was to compete physically, never giving up, against more talented opposition. Young and energetic defenders followed their manager’s plan in man-to-man marking against some of the most elusive and skillful players in the world. Tackles flew in which sidelined United players, and added to concerns about the casualties sustained in recent battles.

The result was as predicted by the bookies a win for the table-toppers and likely Champions. But the win was a narrow 2-0. A week ago, also at Old Trafford, Manchester United had scored seven goals to win a quarter final match against one of Italy’s top teams. General consensus was that Sheffield had dragged the Manchester team down to their level.

Meanwhile in the Westminster League …

Please understand: I am just playing with this metaphor to see how a sporting battle might offer insights into a political contest. In this metaphorical sense, Gordon Brown might be seen as the odds-on favorites, entering the field with a ten-year record for financial success. His opponents’ tactics (like those of Sheffield United) were to challenge public perceptions of the top dog.

Over a decade, Gordon Brown has been regularly called upon to defend his financial actions, in such matches. He has been largely successful in preserving his reputation as a skillful and prudent Chancellor. (Let’s not forget his long-time ally Prudence).

I only caught the highlights in a late night news broadcast, which also indicated the final score had been a comfortable but not overwhelming victory for Gordon Brown. Had the conservatives set up a dogged man-to-man marking system that had minimized the nature of their defeat? Possibly. Had they dragged the Government forces into a scrappier sort of tussle than they would have liked? Again, possibly.

The BBC reported that

The arguments have been well rehearsed over the past few weeks, even years, but shadow chancellor George Osborne was not going to let that stop him .. The “raid” on pension funds had been a con, had devastated the funds leaving Britain with the worst system in Europe and been done in the face of official advice warning him of the consequences ..

The Conservative party went all out on this anti-Brown campaign, even producing a mock newspaper, imaginatively called The Moon, to hand out to rush hour commuters at train stations around the country, and declaring “Gordon Brown ate my pension”.

Gordon Brown ate my pension.

Yes, these are the defiant words of a street fighter.

Did the conservative battle plan work?

To the extent that they had shaped the nature of the fight. To the extent that the Tabloidification of the argument may contribute even marginally to a public perception of the Chancellor (shortly to become Prime Minister) as a man of stealth. It may be a dirty battle, but it may not have been totally futile.

In business, I have reflected on smear campaigns for many years. I’d like to see some decently researched evidence. If there’s anyone out there with some solid evidence I’d like to hear from you. In absence of such evidence I hold to a business principle. You smear your opponents at your peril. It’s a kind of wicked problem-solving. The unintended consequence is to risk a wider reaction of ‘a plague on all your houses’ among the neutrals. It contributes to the low opinion held of politicians by increasing proportions of voters (or perhaps, I should say non-voters).

These are the leaders we deserve, for as long as we accept the tactics of the playground which too often we are witness to.

Postscript

It was The Times wot done it. Originally, the story of Gordon the Pension Snatcher was broken exclusively by the Times newspaper. Today, it tucked away its report of the Brown-Osborne battle on page 22. Perhaps the accompanying Parliamentary Sketch by Ann Treneman rarther spoiled the Thunderer’s thunder. The headline ran ‘Hurricane Gordon sweeps in and demolishes his opponent’. Ouch!