The Terror Approaches: Sir Fred pleads for mercy

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.

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Davos and the underworld

Davos is an annual top-level business and political networking event. For some, it is a place which symbolises the ultimate conspiracy of global domination. Whatever. A version of the drama is being played out on Second Life

The little Swiss community of Davos attracts over 2000 leaders from many walks of life for an annual conference. The event also attracts protestors, and much intense blogging about global elitery, and global conspiracies, although not attracting as many conspiracy theorists as the even more elite Bilderberg group meetings .

The BBC loves a swanky conference but tends to play down the international conspiracy side of things, and presents Davos as a bit of a junket for global high-fliers

This year, leaders of global finance institutions were rarer than usual, perhaps not wanting to be accused of reckess spending habits.

Davos and Second Life

It is not surprising that the protests at Davos are also played out in second life

During a series of interviews conducted in the online universe of Second Life — in which a digital persona of Reuters’ Adam Pasick questioned the digital personae of various Davos attendees — a man carrying an anti-Davos placard apparently sauntered right into the virtual auditorium.
On its Davos blog, Reuters reported Friday [Jan 2007] that the interloper was Iuemmel Lemmon of the protest group DaDavos. His avatar, or online personality, sported a beard and what looked like a blue beret.
Did virtual guards leap up to eject Mr. Lemmon from the scene? Hardly. Reuters said that he “sat politely with his banner in the front row.”

Second Life protests have considerable appeal. There are no broken heads the next day in a little Second Life island high in the Swiss alps.

Battle of Ideas: Picking on the Apprentice

Alan Sugar acts out the leadership myth

Creative leaders are idea warriors. Which is why many will be found engaging in the debate on bullying at work organized by The Institute of Ideas

The Fourth annual Battle of Ideas will involve over 1500 participants including strands on bullying at work, biomedicine, the family and (inevitably for election week).

The bullying at work session has marketed itself as Picking on the Apprentice. Leaderswedeserve has had a few points to make in the past on the television program. Like ourselves, The Institute of Ideas is more interested in hitch-hiking on the over-publicized programme to get at a far wider wider range of issues.

The bullying event will examine the recent case when a Marks & Spencer employee was fired for whistle blowing. And the example of Jason Toal, a black fireman bullied by colleagues who hurled racist taunts at him and allegedly soaked him with water and binned his paper work.

Other sessions will explore whether management consultancy and the professionals are in need of a stronger moral compass in the interests of the community, and (if that appeal is not enough) for their own post-credit crunch survival.

Political correctness running sane

Many people have developed a kneejerk reaction to describe their feekings of frustration and anger under the catch-all phrase political correctness gone mad. It might be interesting to trace the origins of this.

I have no doubt that themes within the Battle of Ideas will attract the inevitable media take of political correctness running mad . Which is OK. It is a comfort to think that debate offers a chance to develop more balanced views, and more importantly to act accordingly. On balance I’d say that is political correctness operating in a socially healthy way.

Acknowledgement: The Institute of ideas for the press release which prompted this post

Guido Fawkes Blown Up?

The influential Guido Fawkes blog disappeared from the blogosphere this morning. Has its author finally succeeded in getting himself blown up?

What I Didn’t See This Morning

I didn’t see something this morning [Saturday April 26th 2008]. I didn’t see a blog on the web. I was looking for the latest posting from a political blogger described as one of the most influential around. The blogger goes under the name of Guido Fawkes, in homage to that earlier revolutionary figure Guy Fawkes.

This Guido Fawkes has acquired a bit of a cult status among bloggers. He has been attributed with breaking political stories which eventually have impact in the real world. For example, he can claim credit for starting the stories about a damaging bit of naughtiness by Peter Hain, during the campaign to replace Mr Prescott (arguably also caught in e-flagrante.

The convenience of pseudo-anonymity was blown most obviously in a Newsnight interview, after which a Mr John Staines claimed that he was indeed the blogging Guido Fawkes.

Guido Revealed

Another blog [‘Tunbridge‘] described the outing of Guido:

Despite the pantomime of the shadowy, unidentified mystical figure sitting in the studio, which everyone in political circles knows is Paul Staines; and Paxman’s usual put-them-on-the-back-foot opening gambit of “Why do you insist on this preposterous charade of sitting in a darkened studio?…” or words to that effect, the central question being raised by Paxman and Michael White, of the Guardian, was a crucial one. That Guido as a blogger can say pretty much whatever he likes and that newspapers, TV and more traditional media have all kinds of pressures and restrictions on them which prevent them from being so loose tongued.

Which remains the central point of the blogging debate and of this post.

In Search of Guido

Anyway, this morning there was an item on the BBC webpages which again referenced the egregious Guido, which prompted me to follow the link to his web-site. Not available. A bit surprising, but it happens, so I tried a few other ways to locate his site. Same results. Guido was no-where to be found.

Conspiracy?

Only if you believe in conspiracy theories. I’m on the opposite side of the world on this one, as far away as possible from believers in Lady Di assassins, cover-ups of alien visitors, Masonic plans to rule the world, and so on.

But I found myself wondering if Guido has been taken out of the game, having gone too far. Something he has done, or was about to do called for swift action. It would have taken some clout to do that. The sort of influence required to ‘persuade’ Google to operate a censorship filter to prevent its zillions of users in China from accessing the sort of information available in the West. A Mr Big has nobbled Guido. Or maybe a Ms Big ?

Guido Restored

Later: [1500 hrs]. Guido is back. But he was worried too, noting

Overnight something has happened. Not sure if it is technical failure, a hacker attack or just a glitch. Everything is backed-up and will be restored in due course…

[Later] UPDATE : It was a glitch.

The Importance of Blogging

A debate going on about the merits of blogging, and its willingness to transmit (and create) unsubstantiated, and mainly scurrilous stories. It was touched on in the Tunbridge post above on the kind of virtual world whose inhabitants can write ‘pretty much what they like’.

The BBC Story

The BBC story prompted me to take a look at the Guido Fawkes site was about a hoax purporting to be reporting the resignation of a government minister.

Labour Deputy Leader Harriet Harman is the latest MP to become a victim of internet hacking. An item was posted on her personal site for several hours announcing her defection to the Conservatives. It began: “To friends, foes and fans, below is a copy of the resignation letter that landed on Gordon’s desk this morning.”
Beneath it was a link to a spoof Harriet Harman blog. The site ..appears to have been taken off-line following the discovery of the rogue message, which was highlighted by the widely-read Westminster gossip blogger Guido Fawkes.

The story also pointed out that

Last year, Conservative housing spokesman Grant Shapps was targeted by hackers who broke into his YouTube account to post a message under his name saying the party could not win the Ealing Southall by-election. In 2006, David Miliband [environment Secretary at the time] was forced to shut down an experimental wiki site after it was bombarded with surreal and abusive additions.

Games People Play

These examples seem to be indications of assorted behaviours, including creative if malicious japes, to the web equivalent of graffiti, passing off, and evidence of the wisdom or otherwise of the crowd.

The Bloggers we Deserve

One of the few clear aspects in the debate is that no simple answer seems to be adequate. At present, bloggers have a well-earned reputation as purveyor of unreliable stories.

In keeping with the interests of this particular blog, I find myself arguing that the development of the blogosphere comes with its particular context of social action.

Through it, in ways we are still trying to understand, ideas gain credibility in the old world of modernity, with its traditional concerns about truth, reality, and morality. Some ideas take hold. This happens probably because of what people are inclined to believe, which itself indicates something about deeply-held fears and hopes.

On this line of reasoning, celebrity bloggers like Guido Fawkes are the bloggers we subscribe to, and are the thought leaders we create and deserve. The hackers, and jokers come as other denisons of the new blogospheric territories.

Something Old, Something New

For what it’s worth, I find connections with various old and newer ideas about innovation and change. I’m reminded of Rosabeth Kanter who developed a visionary picture in the 1980s of a future in which the most successful organizations operate with open access to information

More recently, a similar ‘freedom is good’ theme can be found in the ideas of Henry Chesborough under the catchy rubric Open Innovation

These ideas present the case for the virtues of cherishing freedom of expression in the interests of social and economic good.

However, I wish I could agree with Guido that ‘everything is backed-up and will be restored in due course…’ That would be very nice.

Gwyneth Dunwoody: This One is Personal

Gwyneth Dunwoody [12 December 1930 – 17 April 2008] never placed personal ambition above public service. So she avoided the more fatuous trappings of high political office. Her undoubted leadership talents may have been seriously under-estimated

If Gwyneth Dunwoody had followed personal ambitions on the road to political advancement, she would have challenged for the highest political honours. It is interesting to speculate what might have happened in the process.

We would probably witnessed very lively and uncompromising campaigning battles. There would probably have been one of those dubious market research investigations beloved of Newsnight producers. Maybe a representative panel of voters would have been assembled and quizzed for their views by a remorselessly cheerful American. ‘If we had to choose between Gwyneth to Tony, which car would be more like Gwyneth? ‘

If so, the panellists would almost certainly have been more likely to opt for a no-nonsense, tough and reliable model. Maybe a modern Skoda. Certainly not a flashy and sporty job. They would certainly not have nominated a sporty Austin Healey, trendy Smart Car, or posh Porsche Testosterone.

Crusty Integrity

She developed a media style of humouring the more fatuous celebrity journalists. It seemed to reflect a crusty integrity. But a leader?

Maybe she was too likely to place ethical considerations even above party political advantage. I suspect she would have been more than able to combine integrity and competence, but the suspicion among the king-makers and queen-makers might have been enough to preclude her as a serious contender for the top job.

Maybe a different culture facing different problems would have recognised her leadership attributes. Yes, I could just about see Gwyneth not as a Tony Blair middle-east mediator but a Middle East leader of Golda Meir stature working tirelessly towards a just resolution of the region’s problems.

But that’s all a fantasy. Crusty integrity does not generally play as well in the leadership dramas as polished insincerity. Or, maybe even the rarer commodity, polished sincerity.

Why didn’t I think of Gwyneth before?

So have I fallen into the tradition of praising the recently-departed figure? Possibly. In compiling case examples of political leaders I have been aware of a dearth of female candidates. Has habituated prejudice blinded me to the possibility among those in public life in The United Kingdom? POssibly.

But I don’t think even now of Dunwoody as a female politician, but as an unremarked but able politician who happened to be female.

It is a pity that her story is less well-known than would be the case from a more determined self-publicist. I vaguely remember her father Morgan Phillips as a General Secretary of the Labour Party. I did not know that her political pedigree went back to her grand-mothers, who were both suffragettes, and her mother who became life-peer, and Lord Lieutenant of London.

The tributes today brought back other incidents that briefly hit the political headlines.

In December 2007 she surpassed Barbara Castle’s record for the longest unbroken service for a woman MP .. Mrs Dunwoody was also a Member of the European Parliament between 1975 and 1979, at a time when MEPs were nominated by national parliaments. Her most famous victory over those within the party who would shut her down came in 2001, when backbencher Labour MPs defied the party hierarchy to back her as chair of the House of Commons’ powerful transport select committee.

Under her leadership, the committee had produced several [frank] reports on government transport policies – which many saw as a factor behind the government’s desire to replace her with a more pliant chairman.

Gwyneth and Shirley compared

It is still tempting to compare and contrast the background and careers of Gwyneth Dunwoody and Shirley Williams. The association comes to mind in examining their backgrounds. Williams hailed from the intellectual and more privileged Fabian wing of the emerging socialist movement. Her mother was the distinguished novelist Vera Brittain.
Vera and Shirley graduated from Somerville College, Oxford (as did Margaret Thatcher).

Gwyneth, The Skoda; Shirley, perhaps like some car out of a movie fantasy, maybe on of the most famous of all, Genevieve herself.

Genevieve is fondly remembered for symbolising some gentle unself-conscious former beauty. Quintessentially English, of course. Except Genevieve in the film was actually not what we always believed. Genevieve, unlike Shirley Williams, was in truth of distinctly non-English heritage (a veteran twin-cylinder Darracq).

Shirley Williams was also a rather glamorous and romantic figure in an earlier era. Not that you’d think so from the rather prim version available on her current web-site.

She became a more notable political figure in British politics for her membership of the gang of four now demonized for its contribution to the decline of the traditional Labour party, and eventually to the formation of today’s Liberal Democrat party. Her break was with the values of Old Labour to which Dunwoody remained faithful to the end of her days.

In contrast to Gwyneth, Shirley has shown an intellectual pragmatism throughout her career. Quite recently she accepted Gordon Brown’s invitation to work within his ‘Government of all the talents’ while retaining the Lib-Debs whip in House of Lords.

Gwyneth has always demonstrated her convictions as unshakably as did Margaret Thatcher. That is not to suggest that Williams is less genuine or firm in her beliefs. Rather, her upbringing, and scholarly professonal career shaped a more nuanced political philosophy.

This One is Personal

Bloggers tend towards the detached or the involved. In general I have favoured the detached style, dealing with people and issues which I nevertheless find personally important.

This one is different. Gwyneth died on the day I shared with my family in South Wales services of thanksgiving for Mabel Goldsworthy Rickards.

‘… In loving memory of Mabel, devoted wife of Tom; much loved mother and mother-in-law of Tudor and Susan, Philip and Kathryn; proud nan of Lloyd and Catherine, Paul and Theresa; adoring great-grandmother of Morgan, Alun, Joanna, Evan and Freddie.’

That’s why this is a very personal blog, and utterly influenced by not one, but two remarkable women.

Does it Take a Dictator to Make Trains Run on Time? The Case of Network Rail

Network Rail has been given a record fine for its poor operational record over the New Year. It accepts it must improve, and says it has installed military style leadership. Which raises the old question: ‘does it take a dictator to make the trains run on time?’

O.K., here’s a confession. Network Rail doesn’t actually run trains. It looks after the tracks, and gets blamed when the trains fail to run on time, and that’s the tenuous link with the old myth about trains needing dictators to be run on time.

The current case came to a head with the news story that Network Rail

[Network Rail] has a month to haul the upgrade of its busiest line back on track after regulators imposed a record £14m fine and a package of measures to tackle the infrastructure company’s lacklustre planning procedures.
The Office of Rail Regulation yesterday gave Network Rail until March 31 to agree with passenger and freight train operators a new plan for the £8.12bn upgrade of the London-Glasgow West Coast Main Line. The project is due to allow substantial reductions in journey times and more frequent services from December this year but is more than 300 hours of work behind schedule.

According to the BBC

Network Rail’s chief executive Ian Coucher said his company had now put “military-style” command posts in place, and he pledged that the delays suffered by passengers over the New Year would not be repeated.

Let’s say I’m a bit sceptical. About Dictators making the trains run on time. About Network Rail’s changed operating procedures.

The Background

Network Rail came into existence as an emergency measure when in an earlier incarnation, Railtrack, failed to meet its charter. Railtrack was itself part of one of the last efforts to introduce competitiveness into Britain’s public sector transport systems. The plan always had a clunky feel to it. The vision of effectiveness through liberation of free market entrepreneurial behaviours through competition proved too much to achieve.

Competition between the new companies owning trains was always marginal, outside a few fingers of land in commuter territories. No way was found to breathe competition into the operation of the track, which is where Railtrack, and subsequently Network Rail came in.

The Government’s Dilemma

The dilemma for the Government was pointed out by commentators such as Management Today.

Network Rail is, to all intents and purposes, a nationalised company (although the government doesn’t technically class it as such, or it would have to take its enormous debts onto the public balance sheet). It’s not run for profit, and it doesn’t have any shareholders. So where exactly is this £14m – a record fine for a rail company – going to come from?

The only possible answer is that either the government hands over £14m of taxpayers’ money to pay the fine (which would basically amount to robbing Peter to pay Paul), or the money is taken from the pot that Network Rail is using to upgrade the railways. And as punishments go, this seems a bit self-defeating – how is it going to do an under-invested rail network any good if the Chancellor confiscates £14m from the network operator for the Treasury coffers?

The Mussolini Myth

So might a dictatorial approach be worth considering? Would the trains then run on time? That may be in the nature of an cultural myth. It arose around the Italian dictator Mussolini. The history-debunking site Snapes will have none of it.

Turns out that there were efforts to improve Italy’s ramshackle railway companies in the 1920s, before Il Duce came to power. Mussolini claimed two things. One that the trains now ran one time. And two, that he had achieved the changes through his leadership. Neither claim seems to survive more careful scrutiny.

So when Network Rail claims to have improved by introducing more military discipline into its operations, we might be wise to exercise some caution about promises and premises.

You don’t need a dictator

A related case illustrates that you don’t need a dictator to run a rail business well. The business is National Express. The rather non-dictatorial leader is Richard Bowker. The story requires a post of its own.

National Express runs the C2C, Gatwick Express and One Rail franchises, bus businesses in Birmingham, London and Dundee, and long distance coaches across the UK. Richard Bowker has been hailed as an effective leader of a complex business.

Bowker, the one-time government rail enforcer, is a graduate of the Sir Richard Branson school of management, his natural style being casual clothes and an easy-going manner. Last Thursday he unveiled an impressive set of full-year results, the first he can claim as all his own work

Reporter David Parsley noted the difference in style in the former rail regulator.

Bowker is a changed man. He’s friendly, open and makes a great deal more sense than he ever did working for the Government. It’s like someone has taken his brain off a Whitehall shelf and put it back in.

Situational leadership? Maybe, but it is clearly counter-evidence to the simplistic proposition that you need a dictator to make the trains run on time.

If looks can kill … Rudy’s dead

Rudy Giuliani’s tactics for becoming President failed in spectacular fashion in Florida. Did he rely too much on his reputation as the strong leader in New York after 9-11? Were Republican voters influenced more by his policies or by other more personal factors?

Several factors are being discussed as contributing to Rudy’s failed bid to win support for his campaign to become the Republican candidate for the Presidency.

It is still hard to write about Mr Giuliani without some reference to his leadership as Mayor of New York, in the immediate aftermath of the twin towers disaster in 2002. This was widely acknowledged as a bonus in his subsequent attempt to become President of the United States in 2008. His reputation as a strong leader had remained with him, an apparent personal asset in the intervening years. But that reputation is now being discussed as having been over-emphasised in the present campaign.

[H]e may have overplayed the 9/11 legacy. One Democrat parodied his speaking style as “Noun, Verb, 9/11”.

The second factor concerns the tactics of the campaign, which had always been seen as at best risky, and at worse foolhardy.

We always knew that Mr Giuliani’s strategy of focusing his time, energy and money in the first big state to vote was one of two things; either a stroke of political genius that would rewrite the rule book about how you run for the presidency, or an act of madness that would see the long-time Republican front-runner fall at the first hurdle. Now we know which it was.

The other factors cited included his personal life style.

While his rivals were making headlines for their early victories, the former New York City mayor faced a flood of negative stories about his personal life and judgment, many tied to third wife Judith Nathan and disgraced longtime ally Bernard Kerik.

Other factors were also mooted. His refusal to bad-mouth other candidates was suggested to have been a mistake. If that can be shown important it it even clearer that we elect the leaders we deserve. His emphasis on a hawkish line on Iraq was also believed to have been an unpopular message. Concerns about the economy strengthened the claims of the Reagan-like charms of Senator McCain.

Then there’s the unmentioned factor …

I have not come across a single published reference to a factor that has struck me from the start of the campaign. Rudy Giuliani comes across as one of the least photogenic of the candidates. Perhaps it is too crude an observation; his appearance has not been helped by his medical condition in recent years.

Maybe I am alone in thinking he appears somewhat off-putting. He reminds me in appearance rather like the cadaverous and seriously scary English politician Norman (the polecat) Tebbit. Margaret Thatcher was said to approve of men with charm. Norman was not high on the charm meter, but she approved of him, because she needed the impact of such a semi-domesticated frightener from time to time.

Nor did his appearance prevent Lord Tebbitt from gaining high political honours, any more than a more recent conservative figure Michael Howard who was also less than an easy figure to provide with a reassuring public image.

Ugly can be reassuring and even provide scope for a public image of a no-nonsense and dependable leader (‘warts and all’ as Oliver Cromwell put it). But ugly and scary?

Should it matter?

Should any of this matter.
No.
Does it matter?
Perhaps.

It would be comforting to think that it does not matter as much as policies, integrity, psychological stability and a dozen other factors when we chose a political leader. The absence of comment about Rudy’s appearance may mean it’s a trivial point. Or it may suggest a collective sense of discomfort in observers which sets any discussion out of bounds.

Update

One day after the Florida results, Guiliani retires from the race, and offers his support to John McCain.

How much is a leader worth? The case of Fabio Capello

How much is a leader worth? Whatever it takes to get the best available, according to FA chief Brian Barwick. The assumption is that the right leader will make the difference between success and failure. But how rational is this financial market model of leadership?

When Fabio Capello was introduced to the media as the new England Football manager and rescuer in chief, The BBC reported the discussion over Capello’s remuneration.

As a spiky question flew in about Capello’s reported salary of £4.8m a year, the perspiring FA chief [Brian Barwick] decided to throw himself into the barb’s path.

“It’s important to realise that the FA’s gross income in the next four-and-a-half years may well be in excess of a billion pounds,” he trumpeted.

“The money is a secondary thing,” added Capello through his interpreter, which is perhaps easy to say when you’re about to trouser £13,150 a day until 2012, with a bonus of £5m if you bring home the World Cup… And what about the arrival of his backroom team of four fellow Italians, who between them will be costing the FA an extra £1.4m a year? Was this not the footballing equivalent of buying an extremely expensive gadget for Christmas, only to unwrap it and find that it won’t work without four additional batteries (not supplied)?

Is it ‘what the market will pay?’

So we have a simple equation based on what the market will pay, what an organization can afford, and its estimated costs of success and failure to achieve its objectives. The simplicity of the calculation is one of the attractions of the theory of rational market economics. Unfortunately such simple calculations are almost certainly wrong.

Academic attempts to find the relationships between corporate performance and remuneration of chief executives have indicated that the relationship is far from straightforward. There is, for example, differing degrees of ‘stickiness’ between organizations attempting to change things. Football has tended to be at one extreme, with a tendency for managers to be fired perhaps prematurely, rather than too tardily. Other institutions cling on to their leaders after their shortcomings seem to be reflected in performance indicators. For rather obvious reasons, family firms fall into this category.

But in any case, the survival or departure of a chief is premised on a belief that any change in fortune will be a direct and simple consequence of a change in leader. That relationship is just too simplistic. Strategy formation and execution have different dynamics, over which a leader has differing kinds of impact.

One international expert, Dr Ismael Erturk, at The ESRC Centre for Research on Socio-Cultural Change, (CRESC), commented on the recent stories in leaders we deserve of executive succession and remuneration:

There are several dimensions … that relate to our work on financialization. One of them is the continuous reinvention of banking institutions in a period defined by financial innovation. Morgan Stanley like other investment banks now earn more from using their own capital than their customers. Goldman Sachs [GS] is the leader in this aspect and the likes of Morgan Stanley and Merrill Lynch are the followers. Merrill Lynch lost its CEO trying to be more like GS. Barclays Capital Bob Diamond is another star name with lots of leadership capital who suffered in recent financial crisis. GS and Deutsche so far have come out OK. From our research, we argue that banks have become opaque organizations, which are among the official classification of large complex financial institutions [LCFIs]. These all have interesting implications for the executives of such giant complex organizations, that have government protection in bad times and now are too big to fail.

A second stream of our research is executive pay. What determines the high levels of pay? There is no link between performance and pay, almost everyone agrees on this. Pay for failure is accepted and that is an interesting social phenomenon, causing serious deterioration in income distribution taking us back to the early 20th century. In a financialized economy, financial services and related intermediary businesses (law firms, accountancy firms, consultants, etc.) need new deals -structured finance, private equity, securitization, hedge funds, etc.- to derive high fee income and remuneration. There is a large literature on how pay packages are designed to achieve the going rate rather than linking pay to performance. Stan O’Neal’s package when he was forced to leave Merrill Lynch was $160 million, which would pay the salaries of the six members of the Federal Reserve, who are responsible for sorting out the mess created by the likes of Stan O’Neal, for 100 years! [Mervin] King in the UK [head of the Bank of England] gets lots of stick as well, from all corners, because of his lack of leadership skills, but his [low] remuneration has no relation to the [high] responsibilities and the risks he carries. Business elites, and the role of intermediaries in a financialized economy, pose interesting research questions.

Theory into practice

There’s nothing so practical as a good theory. The English FA took the views of a range of experts into account in arriving at a deal with Mr Capello and his agents. They may have got the right person, at the best rate they could negotiate. But the statement by Mr Barwick suggested they had not been over-influenced by financialization theorists.

‘Tell me, Mr Murdoch, when did your father discover his perfect successor?’

James Murdoch is now believed to have been identified as the heir to his father’s media empire, following his appointment as head of News Corp’s European and Asian businesses. What sense can be made of the appointment?

The most powerful man in Britain. The headline from the Daily Telegraph hints at the political as well as the commercial implication of the ascent of James Murdoch to his new post. My own headline is a tribute to the talents of Caroline Aherne in her role as Mrs Merton, a chat-show host with innocently barbed questions to her celebrity guests.

In her discussion with Debbie MacGee, the young wife of the TV magician Paul Daniels, Aherne produced one of the funniest of one-liners.

‘So, what attracted you to the millionaire Paul Daniels?’

It would take a Mrs Merton to ask the same sort of question of James Murdoch ‘Tell me, Mr Murdoch, when did your father discover his perfect successor?’ Or maybe: ‘What did he see in his youngest son, now that his older children have rejected any involvement in the family business?’ [OK. I’ve just proved how hard it is to write a good gag, or a good headline].

The Telegraph provided one of the best resumes of the spectacular rise of James Murdoch, and notes the political implications of his coronation.

James Murdoch is stepping down as chief executive of the satellite broadcaster BSkyB to head News Corp’s European and Asian businesses. He will take control of News International, publisher of The Times, Sunday Times, Sun and News of the World newspapers, as well as Sky Italia and the Star television business in Asia. He will not sever his ties with BSkyB, however. He replaces his father as non-executive chairman.

That could turn out to be very bad news for Gordon Brown. James Murdoch is an instinctive free-marketeer Tory. Friends say he “talks as if he thinks he is a latter-day Adam Smith”. Thanks to friendships with Al Gore and Bill Clinton, he has developed deep green instincts, which have made him a close confidant of the Tory leader, David Cameron.

The prodigal son?

The younger James showed all the dedication to following his father’s footsteps as did the younger George W Bush. He dropped out of a Harvard visual entertainment course, to found Rawkus, a hip-hop record label. But like Bush, he eventually returned to the fold.

In an earlier post on the Murdoch dynasty I noted

James is the youngest of three Murdoch offspring to a previous marriage. His sister Elisabeth seems the sparkiest of the three, but both she and brother Lachlan seem to have sought more independence, and have broken with promising roles within Murdoch’s media empire. But there may be other candidates to succeed father Rupert, who also has potential heirs from a more recent marriage.

Young James seems to have had a somewhat rumbustious time in his formative years (hardly surprising). His roles in the family firm have been conducted with inevitable publicity. Progress has been swift (hardly surprising). Results have been not totally convincing, but public skepticism has been somewhat weakened through his sure touch in leading the BSkyB business.

The formative years

The Telegraph provides a sketch of a near-stereotype of an over-achiever, shaped through early family influences.

He is fiercely competitive – the result of all those Murdoch family meals when, by his own admission, his father often pits sibling against sibling in a competition for his affection.
“I don’t think I’ve ever met anyone more competitive,” says one former colleague. “He’s like a coiled spring. If he thinks he’s being challenged unfairly, he literally stands up at the table in a meeting or even at lunch and wags his finger in his challenger’s face and says: ‘No, no, no. You’re wrong!’ ”

The governance issue

The BBC raises the governance issue as follows:

British investment institutions dislike chief executives becoming chairmen of their respective companies. So Sky’s British shareholders are bound to complain about James Murdoch’s elevation to the chairmanship. However, Sky non-executives have sounded out the group’s leading US shareholders – including Templeton, Capital and Janus – and believe they are supportive of the management re-organization.

But the younger Murdoch comes with good references. Father Rupert is quoted in the Telegraph as saying:

“James is a talented and proven executive with a rare blend of international perspective and deep, hands-on experience in improving operational results,”

Maybe his father would have given such a reply he had been a guest of Mrs. Merton, and had been asked one of those innocent questions on his son’s spectacular rise to business success.

Bonfire of the vanities: Let’s burn another leader

The much-anticipated news of the departure of Chuck Prince at Citigroup broke on the eve of Guy Fawkes Day [November the 5th]. In England, it’s the day when Guy Fawkes is burned in effigy on bonfires around the land. It seems to be a time around the world when leaders are sacrificed as punishment for their misdeeds. Is this any more than a modern version of the old symbolic way of placing all guilt on a scapegoat?

In the space of a few weeks we have had the cases of Sam O’ Neal of Merill Lynch, and then Charles Prince of Citigroup.

The board of Citigroup paid tribute to Mr Prince, with Alain Belda saying: “We thank Chuck for his unwavering commitment to Citi, its employees and its shareholders.”

In days of yore, the priestly caste prepared the leader for the ceremony of ultimate sacrifice. The leader was treated with the greatest of respect, dressed in sumptuous garments, and then dispatched with honor, thus appeasing the Gods, and saving the rest of the tribe from divine wrath.

It’s all different today, isn’t it? Or is it?

According to The Washington Post the departing leader made the following statement:

“It is my judgment that given the size of the recent losses in our mortgage-backed securities business, the only honorable course for me to take as Chief Executive Officer is to step down,”

He had to go, didn’t he?

The much-anticipated news of the departure of Chuck Prince broke on the eve of Guy Fawkes Day. The question was raised by the interviewer in first discussion I heard on the topic. He had to go, didn’t he? Of course, re-assured the financial expert. Citygroup has such massive losses. It has seriously under-performed. He had to go.

Citigroup has installed former Treasury secretary Robert Rubin as chairman after the widely anticipated resignation of Charles Prince, the embattled chairman and chief executive who faced mounting criticism in the wake of a $6.5 billion write-down for the third quarter. After an emergency board meeting Sunday, Citigroup, citing significant declines in the value of subprime-related securities in the past month, estimated that it would take additional write-downs of $8 billion to $11 billion. Yes, he had to go.

There are echoes in the Western understanding of the Japanese phenomenon of hara-kiri now identified in business life.

To survive the competitive business world, many Japanese companies have now embarked upon restructuring. It is those middle-age men, who contributed to the economic success of Japan since the Second World War, who are now, ironically, the target for restructuring. They have devoted almost all of their lives and often sacrificed their own family life for their companies. People have had the aisha-seisin (a deep spiritual attachment to their own company) exactly akin to that held by the samurai for the oie. The man who commited hara-kiri had trusted the company and believed that the company would not abandon the business warriors. He killed himself when he felt betrayed by the company.

But was this the same kind of ritualistic act that characterized the behavior of a discredited Japanese leader who accepted suicide, as atonement of his disgrace? Or was it more the consequence of the economic realities of modern organizations?

In our recent Western examples, the leaders are hardly treated with dishonor if we judge only the scale of remuneration involved, if the leader had failed in a contractual way. However, even within a strictly rational economic explanation, it is not difficult to see how contractually, a leader of a large organization would have negotiated a lucrative n exit, even if his performance had failed to meet targetrs and expectations.

We should look a little more deeply. It seems that Citigroup wants to reassure markets that it has no intention of changing its business model. That suggests we are operating more on the ancient symbolic model. An honorable resignation, with those sumptuous trappings to the departing leader, protects the others from disaster, and ‘rescues’ the rest of the tribe.

The real test will be whether the departure of the leader produces necessary structural changes, or seeks to avoid them.