Training for recovery

We make no apologies for devoting our first training news of the decade to training through the recovery. As the UK has now officially moved shakily out of recession it appears the pundits may have been wrong in their dire predictions for the economy in 2010. January was lost to the misery of record breaking freezing temperatures, failing public services and a transport system in near collapse, not to mention the horrors of swine flu, winter vomiting and the VAT increase. However, it now seems entirely possible that the optimism expressed in the Archbishop of Canterbury’s New Year message of “hope after a terrible and gruelling decade” might not be misplaced. In this issue we shall look at the winners and losers of 2009 and try to identify the lessons learnt from trading during the first global recession.

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The Economy

It is interesting to make comparisons with January last year: if we take the stock market for instance, our training update in January 2009 reported the FTSE 100 closing 31% down, its worst 12-month period since the index was created in 1984. By contrast there has been a record 22% rise this year, the biggest increase since 1997.

Unemployment too, at 7.8%, remained unchanged on the quarter September to November (with the notable exception of youth unemployment of course, but more of that later) but generally it has been much lower than expected. The Chartered Institute of Personnel and Development (CIPD) in its annual Barometer report of employment predicts unemployment will peak at 2.8 million in the summer, with the jobs market not showing signs of recovery until the second half of 2010. The forecast of 2.8 million is a significant reduction from its prediction in mid 2009 that unemployment would reach 3.2 million in 2010.

UK car sales also rose in January, up 29.8% on last year with 145,479 new cars registered despite the cold weather and VAT increase. Sales appear to have been stimulated by the success of the government’s scrappage scheme which they announced will be extended to March.

After two years of turmoil in the property market house prices too appear to have stabilised, with the average value of a home more than doubling in the last 10 years. In January house prices rose by another 0.6% compared with December. This is the seventh consecutive monthly rise according to figures produced by the Halifax.

The economy undoubtedly remains weak with growth at only 0.1% for the last three months of last year, and there are widespread concerns about how and when to halt the budget deficit.

In December last year Richard Lambert, the head of the CBI, declared he was not satisfied with Alastair Darling’s plans set out in November’s pre-Budget report. He called for immediate action to deal with the UK’s deficit within the lifetime of the next Parliament. Vince Cable, the shadow Liberal Democrat treasury spokesman, was also critical, saying the UK faced a “hard slog”, and he dismissed the Labour plans to tax bank bonuses as “gesture politics”. Writing in the Times the erudite Dr Cable recommended that policy be evidence-based and dictated by the five principles of sustained economic growth; employment growth; overseas demand; monetary and credit conditions in the UK and the market cost of government borrowing. He suggested that the Chancellor could do worse than to emulate Roy Jenkins who, during the financial crisis of 40 years ago, gained the nation’s trust by serving the interests of the country rather than the party.

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Quantitative easing

Against this background the Monetary Policy Committee of the Bank of England (MPC), perhaps prompted by the Wall Street Journal and the Times’ Shadow Monetary Policy Committee, appeared to heed the warnings and announced a halt to quantitative easing. On 4 February the MPC finally suspended its £200bn programme of asset buying: it ceased its extraordinary experiment to “print money” begun in March last year and left the key interest rate at a record low of 0.5%.

Opinions remain divided as to how best to tackle the budget deficit. David Cameron and his shadow chancellor George Osborne have also looked to past chancellors for guidance, modelling Conservative policies on their own heroes Nigel Lawson and Geoffrey Howe. The Institute for Fiscal Studies’ annual Green Budget warned that the economy was too fragile for drastic spending cuts and tax increases during 2010. What is clear is that whoever wins the election in May will have to confront the UK’s looming debt crisis and it seems public sector pay will be a likely target.

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European economy: the euro under attack

The euro is definitely having a difficult time. Le Monde considers that the problem is mainly due to the nervousness of the markets. Stimulated by an over liquidity, they are testing the weak economy and are not hesitating to speculate on the future challenges facing the member states. Greece, Spain and Portugal have all suffered a similar fate, they claim. As the euro rallied against the dollar and pound Greek public sector workers went on strike at the austerity measures imposed by the government to tackle their huge deficit. The reason for the sudden increase in confidence – the European finance ministers are due to meet in Brussels on Thursday (10 February) and no prizes for guessing what will top the agenda.

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Pay and reward – managing the recovery

Despite the fact that business failures reached a record high during the last three months of 2009, the lower than expected unemployment figures are evidence that some employers are finding ways to beat the economic downturn. The government labour market statistics reveal that there were 1.03 million employees and self-employed people working part-time between September and November 2009, because they could not find a full-time job. The fact that the maximum compensatory award limits in employment tribunals have been reduced is an indicator that pay rates have not only been frozen but in some cases reduced.

A recovery can only happen by first increasing business confidence. The first significant turn round seemed to occur last November when the Institute of Chartered Accountants’ published its Business Confidence Monitor Indicator. This indicated that confidence had reached a record six-year high and is the highest rate since the series began in 2003.

There are always winners and losers. 2009 has shown that the successful survivors are those who do not respond by making savage cuts across the board. Instead they have used the recession as an opportunity to examine operating methods to find the best ways to improve efficiency and customer satisfaction levels. This requires listening, or to use the expression of the moment “engagement”, with those who know the business best, the workforce. If you are able to inspire confidence you will be able to persuade your employees of the benefits of short-term pain for longer term gain and thereby attract and retain the best employees to secure your future success.

The John Lewis Partnership is one such enlightened employer. It was founded in 1928 by John Spedan Lewis who developed a trading philosophy rooted in the earlier ideas of 19th century philanthropists like Robert Owen. The company has become one on the great retailing success stories of the 21st. John Lewis has 29 stores and is regarded as the barometer of the British retail market, and even used to decide the correct prices for MPs’ allowances. The company, which also owns Waitrose supermarkets, enjoyed an excellent pre Christmas period with a surge in sales, followed in January by a 15.6% increase in sales on last year. The increase in sales seems in some part attributable to the introduction of Waitrose Essentials, an economy range previously the province of Tesco who have also had an excellent trading year.

All Partnership employees are referred to as partners and receive a share of annual profits in the form of an annual bonus based on a percentage of pay. This was 20% last year. One of the secrets of its success is excellent communication. Information is widely shared and when asked the lowliest employee is able to comment knowledgeably on the company’s trading position. To use the words of the company’s founder, John Spedan Lewis, the Partnership is a highly effective “experiment in industrial democracy” and is still fit to meet the challenges of a global recession head on.

Things are not looking so rosy for that other great British company Cadbury’s following the announcement on 3 February of a takeover by US food giant Kraft. This has proved to be a particularly lengthy and acrimonious hostile battle for control of the confectionary company founded at Bourneville in the 19th century by a Quaker family. Three top executives, the chairman, CEO and chief financial officer, all resigned with 24 hours and the unions claimed that 7,000 jobs would be lost as production is moved abroad. Such was the fate of another great British institution, Terry’s of York, which was also taken over by Kraft. Even the demands by Lord Mandelson for assurances about the future of Cadbury’s UK workforce were ignored and the grandson of the founder spoke of his sadness at its loss. Condemnation greeted the news that 400 Cadbury workers were to be sacked at the Somerdale plant at Keynsham. It must be admitted in fairness to Kraft though that Cadbury had been planning the closure for some time.

One of the other biggest corporate victims of the recession and UK flagship, British Airways (BA), is also experiencing torrid times. Despite the fact the chief executive Willie Walsh was able to announce a much lower than expected £50m loss in the three months to December 2009, the company is still locked in an industrial relations battle with its 12,000 cabin crew over changes to working conditions. The union Unite is to re-ballot its members and the result is due on 22 February.

As banks begin the inevitable frenzy of mergers and acquisitions that accompanies recovery, maybe we should pause a moment to look over our shoulders to the UK’s diverse industrial and commercial foundations. If we are to rebuild a global economy fit for the 21st century, it is likely there is something to learn from the great industrialists of the 19th century.

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Bankers’ pay and regulation

As belts were tightened across Europe and the US, it is not wholly surprising that the announcements of record end of year bonuses for bankers were met with public outrage. There was amazement too; with the consensus of the G20 summit in London in March last year and the publication of the comprehensive 126 page-Turner Review things were supposed to be so different. It was only in November after all that the final recommendations of the Walker Report on the corporate governance of UK banks were published. How therefore only days later could the directors of the Royal Bank of Scotland, (RBS) a bank bailed out by the state hold the government to ransom and demand £1.5bn in bonuses? Bonus demands from a bank that was at the same time rumoured to be facing £200m losses in the financial collapse in Dubai. How was it after months of research and consultation the new regulatory controls could have failed so spectacularly at the first fence?

How indeed? We were about to find out as bankers’ bonuses and bonus taxes continued to dominate the international headlines. Lord Mandelson joined Lord Myners and Alastair Darling and immediately waded into the fray. As 70% of the bank was owned by the taxpayer RBS had little choice but to back down and hand over control of its bonus pool to the Treasury.

In early December a profile of Neil Roden, the Head of HR, in People Management Magazine threw an interesting light on the culture that clearly still exists at RBS. Roden has been at RBS for the last 12 years and survived its £24.1bn loss collapse. Unrepentant he remains a staunch supporter of its erstwhile chief executive Fred Goodwin and agrees with the current CEO Steven Hester that HR were not to blame for the RBS’s failure. The same Steven Hester went on to admit that even his own parents believed he earned too much, whereas Sir Fred courted further controversy by moving to a lucrative position at an architects’ practice. Perhaps Mr Roden should have heeded the words of the FSA chairman Lord Turner and author of the Turner Review. He attributed the grotesque failures of risk management that triggered the banking crisis to the fact that: “dominant executive personalities have a strong tendency to believe their own strategies”. The higher mathematical skill sets of international bankers are clearly hard to manage.

Profits and bonuses at RBS however were as nothing compared with those awarded to the bankers at Goldman Sachs and the Wall Street giants. The resulting fury was sufficient to prompt President Obama to call for a bonus tax. This is a story which will doubtless run and run during 2010. Whether Europe and the US can arrive at some kind of agreed position on bankers’ bonuses remains to be seen.

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MPs

MPs are the other group to excite much interest in 2010. The subject of their allowances, with tales of duck houses, cleaning tickets and moats first fascinated, then appalled and now has frankly bored the great British public. As three MPs and a peer are charged the real casualty of all this has been Parliament itself as all MPs, good and bad, lost the respect of the electorate. We are now left to reflect on the cost of this singularly unsatisfactory exercise as it emerges the new body set up to regulate MPs expenses will cost £6.5 to launch, 10 times more than it has recovered.

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Graduate unemployment

One of the saddest statistics of the 2009 was the huge rise in youth unemployment. In December the number of unemployed 16-24 year olds reached a record high of 925,000, the highest since records began in 1992. The problems of graduates in this recession are particularly worrying as straddled with the huge weight of burgeoning student debt they are facing intense competition for jobs. They must feel like the lost generation as this year’s eager young graduates join the ranks of last year’s, who have been unable to find any work, let alone try to build a career. Universities too are facing £500m cuts from their budgets and are having to reduce the number of available places for those applying for the next academic year. The Association of Graduate Recruiters remains upbeat about the prospects for graduates but this is beginning to sound increasingly hollow for those unable to even secure an interview. What is encouraging is that the number of people achieving advanced level Apprenticeships has increased by a third, according to the Department for Business, Innovation and Skills. Simon Waugh, Chief Executive of the National Apprenticeship Scheme, describes its success in the Times.

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Recruitment

And finally, spare a thought for Kerry Devine who was found guilty of misrepresenting her qualifications to Devon Primary Care Trust and received a six month suspended sentence, 150 hours community service and a £9,600 fine. It is easy to understand how job applicants can be tempted in this difficult job market at the moment, but we often have to remind employers that it never pays to cut corners when taking up references.

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