May 6, 2022 | Customers, Governance
The Financial service industry is the last bastion of the defence of the 20th century business model where the seller had control over the vital product information.
In those old days, you went to your bank branch where the manager knew you, your kids, your financial position, and was someone to be trusted.
When did that change?
Now you cannot get to see anyone in a bank who either knows your situation, cares, or can make any sort of decision.
This personal relationship has proven time and again to be one of the most important in the lives of most people.
After the Royal Commission into ‘Misconduct in the banking, Superannuation and Financial Services Industry’ which reported in February 2019, most thought that the shenanigans of banks would be cleaned up.
Not as such, as Monty Python would say.
Banks are not required by regulation to take steps that are in the best interests of their clients.
This means that they can, and do, sell you products when they know absolutely that there is a better deal, or one that better fits your circumstances readily available elsewhere.
By contrast, when you deal with a broker, they have a legally enforceable fiduciary duty to ensure they are always acting in their clients best interests. This means they are prohibited by law from behaving the way banks routinely behave.
If there was ever a good reason to go to a broker to find finance rather than directly to a bank, this is it!
You know that a good broker has found the best deal possible, having scoured the landscape for the best deals, because they will be prosecuted when it is found they have not.
Pity the banks cannot follow the same rules, although if they did, and they still had their clients best interests at heart, there would be no need for a broker.
The information, or at least the understanding of the information is skewed away from the consumer of financial services.
Finance is one of the last markets where it is difficult for the average consumer to do a realistic assessment of their best option. In every market I can think of, except financial services, the net has democratised information. No longer do the sellers of a product have all the information needed to make informed decisions, and dole it out as it suits them, to best serve their own ends. The web changed all that, forever.
The regulations applying to financial services have become so complex, the options so wide, and the nuances of options so difficult to understand, that most still need a specialist to navigate the potholes.
Many of the broker groups are owned or at least controlled by banks. Where is the responsibility for doing the best deal possible for the client lie in that situation?
Not with the bank controlled ‘pretendy’ brokers.
No, the best deal is to find an independent broker you trust, one who takes the time to understand your situation, then allocates the time and resources to scour the landscape for the best deal possible for you.
Not the best deal easily available, but the best possible.
It seems the obvious scepticism of Royal Commissioner Hayne, obvious to all when refusing to shake the Treasurers hand when formally handing the Commission report to the government in February 2019 has been confirmed.
Apr 20, 2022 | Governance, Leadership
People want to do what they are good at, and it makes sense to let them do that. However, doing well on an individual basis is not enough to succeed. You need to do well at the micro, as well as ensuring that your bit is making a positive contribution to the macro, the efforts of others.
Alignment in the jargon, but it is more than that.
Success in business requires that everyone understands the impact on the business of the decisions they take every day, like taking a ‘sickie. Taking a ‘sickie’ impacts on those around who are relying on the output you would normally deliver. To cover the shortfall entails the added cost of standby capacity, or ‘shorting’ a customer. Therefore, the more everyone understands about the numbers that reflect the performance of the business, the better.
This is not to make everyone accountants, which is the conclusion many jump to, it is just about understanding.
We often use sporting analogies in business, they are easy to see.
This is because business shares four common characteristics with sport.
- There is a goal, in its simplest terms, to win.
- There are rules.
- There is a scoreboard, which in business is normally kept hidden, sometimes deliberately, but most often by default,
- There are rewards for winning.
In our sporting team, every member of the team ‘owns’ part of the result. If we extend the analogy, for a business to be successful, we need the stakeholders to think and act like owners, they have a stake in the overall success of the business.
This goes way past picking up the pay check on a Friday. The things an employee typically wants from an employer, in addition to the pay check to keep the kids fed and housed, are job security, time off, promotion prospects, the opportunity to learn, to be appreciated, and to be able to see the job as way more than a daily grind. They worry about these things.
By contrast, owners and senior management while having all those same worries, are also concerned with all the things that deliver to all stakeholders: satisfied customers, revenue growth, cash, cost control, growth, ROI, which are all necessary if the employees are to be rewarded.
Their goals are the same, it is the language and context that are different.
However, we do have a common language, easy to learn to a sufficient level of understanding to be useful.
That language is the income statement, balance sheet and cash flow statement.
I hear groans: understandable.
Accountants have made these three simple ideas incomprehensible to most people. In unwitting collaboration with the regulators, they have complicated the simple ideas to suit their own purposes.
Broken down to the simplest form, these three reports provide the rules of the game, and the critical numbers that enable everyone to understand the score, while they provide the means to ensure everyone in the game understands their role and stake in the outcome.
To answer the question in the header: to build a successful culture you need to ensure everyone in the game understands the rules, and the way they apply in a volatile environment.
Header cartoon: Courtesy Hugh MacLeod at Gapingvoid.com
Apr 18, 2022 | Governance, Leadership
Words are important, crucial to the effective communication and intent of an idea being articulated. Without the right words, well delivered, the idea will not have any oxygen, so be still-born.
This notion is applicable to every type of situation, from the casual conversation at a social gathering, to the articulation of major strategic choices.
There is a sequence that seems to be successful when making everything from a cold call to a full-blown strategic proposal. I have observed this sequence being successful over many years in many situations.
- Identify the big change that creates the opportunity you are intending to address.
- Demonstrate how the change will create winners and losers. Nobody wants to be on the losing side
- Envision the promised outcome post the project implementation
- Introduce the positive features of the idea as the catalyst to overcome the obstacles and deliver on the promise
- Present the hypothesis/evidence that delivery on the promise will follow naturally from effective implementation.
In addition, there are two ‘secrets’ to the delivery that while obvious, most seem to miss.
The first is in the manner of the delivery.
A flat, wooden delivery and the words will carry limited weight, will not elicit any emotion in the listener. By contrast, words delivered with passion, and obvious commitment to the outcome will be met with a more emotional response, which will either engage or turn off the listener.
The second is in the choice of words.
There are always many ways to articulate a message. Therefore, choosing the right words, the ones that build the attention and emotional response in the audience is fundamental.
Read the words of the great speeches, without conjuring up the mental image of the original speaker, and some of the power is lost. Churchill’s ‘we will never surrender’ speech, Martin Luther kings ‘I have a dream’ speech are great examples. Now read them again with the image in your mind, and the power returns.
One further thing that can make magic, is the power of the moment.
Churchill, newly installed as Britain’s PM as France surrendered, facing a catastrophic defeat, and King in front of 250,000 people on the steps of the Lincoln memorial in 1963. In the moment, King changed the text he had written adding the immortal words: “I have a dream’ to the list of changes he wished to see for his fellow Americans. Both used the moment to conjure emotional magic from the ether with words and passion.
Compare those to Albo’s 5-point plans, and Scomo’s blizzard of pithy sound bites, and know why we are so desperate for some genuine leadership.
Header credit: Courtesy ‘First dog on the moon’ cartoon frame.
Apr 11, 2022 | Governance, Personal Rant, rant
On Sunday as the 2022 election was being called, I was sitting in a café in one of those affluent strips observing life, and gathering my thoughts.
It occurred to me that the blather we are all now about to face will avoid any reference to the key question that should be addressed: the growing distance between the ‘haves’ and ‘have-nots’, and how to redress the balance.
This is not about the cost of living, price of petrol, or availability of some subsidised form of income. It is about the national income, and the way governments of both persuasions over the last 50 years have let the money required for schools, hospitals, aged care facilities and all the rest slip through their fingers, while ensuring some sticks to selected fingers on the way through.
A brief economic history lesson, recognising I am neither an economist nor historian.
Towards the end of WW11, recognising the coming challenges of post war reconstruction, the allies set about removing the danger of the wild ride that had been the relative value of currencies up to that time. The result was an agreement amongst the allies in the little New Hampshire town of Bretton Woods. That agreement laid out the mechanism by which post war currencies would be tied to the price of gold, pegged at $US35 an ounce. The US dollar became the ‘reserve currency’, a guarantee to exchange an ounce of gold for $US35. At the time, the US was about the only solvent nation, and held most the world’s gold in Fort Knox (Remember ‘Goldfinger’). The International Monetary Fund was created as a part of the agreement as a release valve to address short term fluctuations.
The laws of supply and demand being what they are, the value of gold outside the official control of central governments soared, leading to an active unofficial gold market where it was traded for multiples of $35. Trouble is, you had to move the stuff, and it is heavy. (Goldfinger again)
Over time the core problem of a fixed currency regime became obvious. Money is international, it can be moved and exchanged globally, while the regulatory control of any one country ends at their borders. The obvious example of this disconnect is the so called ‘pirate’ radio stations positioned in the North Sea just outside the international boundary of the UK. These popped up because the BBC which controlled all the UK radio stations refused to play the emerging ‘Pop’ music of the 60’s and early 70’s. Being outside the border, the BBC could not close them down, but those who wanted the music could listen as easily as they could to any other radio station, just move the dial a bit.
Analogous to the pirate radio stations, the gnomes in Switzerland who were sitting on huge and very private sums of hidden wealth that could not be easily used by the owners created their own pirate system: bearer bonds. These enabled those hidden fortunes to be put to work, not only earning interest on the loans, but increasing the capital value of the investments, previously impossible.
By the late 1960’s the Bretton Woods system was clearly broken, and the US terminated the convertibility of US dollars to gold at the fixed $35 in 1971, followed closely by the pound sterling, and other major currencies. In effect we then had floating exchange rates, in an environment where countries still had regulations that stop at their borders, while money is globally mobile. It did not take long for countries to recognise the value of attracting this previously inaccessible capital by a range of means around low tax rates, banking secrecy, and personal anonymity. The lawyers and accountants since then have made this disjoint between the mobility of money and the static nature of sovereign borders a financial bonanza for those individuals and organisations with the money and will to hide their assets and ensure they do not pay tax. Hundreds of billions have been looted from the system by these ‘legal’ means, leaving those with insufficient income to fund the legal complexities to hide their income to pay for the schools, hospitals, and aged care facilities we are all demanding.
This is, to my mind, the core challenge of this election that will not be spoken about.
Labor policy is to collect tax from multinationals by denying deductions for royalties to related parties. This makes sense, but will be hard to enforce, and does not address the inequities in other huge areas of tax minimisation and avoidance. Besides, when sovereign rules change, the tax arrangements of corporations and individuals change as well, moving to a more accommodating regulatory environment. On top of that, those who make the rules are also the ones who benefit, so while there might be some ineffective fiddling at the edges for a press release, real change which requires global collaboration and endorsement currently is just a pipe dream.
However, the first step in solving any problem is to recognise that we have a problem.
Unfortunately, this conversation will not be started by either party in this coming election. For the long-term health of Australia, and Australians, as well as every other person on the planet, apart from the tiny minority of looters, it is a conversation that needs to be started, and followed through.
I need another coffee after all that.
Mar 14, 2022 | Governance, Leadership
Integrity is something we all say we strive for. Most statements of company values plastered on the reception wall seem to have it included.
The dictionary definition is something like: ‘the quality of being honest, having strong and unchanging principles‘
Trust and integrity seem to me to be a continuum? At one end, is integrity, the personal determination to do the right things. At the other is trust, the belief of others that you will do the right thing.
Trust is something that must be continually renewed by performance to be retained. In most cases, there will be an automatic quotient of ‘trust’ given at a first meeting. The more similar two parties are, the greater will be that ‘auto-allocation’ of trust.
After that, it is retained and earned by the behaviour displayed over an extended period. Trust is easy to lose, very hard to earn back.
You build trust by always meeting commitments, or, when there is a commitment that will not or cannot be met, there is a clear acknowledgement of that outcome, and responsibility is taken.
What is to be done, by whom, and by when is clear, unambiguous, and fair.
When you meet all your commitments, by the due date, or alternatively when they are unable to be met, that fact is clearly communicated beforehand, and responsibility accepted, integrity will be built.
This is a vital component of leadership, and of the ‘Cultural glue’ that makes up a successful institution. Others need to be able to trust that to be cliched, ‘your word is your bond’.
It also has significant implications for those that are being led. The casual relatively thoughtless acceptance of some sort of task and/or deadline that you know you cannot or are unwilling to meet is no longer acceptable.
When you accept a task and deadline, you must meet that acceptance with completion.
Many times, I have seen people in a meeting accept tasks that everyone knows will not be adequately addressed by the deadline. This is both bowing to authority and making your short-term life in the meeting better at the expanse of the longer term, and your own integrity.
The same process applies to institutions. We tend to want to trust them, and the people running them. However, when the people fail the integrity test, we tend to lose faith not only in the people, but in the institution as well.
I wonder, do those in Canberra who seek to lead us, understand the idea and its foundations?
Header cartoon credit: Scott Adams and Dilbert, again, have my thanks for a cartoon that makes my point.
PS. to the cartoon. Integrity may not buy you a boat today, but it certainly will tomorrow.
Feb 23, 2022 | Analytics, Governance
The old adage that you can find data to support any proposition, almost no matter how wild, has never been as prevalent as it is today.
We have the sight of politicians on the one hand telling us the science is wrong as it reflects the looming catastrophe of climate change, while at the same time lauding science in the way the world has responded to the covid pandemic with new vaccines in record time.
The contradiction is extreme, however, there is always data to ‘prove’ whatever point is required.
Following are some of the common ways data is manipulated to mislead, misinform, and bamboozle the unwary.
- Confusing correlation with causation. This is very common, and I have written about it on several occasions. Just because the graphs of ice cream sales and shark attacks mirror each other, does not mean one caused the other.
- The Cobra effect. This refers to the unintentional negative consequences that arise from an incentive designed to deliver a benefit. The name comes from an effort by the British Raj to reduce the number of cobras, and associated deaths that occurred in Delhi, by offering a bounty on each dead cobra. Entrepreneurial Indians started to breed them for the bounty. The identical situation applied when the French wanted to reduce the rat population of the French Indochina. They stuck a bounty on rats’ tails, which resulted in enterprising Vietnamese catching the rats for their tails and then releasing them to breed further.
- Cherry Picking. Finding results, no matter how obscure, that support your position, and excluding any data that might point out the error. This is the favourite political ploy, having a great run currently.
- Sampling bias. Relying on data that is drawn from an unrepresentative sample from which to draw conclusions. It is often challenging to select a sample that delivers reliable conclusions, and often much too easy to select one which delivers a predetermined outcome. Again, a favoured political strategy.
- Misunderstanding probability. Often called the gamblers fallacy, this leads you to conclude that after a run of five heads in a two-up game, the next throw must be tails. Each throw is a discreet 50/50 probability, no matter what the previous throws have been. Poker machine venues rely on the players increasing belief that the ‘next one’ will be the ‘jackpot’ after a run a ‘bad ones’ for their profits.
- The Hawthorne effect. The name comes from a series of experiments in the 1920’s in the Hawthorne Works factory in the US producing electrical relays. Lighting levels were altered minimally to observe the impact on worker productivity, and concluded that they improved when lighting was increased, but later dropped. The effect of the lighting was later disproved, when psychologists recognised that people’s behaviour changes when they are, or believe they are, being observed. This can be a nasty trap for the inexperienced researcher conducting qualitative research.
- Gerrymandering. Normally this refers to the alteration of geographic boundaries, usually in the context of electoral boundaries. It can equally be used to describe the boundaries set around which source data can be included in any sample. ‘Fitting’ the data to deliver the desired outcome. The term originated from the manipulation of electoral boundaries in Boston in 1812 when the then Governor Elbridge Gerry signed a bill that created a highly partisan district in Boston that resembled the mythical salamander. The national party held government in QLD for 32 years until 1989 as a result of a massive gerrymander in their favour, perhaps better remembered as a ‘Bjelkemander’
- Publication bias. Interesting or somehow sensational research is more likely to be published and shared than more mundane studies. In this day of social media, this becomes compounded by the ‘echo chamber’ of social platforms.
- Simpson’s paradox. This describes the situation where a trend evident in several data sets is eliminated or reversed when the data is combined. An example might be the current debate about university admissions favouring males over females. If you take subsets of the data for different faculties, this may be true, but combine the faculties, and the numbers will be virtually even, perhaps even favouring females. This was demonstrated in a study of admissions to UC Berkely in 1973 and is a regular feature of misleading political commentary.
- McNamara Fallacy. This comes about when reliance is placed on data only in extraordinarily complex situations, ignoring the ‘big picture’, and assuming rationality will prevail. The name comes from reference to Robert McNamara, US Secretary of Defence under Presidents Kennedy and Johnson who used data to unintentionally lead the US into the disaster that was Vietnam, later acknowledging his mistake.
Using data to is an essential ingredient in making your case, as they convey rationality and truth. When listening to a case being made to you, be very careful as numbers have the uncanny ability to lie. To protect yourself, ask at least some of these eleven questions.
Header illustration credit: Smithsonian. The drawing is of the electoral district created by Massachusetts Governor Elbridge Gerry in 1812 to ‘steal’ an election.
