Do You Know Where You’re Going To…..

 

OK – first some self-justification. I realise that this song doesn’t exactly enhance my credentials as the wild man of PR.  Unfortunately it’s the most appropriate one I could come up with in what is a necessarily short space of time and, having set out the parameters for titles myself – most importantly that they should have some relevance to the subject about which I am actually writing – I feel I need to adhere to them.  Anyone who wants to suggest something better should feel free to do so – I will happily credit better minds than mine.

Which enables me to segue neatly into today’s post. One of the more fortunate aspects of my professional life is that I am sometimes lucky enough to get access to the thoughts and opinions of some very wise people.  This morning at Edelman’s London head office we hosted an ‘Outlook 2009’ event featuring a panel of some of the most high profile commentators on business and the global economy; Vince Cable, Deputy Leader of the Liberal Democrats and the people’s politician; David Frost, Director General of the British Chambers of Commerce, representing the heart and soul of UK industry; Jim O’Neill, Head of Global Economic Research at Goldman Sachs and the man who invented the BRIC acronym; and John Waples, City and Business Editor at the Sunday Times, the UK’s leading Sunday broadsheet.  The event was excellently and expertly facilitated by former Sunday Telegraph editor, now Barclays Bank non-executive director, Patience Wheatcroft in front of a standing-room only audience of Edelman clients and contacts. 

The views of the panel on prospects for the next twelve months were pretty downbeat with all of them agreeing that 2009 will be a very difficult year.  Edelman’s website will shortly be carrying a brief summary of the content by Patience Wheatcroft and a video of the proceedings in full later today, but a taste of some of the comments of our experts includes:

• Jim O’Neill revealing that Goldman Sachs has reduced its forecasts for UK growth in 2009 from 2.6% in September to just 1% now, and is forecasting a drop of 5% in output in the US in the fourth quarter of 2008;
• John Waples arguing that after the Lloyds TSB/HBoS merger it is now possible to ‘think the unthinkable’ in business terms – what price a Sainsbury/M&S merger, or BP/Exxon?;
• David Frost saying that despite the entreaties and assurances of Government his members are still experiencing problems securing funding and finance from the high street banks preventing them from being part of the solution as opposed to part of the problem;
• Vince Cable pointing out the inconsistencies the economic turmoil has thrown up – bank shareholders wiped out, while bank depositors are protected; elderly people seeing the equity in their homes collapse, while those with large mortgages are protected by the Government.

Fascinating stuff.  And very scary.

 Title by Diana Ross

Read Full Post »

Killer Queen…

It’s an indication of the constantly changing state of the financial world – and the Government’s introduction in draft form in May of many of the bills presented – that today’s Queen’s Speech has been largely shrugged off in the City.    While there were certainly murmurs of discontent from business groups such as the British Retail Consortium and the British Chambers of Commerce over the increasing burden of taxation and red tape, interest today has centred as much on what wasn’t in the bill as what was with Business Secretary Lord Mandelson’s confirmation this morning that the Government would be extending flexible working rights for 4.5m working parents with children as old as 16 also falling foul of the BRC and the BCC.

After the events of the last six months it would have been a shock not to see the Government taking steps to address issues that have arisen in the banking sector, however, and the banking Bill, which is already on its way through the House of Commons, addresses a number of high profile issues.  These include a strengthening of the Bank of England’s hand with the creation of a new Financial Stability Committee; the establishment of a new regime in which the Bank has greater latitude to support any bank that does find itself in trouble (for instance by providing short-term financial support  without making this public); and a Special Resolution Regime that will allow the authorities ultimately to sell a failing bank to another bank; nationalise it; or to transfer it to a ‘bridge bank’ controlled by the Bank of England.

Savers are also the beneficiaries of additional support from the Government with a commitment to legislation that will “ensure fairer and more secure protection for bank depositors”.  In addition there will be a new savings scheme for people on low incomes that will see the government add 50 pence to every £1 saved, up to a maximum of £300 after the account-holder has been saving for two years.

With the Government shying away from anything that could depress the economy, however, and the legislative programme in general very thin on the ground today’s speech very much feels like tinkering at the edges.  With a clear view of the direction of economic policy having been given in last week’s Pre-Budget Report anyone looking for further enlightenment today will probably be disappointed.

This article also appears in Edelman Public Affairs’ summary of the Queens speech which can be found here.

Title by Queen

Read Full Post »

Brown Sugar…

And there it was gone.  The most eagerly anticipated – and heavily trailed – pre budget report since PBRs began (admittedly only ten years ago) has taken place against a backdrop of political discord and disagreement between the three main UK parties.  The Government has moved in a single leap from Prudence to Profligacy, hoping that an extra tenner or so off that £500 Plasma TV will be the difference between a sale and no sale and will get the cash tills ringing again in the run up to Christmas.  In the meantime, taxes and national insurance are set to rise in April 2011 to fund this economic largesse.  Edelman’s Public Affairs team has produced an excellent summary of the PBR which you can access here.

It’s clear from the subdued nature of the Labour benches as the Chancellor delivered his statement  that the borrowing figures were a huge, sobering shock and it has to be doubted whether today’s package of measures will really be enough to get people spending again, rather than saving anything they do get to guard against the uncertain nature of the job market.  Shadow Chancellor George Osborne’s comment that the statement is “all about the political cycle and not the economic cycle” echoes my own comments on Friday’s blog. 

As usual, the Liberal Democrats’ Vince Cable seems to have cornered the market in common sense from a political perspective, claiming that income tax rather than VAT cuts would have been more effective in stimulating the economy and would have more clearly targeted those in most need of help – after all, VAT is already zero rated on most essentials.

Still, there is now an ocean of clear water between the various parties approach to management of the economy which is something to be grateful for as we head towards the end-game in this particular parliament; the level of financial redistribution this budget implies positions it as an ‘old labour’ response to ‘new labour’ problems.  But with the Tories in particular having to date seemed leaden-footed in their response to the unfolding financial crisis, the issue now is whose medicine is the most effective as we move from the intensive care unit to the recovery room.

Title by the Rolling Stones

Read Full Post »

Dazed and confused…

Today’s Daily Mail front page lead caught my eye.  Under the headline ‘Banks: Now it gets Ugly’ it says that “Alistair Darling is so exasperated by the ‘moral failure’ of banks to help small firms and families that he is poised to toughen the law.”  Apparently the particular target of the Chancellor’s ire is those banks that signed up to the Government’s bail-out package last month, which, according to the reports, are not meeting the expectations of their new Government paymasters.

“Moral failure” is an interesting premise on which to base potential legislation in the banking sector, particularly if this is effectively code for stimulating lending activity.  Because isn’t it the bank’s past lax lending policies, in particular in the sub-prime mortgage sector, that brought us to this particular pass, and aren’t we just running the risk of repeating that error here?  I’m pretty sure that someone once said the definition of insanity is doing the same thing over and over again and expecting a different result.

What we have here is a situation where the banks are being positioned as the primary architects of all our current financial ills.  Now don’t get me wrong – I’m not here to act as an apologist for the shortcomings of the banking sector.  Anyone thinking I might have a rose-tinted view only needs to read my wife’s account here of the shambles that befell our own financial arrangements when we tried to get a temporary increase to an overdraft to pay for some home improvements.   On the whole the industry’s public reponse to the current crisis has been ineffective, with RBS’s belated apology to shareholders yesterday the bare minimum necessary to begin to rebuild trust.

I just can’t help but feel, however, that with the heavily trailed fiscal stimulus package expected to be unveiled in Monday’s pre-budget report we are scrabbling around to kick start the economy by any means possible, and without regard for the future implications of current measures.  And the driving force for all of this activity is not so much the urgent needs of the British householder/consumer/small business but the sound of the clock ticking loudly down towards the next general election, now little more than 18 months away and the need for the Government to engineer an economic recovery within that period if it is to give itself a fighting chance of winning.

Title by Led Zeppelin

Read Full Post »

Cars

On one level, the current debate over the fate of the Big 3 Detroit car companies – and specifically whether the US Government should extend a further $25bn of public money to help the industry weather its own current financial crisis – puts me in mind of the “what have the Roman’s ever done for us” sketch from Monty Python’s Life of Brian.  After all, not only do the three companies in question – GM, Ford and Chrysler – account for around 240,000 direct jobs but it’s estimated that each of these jobs accounts for another seven employed indirectly in the various businesses that support the automotive industry. 

So it sounds like the industry is pretty central to the economic health and welfare of the US.  Yet despite this, the noises coming out of the States suggest that those arguing in favour of forcing these giant manufacturers into Chapter 11 Bankruptcy are gaining the upper hand.  It’s as if the catastrophic bankruptcy of Lehman Brothers, which by common consent is now regarded as the catalyst for the total meltdown we have seen in the banking sector, never happened.   

While I suspect that some form of compromise will be reached by which at least publicly-quoted Ford and GM – if not Private Equity-owned Chrysler – do get access to Government money, the fact that this debate is even taking place shows how in difficult times negative perceptions can get in the way of business or social logic.  The motor industry in the US is seen by many as having been slow to grasp the nettle of change and address issues of environmental impact, with the result that cross-party goodwill is in short supply.  If, as I suspect, Government money is committed to the industry it seems inevitable that – as with the UK Government’s bail-out of its high street banks – this seems almost certain to come with pre-conditions that require the car makers to address these perceived shortcomings.

Yet again the lesson here is that the rules have changed for business in general and, in particular, for organisations and industries that are looking to their Governments to provide financial support to help them navigate the recession.  The (understandable) price for financial support will be an inevitable reduction in management control and a need to stand-up to far closer public scrutiny. 

Footnote: I raised in my last entry how the new reality of the financial services sector means that the popular media will closely scrutinise every penny the banks spend, so it was not too surprising to see HBoS and RBS exposed in the News of the World and Mail on Sunday respectively this weekend for hosting recent staff and customer events. This focus also extends to the US as this entry from my boss Richard Edelman’s blog explains.

Title by Gary Numan

Read Full Post »

Down down…

Is the Governor of the Bank of England sending a signal to the banks with today’s shock 1.5% reduction in interest rates?  This is the view of my colleague Susan Eastoe, Edelman’s Deputy CEO and Public Affairs guru who says that in dropping base rates to their lowest point since 1955 it looks like Mervyn and Co are telling the banks: “if you won’t reduce your rates we’re going to do it for you”.   I think Susan is right, but it’s clear from early comment within the banking industry that, notwithstanding this action and the comments of Messrs Mandelson and Brown in the last three days, there will be resistance from many banks to the idea of passing on the full drop in rates to mortgage customers.   

In fairness to the banks – not an expression I expect to be using too frequently – the Bank of England rate is only one element to be taken into account when deciding where they pitch their rates.  And many of them will in any case be more focused on shoring up their own financial position than that of their customers.  But this has the potential to become another huge PR issue for the industry, which will need to be on the front foot and articulating its position very loudly and very clearly if it is to avoid another humiliating retreat at the hands of the Daily Mail.

Footnote: bearing in mind my comments on Tuesday about those banks that have participated in the Government bail out now being at the mercy of “Government whim and political convenience”, two items of particular note struck me today.  First, it has been reported that ahead of the announcement Northern Rock and Lloyds TSB withdrew all their tracker mortgages.  And, subsequent to the announcement of the rate cut, I note that the first bank out of the blocks and announcing that it would be implementing the rate cut in full was Lloyds TSB.  More nudge nudge, wink wink policymaking?

Headline courtesy of Status Quo

Read Full Post »

Taking care of business?

I can understand why Barclays’ decision to eschew the Government’s offer of financial support in favour of raising funds from Middle East investors has angered its existing shareholders.  When the value of your investment has already taken a severe hammering the last thing you need is for your stock to be diluted still further.  Unsurprisingly the bank has been soundly punished in the stock market for its actions. 

At the same time, I felt on Friday when the announcement was made that the bank’s actions were understandable and yesterday’s unveiling by Alistair Darling of UK Financial Investments (UKFI), the holding company that will undertake the ‘arm’s length’ management of the taxpayer’s investment in the UK banking system, does nothing to dissuade me from that viewpoint. 

While the populist media will make much of this as an issue of executive pay, I don’t believe this is at the heart of Barclays’ decision.  It seems to me that the bank is motivated by a desire to limit the potential for Government interference, unlike RBS and LloydsTSB/HBoS which now potentially find themselves at the mercy of Government whim and political convenience. 

Evidence of the latter issue comes through very clearly in the terms of reference for UKFI, with the Government making it clear that one of the principal responsibilities of the new organisation will be to maintain levels of lending to businesses and homeowners alike.   I am not at all sure how the nascent organization will balance this requirement with the need for the banks with whom it now deals to conduct their business along commercial terms.  And that’s before considering how wise it is to believe that you can set aside the normal rules of banking engagement in a recessionary environment without storing up the kind of future problems that are at the heart of the current meltdown.

It will certainly be interesting to see how UKFI flexes its muscles – directly, or by following the ‘nudge nudge wink wink’ strategy Alistair Darling seems to be adopting when dealing with the Bank of England’s Monetary Policy Committee.  I imagine an early test of the Government’s resolve will come when the combined entity sets about extracting the extra £1.5bn of savings it says it has now identified.  With Lloyds TSB’s Chairman Sir Victor Blank and CEO Eric Daniels both eagerly asserting their independence in this morning’s press, it may be that UKFI is a dog that doesn’t bark – but I don’t think you can necessarily blame Barclays for not wanting to take the chance.

Headline courtesy of Bachman Turner Overdrive

Read Full Post »

Dirty deeds done dirt cheap…

My inaugural blog post (Never mind the Economics) looked at the issue of perception and reality but as this is an issue that sits at the heart of PR and communications I make no apologies for returning to it again today, following a weekend of heated media debate about the links of the UK’s business secretary, Lord Mandelson, and Shadow Chancellor George Osborne with the Russian oligarch Oleg Deripaska.  To a large extent, the precise nature of what was discussed on the Queen K is academic (the Guardian has an excellent summary of the issue here).  The very fact that the meetings took place at all is enough to create the impression that something has gone on and has set the media rumour mill churning. 

With Mr Osborne being forced into a public dispute with long standing friend Nathaniel Rothschild over what happened in Greece in the summer and Lord Mandelson having to ‘clarify’ when he first met Mr Deripaska, no one is emerging from this dispute smelling of roses.  For Mr Osborne the issue is a chastening reminder of the scrutiny that comes with high office – or the threat of it.  For Mr Mandelson, the weekend’s headlines are an unwelcome echo of past troubles and resignations.  As the UK’s main political parties mobilise ahead of an election that may now be more competitive than seemed possible a month ago – although my personal jury is still out on the sustainability of the ‘Brown Bounce’ – there is a clear message for everyone in the public eye (not just politicians) about the need not only to do the right thing, but perhaps even more importantly to be seen to be doing the right thing.

Footnote: Staying on the subject of people who should know better, I can’t have been the only Chelsea fan to have experienced a deep sense of foreboding waking up on Saturday morning to a slew of headlines about the prospects of the club going through the entire English Premier League season unbeaten and, sure enough, a first defeat at home for more than four and a half years arrived on Sunday. 

It always amazes me that experienced football managers allow themselves to get drawn into the kind of media speculation that is just guaranteed to spur on the opposition.  Last year Rafael Benitez chose the evening of a European Champions League semi final to question the attitude of Chelsea striker Didier Drogba, a tactic whose biggest impact was to draw out of the temperamental striker one of his best ever performances in a blue shirt.  I know as much as anyone how the press loves to create controversy for media impact, but surely there’s a lesson to be learned here…

Headline from the immortal AC/DC

Read Full Post »

Oops I did it again…

Mervyn King certainly put the cat among the pigeons on Tuesday evening with his unexpectedly pessimistic assessment of the UK’s economic fortunes.  With the Bank of England expected to cut interest rates again as soon as next month and Gordon Brown joining Mr King in using the R word for the first time yesterday the downward pressure on the pound is likely to remain for some time yet.  Good news for businesses with dollar earnings, but not so great for anyone planning a New York shopping trip ahead of Christmas.

There have been suggestions that Mr King is in danger of talking us into a recession with his blunt analysis of the economic outlook – an accusation that has been levelled at the press on a number of occasions in recent months.  I am well known amongst my colleagues as a sunny optimist but ‘tell the truth and tell it fast’ is a basic rule of crisis communications and I think that by any definition the  economy has now reached the emergency ward.  So this is maybe the time where a dose of healthy realism is appropriate.

The challenge the Governor and the Prime Minister have been wrestling with is one which many communicators will all be facing up to now; striking the right note between caution and confidence.  How difficult news is delivered is at least as important, if not more so, than the news itself.  The next 18 months are likely to put significant strain on the relationship between management and its stakeholders – internal and external.  The companies that will survive the recession best and emerge into the upturn in the strongest possible position will be those that find the right balance between optimism and realism.

A brief footnote: I was surprised to read in last night’s London Evening Standard a prediction from BNP Paribas that sterling will fall to $1.55 “by 2010”.  With the pound having dropped from $1.75 to $1.62 in just three days this week I can see us getting to $1.55 by half past seven…

Headline courtesy of Britney Spears

Read Full Post »

Hate to say I told you so…

Regular readers (both of you) will recall my post earlier in the week (I’m still standing…) that predicted David Cameron’s Conservative party would be eager to break free of their self-imposed supportive stance towards the Government’s economic stability proposals and re-establish their credentials as a party of opposition by, well, opposing things.  This morning’s speech by the Tory leader to a City audience assembled at Bloomberg’s London headquarters (including your humble correspondent) may indicate that normal political service is about to be resumed.

Greater minds than mine have already covered the speech in which Cameron castigated the Government for a series of false assumptions – in particular that a successful economy could be built on a “narrow base of housing, public spending and financial services” and “that you could abolish boom and bust and that the good times would last forever”.   The question of whether this is the right time or not to go on the offensive is something that will doubtless be debated – indeed the BBC’s Nick Robinson does just that in his blog – ad nauseum.  But as the markets continue to gyrate wildly I for one will be very interested to see what strategies the opposition parties adopt – and in particular how the polls reflect the resumption of hostilities.

Today’s headline courtesy of The Hives…

Read Full Post »