Posts Tagged ‘regulation’

The Real World

Monday, September 10th, 2018

Life Ain’t Fair

My eight year old daughter will come to me after a netball match and complain another girl was able to get away with fouling her repeatedly and the referee ignored it. My advice always is you need to adapt to the referee’s interpretation of what is and isn’t permissible on the day, and accept it. Why should that be any different for Serena Williams in her sport? That there are inconsistencies is a fact of life in the real world. The same applies in business, there are management, suppliers and regulators, who give different interpretations of what appears the same policy. Deal with it and move on. Stop playing the “victim”, it demeans you and your legacy.

   

Are You Thinking What I Was Thinking IX

Friday, April 8th, 2016

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  • Most businesses don’t lack great ideas today, they lack people with the skills and volition to apply and monetise great ideas
  • The problem is not the regulatory changes forced on banks, insurers, pharma etc, it is the ability of management and employees to respond effectively and efficiently (skills, behaviour and expertise)
  • The media and politicians express “shock” and “revulsion” at those using offshore tax havens to mitigate their tax liabilities but barely a whimper about at the cyber security criminals, who initiated the breach.
  • Man’s ingenuity is such that we can send a rocket into space and return it to the exact same position it departed, yet our “precision” capabilities when it is applied to tracking terrorist threats, cyber, people smuggling, are largely scrambled and ineffective.
  • Global markets have largely recovered the losses incurred at the outset of this year, yet the business media continues to run “recession scare” stories.
  • Every company is becoming a digital company, the consequences differ based on the quality of the management and employees, the amount of uncertainty within the business and the competitive threats
  • Microsoft and Google beat the best human at image recognition in 2015 but there is little evidence that humans will be replaced by computers in assessing and underwriting risk, which largely depends on art and science.
  • Value chains in almost every sector are being compressed and traditional functions increasingly being made redundant, as technology facilitates the faster dissemination of information and the application of knowledge to critical decision-making (capital deployment, human resources, innovation, strategy implementation). There is no going back.
  • Contrary to popular myth what new entrants into the workforce want today (interesting work, a gratifying job, career progression and equitable rewards) hasn’t changed in decades, what has changed is the ability of businesses to deliver it. Understanding why and doing something about it, is where the valuable debate lies.
  • In all the chest-beating about diversity and progressive organisations, by far the most disadvantaged and impactful on society are not single issue “victims” (sex, race, nationality, age etc) but those individuals with diverse pasts (educational backgrounds and life experiences), who are routinely rejected by businesses driven to hire and promote “people like us”.
  • The fanfare about “Self-Management”, as practised by organisations such as Zappos, speaks louder about the concept than the results the business has achieved in the real world. Separate the fad from reality.

© James Berkeley 2016. All Rights Reserved.

European Private Banking: The Triumph of A Poverty Mentality

Thursday, October 23rd, 2014

There is an old saying that farmers and owners of vineyards are never happy. It is raining when their crops need sun and it is a drought when they need rain. Poverty and ill luck are their natural bedfellows.

I propose adding private bankers and wealth managers to that list.

After a morning listening to the top brass at Societe Generale, Coutts, Vestra Wealth, Barclays and Citi plus assorted “experts” from Big Four consultants and a British regulator, I am rushing for the aspirin box. Cumbersome regulation and reporting requirements, risk averse Boards, uncertain client relationships and so on. They universally fail to mention the real problem – their own mindset. The leaders with rare exceptions exhibit a “poverty mentality”. What I hear coming out of their mouths is a lack of self-belief in their own worth (a focus on protecting themselves rather than bringing new value to clients, a fear of taking prudent risk, a lack of energy and vitality, close to zero excitement about the future value provided to their clients and so on).  Rather like a horse, sensing an uncertain or fearful rider, starts second-guessing or ignores what it is asked to do, so clients, employees, shareholders and regulators are getting that same feeling and will undoubtedly act in the same way. 

“My banker seems more interested in protecting their backside than preserving my wealth”. (Why should I give them more assets to manage?)

“Quite frankly it is career suicide to suggest any new ideas to a Client that our compliance people haven’t signed off on. They take an age to respond.” (Why should I propose new ideas to a client if I cannot deliver in their desired timeframe?)

“Our top management are telling us (shareholders) they need to direct more capital and resource to compliance, it is non negotiable. With the cost to income, near 70% and no great confidence in top line growth that leaves little room for profit and reinvestment in the business model.” (We don’t see these businesses  or the sector as an attractive “hold”)

“Firms are slowly coming around to the idea that putting the customer first in the form of transparent products and services is the right thing to do. Boy, is it a battle with some of them.” (They’ll only embrace change if we, the regulator, continue to apply the big stick.)  

Ask any HNW or UHNW client, they want confident and successful advisers. They want individuals with high levels of credibility (intellectual property), and a compelling rapport (intellect and trust). Bankers and wealth managers convert credibility and rapport into increased assets booked and happy and successful clients when they maintain an “abundance mentality”.

What do I mean? Top management must have a willingness to invest in upgrading the firm’s skills and technology, create new value propositions, find new ways to attract new and existing customers, set new standards and build more powerful brands. They must want to actively pursue a collegial, not an adverserial relationship with regulators. One based on greater mutual respect and a common set of objectives. Their long-term strategic focus must be on creating customers and employees that are willing evangelists for private banking and wealth management brands, not merely subordinates to compliant businesses.

Changing that mindset starts with leaders, who really want to see and hear things as they are, not how they perceive them to be. It demands that they really want to change and they are willing to focus on the improvements in hand. They are willing to seek qualified “help”, where they need external support or individual coaching. They are willing to hold themselves and their subordinates accountable for maintaining the right mindset.

If they aren’t willing to make that change, Boards and shareholders must be bold and move those managers on.

© James Berkeley 2014. All Rights Reserved.

The Biggest Myth Behind Regulatory Change

Friday, September 26th, 2014

Why do so many responses from top management in business to impending regulatory change say more about the leadership qualities in those firms than the actual regulatory changes themselves. If the objective is to profitably grow and expand the business while adapting to changing market needs, then shouldn’t we first increase the probability that we have leaders with the right tools and volition to manage change reasonably and appropriately. That is rarely done well with managers, who insist on using a microscope rather than a telescope to manage their business.

Yet so often I see top management’s default response is to rail against the unfairness of the changes proposed, the regulators’ beliefs system and the effects of the proposed changes (higher customer prices, loss of jobs, increased red tape and so on). “It is not our fault”, “the regulators and politicians are out to get us and curry favour with public opinion”, “we are a soft  and easy target.” Some are reasonable assertions but they largely overlook management’s own shortcomings. Why? It is easier and much more comfortable to caste blame than to take a hard look at themselves in the mirror and the “causes” that triggered the change. The global financial services, re(insurance), media and gaming sectors are some of the most obvious examples. There are fine companies in each of those sectors with leaders, who largely steer their ships effectively through increasingly regulated waters (Amica Mutual, Travelers, KKR, Berkshire Hathaway, Willis, Pearson and Genting). Yet they are largely an exception to the rule.

Here are the prevailing conditions that exist in the best businesses:

1. Leaders, who are willing to be “champions of change”. Ready to take the lead through their actions, not just stick their heads in the sand or rely on “empty” prognostications. (“This is what I see coming, here is what I want your support for and this is what I am willing to be personally accountable for…”)

2. Leaders, who hold themselves and their direct reports accountable for anticipating changes not just implementing existing changes. (Performance evaluation, reward systems and recognition give equal or greater weighting to leader’s success in correctly anticipating changes rather than successfully implementing existing regulatory changes)

3. Leaders, who recognise that success trumps perfection. You rarely have all the facts before you set about responding to regulatory change. In almost all cases, there will be a need for changes mid-course (incorrect assumptions). You limit that impact by setting those expectations at the outset. You have in place before you move into the implementation phase both preventative and contingent actions for foreseen and unforeseen obstacles (incorrect assumptions or actions that don’t have the desired effect).

4. Leaders, who recognise that with any anticipated regulatory change that their decision-making and communication must take account of:

  • How important is the anticipated regulatory change? What is the impact on the firm’s strategy? How easy is it going to be implementing the appropriate changes? Does it require “hands on” or a delegated leadership approach to be successful?
  • Is there sufficient information for leadership to act on their own or does it require further inputs from others?
  • Do the resulting actions require people to buy into them to gain their support or will an edict from top management suffice?
  • Will the firm’s response to regulatory change, the outcome to be achieved and the route chosen require formal debate or informal support?
  • What level of time commitment is appropriate and reasonable for the anticipated regulatory change and successfully implemented?
  • Is the future health and well-being of the firm dramatically, moderately or barely improved by involving others (increased internal skills and experience) where the time is not an issue?

5. Rapid progress requires “signing up” formal and informal leaders within the firm, setting expectations about their behaviour and creating public examples of how you want others to behave. Top management’s ability to leverage those three key attributes in 90% of regulatory changes is instrumental upon the results achieved.

When you look at the market needs placed upon your’s and your competitors’ businesses by anticipated regulatory change, do you see leaders with the requisite qualities and the passion to successfully undertake the work? If you cannot unequivocally, say “YES”, then why should the firm’s key constituents (current or future customers, shareholders, employees, business partners or regulators) continue to support the business? It is time to take action, now.

© James Berkeley 2014. All Rights Reserved.

 

Getting Serious About Regulation in Gaming & Lottery Operators

Monday, July 7th, 2014

I am in Barcelona this week moderating a session at the World Gaming Executive Summit www.wges.com on market growth and expansion into US, Europe and Asia gaming markets. I have a fabulous panel of CEO’s and senior executives from Sportech Plc, PKR, AG Tech and Lotto 24.

In readiness for the event, I have spoken to an array of senior gaming and lottery figures. I always find it interesting as an “outsider” to reflect on the key challenges and draw comparisons with other sectors. Indeed some of my client’s most valuable results stem from approaches that have worked in other sectors, which perhaps are further advanced (technology, complexity) or seasoned (regulation, market change and so on).

For investors, top management and employees attracted to the global gaming and lottery business, managing change and the impact of evolving regulation is an every day occurence. Yet how different is this to the nuclear, energy or indeed the financial services industry? Over lunch with a substantial private equity investor in the renewables sector, he recently recounted a story about how one recent decision by the Spanish governement had left one sizeable investment “compeletely underwater” for the forseeable future. There is no incentive for the owners to invest further in the business until legal challenges are exhausted and the fund nears its’ exit point.

Where profitable growth and expansion of a business is heavily exposed to “regulatory risk”, I counsel clients that their investment plans must contain the following:

(1) Capital allocation plans must include a “regulatory premium”. Factored into the cost of capital must be a premium commensurate with the level of risk accorded with the investment in that market.

(2) Human resource plans must include a “regulatory contingency”. In other words the higher the regulatory risk and the potential impact on the future of the business, the greater the flexibility (severance terms) and financial resources the business must hold in liquid assets to avoid a short-term change creating a catastrophic impact on the firm’s cashflow.

(3) Fixed asset investments must include a “regulatory risk-weighting”. In other words, fixed assets (gaming or lottery infrastructure, office leases and so forth) should be adjusted to the changing levels of regulatory risk apparent in that market and the impact on the future of the business.

Boards should hold top management accountable for regular oversight of each of these areas. Whether that is done formally, in the form of monthly or quarterly reporting or informally, at the quarterly results stage.

In too many companies, particularly mid-sized businesses in the gaming and lottery sector, regulation and compliance changes are a separate agenda item in Management or Board Meetings. It is not integrated correctly into the capital allocation process, the evaluation of results or even top management’s compensation.

For a sector that has seen seismic impacts of regulation on the industry’s future and its’ wider perception, there is still much progress to made in the Boardroom in providing the right controls over top management’s behaviour.