Regulation and recruitment
3 Nov 08
Problems can be similar for companies in varied sectors in a period of turmoil
by Robert Outram
Bringing together executives from a range of industries, from energy and high-tech to car dealerships and insurance broking, proved a good opportunity to look at the issues they face in common. the CA Magazine/Resources Global Professionals Executive Round Table was held in late September, while the latest chapter in the “credit crunch” was still unfolding, and the guests found that many of the challenges they have to deal with at board level are very similar, whatever their sector.
The need to recruit and retain good people was common to all. But how did the so-called “war for talent” look with recession looming? Panel chairman, Bob Leach, is regional managing director (UK) with Resources Global Professionals (RGP), an international professional services firm. He said finding the right people was one of his firm’s most important challenges. But how about Nallatech’s Craig Anderson? Nallatech is a high-tech business based in Scotland that produces state of the art, high-performance electronics for a range of sectors, particularly defence and aerospace.
Anderson said: “For a high-tech business like ours, having the right talent pool, the right mix of highly skilled people is absolutely critical. We have people who can generate ideas and execute them in a way no one else in the world can do.”
He added that one of the biggest challenges for a relatively small company in the sector was that big players were always out to poach skilled staff.
Anderson argued that there were a number of things – besides salary alone – that can help recruit and retain staff. He said: “The impact of something really simple like putting a ‘foosball’ table [table football] in the office is quite incredible.
“There are some things that, as an accountant, I don’t quite understand but they are important. ‘Softer’ issues like the working environment, flexible working or childcare do make a difference.
“If you can provide the staff with a measure of control over their working lives, then they’ll reward the company with loyalty and commitment.”
Dorothy Lowry, managing director, people in the corporate division of HBOS, agreed and added: “Issues like flexible working are very important for ‘generation Y’ employees [those who grew up in the 1990s and is only entering the workforce during the current decade].”
“What does that mean in practice?” asked Leach.
Lowry explained: “For example, we have large transaction teams working on deals. For them, work/life balance means that while they may be working on a deal until 8pm or 9pm, or even 3am, they are able to get that time back later.
“In other parts of our business, where we have colleagues who are contracted to work nine to five, it may be about being able to start work earlier and leave earlier. So it’s about being able to be flexible according to the different types of work people do.”
Mike Still is managing director, UK national, at Marsh, the global risk specialist group.
He said: “The key thing, to me, is that the line manager is there to be flexible without being seen as a soft touch. Certain things have got to get done, but beyond that, if someone needs to be able to depart early or start late, for example, you have the flexibility to be able to do that without necessarily having a new policy.”
Anderson said: “When I was at Kwik-Fit [as group financial controller] that sort of approach would not have been tolerated, it was a much more hard-nosed culture. At Nallatech, I had to change my management style to accommodate that, and I found the staff responded very well. Nobody has abused it.”
Ken McLean, FD with car retail group Arnold Clark, said that, in his company, different types of employees had different priorities as far as flexible working was concerned. “Computer programmers will stay late if they need to, but normally they’ll quite happily leave at 5pm. In sales, in contrast, the longer you interface with the customers, the better chance you have of selling cars and earning commission.”
There was a shift under way, however, McLean said, especially with the new breed of graduate sales representatives who were recruited as potential management: “The dealerships are open to customers from 9am until 8 o’clock at night, during the week. A typical pattern for a salesman is a six-day week, and working nights, but the younger generation just don’t want to do that. It’s been a dawning realisation that youngsters have a different mind-set and we have to understand that and work with it.”
Even in an economic downturn, then, recruitment remains an important challenge. As head of employment law with leading solicitors Shepherd & Wedderburn, Sheila Gunn warned that employers could make errors when they are too keen to recruit a star individual.
She said: “It’s very important to think about the way people put together their incentive packages. I find that the biggest mistake businesses often make is that they can get very excited when they find someone they want, and they can only think about ‘We must get the contract out tomorrow’.
“The point is not just getting the contract out, it’s thinking clearly about what it is you want to offer. You will still get the person, but take a day or to get it right and think about the ‘what ifs’.”
Norman Murray is chairman of oil group Cairn Energy and a non-executive director with brewing and pub group Greene King, as well as dairy business Robert Wiseman. He agreed: “You’re in the heat of the negotiation, and you shake hands on it, but when you go through the documentation you might wish you’d taken longer to think about it.”
Murray added that one challenge for Cairn was finding good engineers: “In the past few years, graduates wanted to join investment banks; not many wanted to do engineering. The result is that there’s a massive demand for engineers and trying to get good people is very difficult.
“Cairn does a lot of work in India and you can see that education is seen as a privilege there. There are good quality people coming into the global market.”
Bob Leach agreed and added: “It’s not just the quantity and quality of these graduates – their work ethic is extraordinary. RGP has businesses in India and China and I have been astonished by the work ethic of young people there.
“I think there will be a rude awakening for a number of industries in the West, and that includes accountancy!”
Where the turmoil in the world’s financial markets will lead is a hard question for anyone, but there is a wide consensus that when the dust settles there will be calls for a reform in regulation. How might the new regulatory environment look?
Paul Grainger is MD of RGP’s institutional division. He outlined his view, just after the Paulson plan to bail out the US banks was agreed, but ahead of what was to be an even more radical package for the UK.
Grainger said: “The speed with which regulators in the US have reacted has been unprecedented over the past 30 or so years, and just as unprecedented has been the move from a regime which said ‘failure will be allowed’, to a zero-failure regime, at least as far as certain institutions are concerned.
“I really don’t see a great deal of change in the short term in terms of any of the regulators allowing institutions to fail. Their aim now is that, at all costs, we must avoid the kind of systemic failure that we saw in 1929 and, nearly, in 1987.”
He added: “One of the principles of insurance is that you can’t dilute risk indefinitely; at some point that risk can come home to roost. I would not be surprised if going forward we see much tougher rules for the governance of some of these risks.
“Meanwhile, I think there’s further bloodletting yet to happen. It is still not clear just how toxic the toxic assets are. At some point there will have to be a write-off and some of these liabilities will have to be cancelled, not just frozen, and if some of those complex transactions have to be unwound back to zero we don’t know what the implications will be.”
Mike Still commented: “Insurance is already heavily regulated, in the US and elsewhere. There is significant duplication and it brings additional costs. It would be good if you could just follow one set of international regulations.”
Norman Murray spoke about the companies he was involved with as a non-executive director, and said: “For issues such as health and safety or corporate social responsibility, we have moved beyond simply ticking the box, and it does bring you big benefits.”
He said regulation in future was likely to focus on, among other things, the level of bonuses awarded, especially in the City, where apparent “rewards for failure” were now being criticised.
Sheila Gunn agreed and added: “There have been a lot of examples of this, as a result of failure to think ahead when contracts are drafted.”
Mike Still said: “If you do well you should be rewarded, but if you do badly you must take the consequences.”
“There has been a culture for remuneration committees to keep moving the game up because they have not wanted to lose people, but in the last six months we have seen that brought to a halt,” Murray said. “Chairs of remuneration committees will be much more accountable now and it remains to be seen whether the expectations of senior employees have been dampened.”
Bob Leach asked the panel: “What about bringing compliance regimes together globally?”
This was already under way, according to RGP’s Paul Grainger. He said: “It’s been happening quietly, behind the scenes for the past 12 or 15 years, and it’s largely a European-led project. We are heading towards a European model of integrated regulation.”
Grainger added that the overall approach was based on principles that all countries could follow, rather than a detailed rulebook.
He added: “My prediction is that the current situation will strengthen the impetus for the US to follow the path of integration. There is huge resistance in the US to ‘big government’ interfering with commerce, but in Europe, there is an acceptance that the state can take on a more interventionist role, as a regulator and a facilitator.”
Norman Murray, a past president of ICAS, said that the institute strongly supported “principles not rules”, but added: “While it’s fine talking to a Big 4 audit partner in London or New York about a judgemental issue, the FSA [Financial Securities Authority] is also dealing with people at a lower level of expertise. If a motor dealership has an issue, for example it’s not so easy to ask them to come up with a judgement.
“The trouble is, if you keep adding guidelines, in the end you’ve got a rulebook! But there need to be some guidelines.”
Can compliance add value? Mike Still was not convinced one way or the other. He said: “The question is, how do you articulate the fact that you are at a higher standard of compliance compared to competitors? The buying public assume anyway that if they are buying a brand there is an element of trust placed in that brand.
“We are probably, however, in the strongest position we’ve ever been in, globally, to articulate the value of having a robust compliance process in your business.”
Dorothy Lowry agreed this was not an easy question. She said that HBOS had been through a major programme to improve the way it managed risks and embedded those processes throughout the organisation. She added: “The question is how you balance the need for compliance, for regulation, with the bottom line?”
The chief financial officer (CFO) role is a critical one in difficult times. Bob Leach asked Ken McLean: “What are the challenges facing you as a CFO in the current conditions?”
McLean’s anwer was: “Up until May, for us it was a case of ‘What credit crunch?’, and we continued to grow. Now, rather than expansion, we are focusing on the existing business, concentrating on stock management, working at understanding the profile of our customers and covering off as much risk as possible. We are concentrating on the basics.”
He added: “Until now we’ve been expanding at, typically, eight to 10 locations [show rooms] a year. We didn’t borrow; Sir Arnold’s golden rule is that he has always reinvested profits from the company into further growth.”
Craig Anderson has been group financial controller at Kwik-Fit, and CFO at Voxar before his current role as chief executive at Nallatech. He said: “Unlike most CEOs (chief executive officers) I’m a CA, so I’m always pretty close to the numbers, but I do need to have a good CFO who can get on with it without me looking over his shoulder.
Norman Murray said: “As a non-executive director, I’m looking for [from a CFO] clear thinking, straight talking and no surprises. And you need a CFO who can think strategically, but without forgetting the day-to-day issues. If there is bad news it needs to get to the board as soon as possible. Don’t make it a surprise.
“Being able to stand up to the chief executive, where necessary, is also important.”
Driving through change is another thing that all the participants had in common. Dorothy Lowry explained that HBOS, for example, had developed a “leading sustainable change” toolkit, and now, she said: “The toolkit has made change programmes significantly more effective, thouigh it isn’t just about the toolkit itself, it is how it is implemented.”
Mike Still said: “The biggest thing for me is honesty, and far too many people don’t live up to that. Also, the companies that tackle change well engage every single person in the company, not just a minority.”
“It has to be in a way that relates to the employee’s role not just some big corporate vision. Every single person should be able to understand: ‘How does it affect me, and my role? What’s in it for me?’”
Craig Anderson said: “In the past two years I’ve had to undertake two reorganisations at Nallatech, and unfortunately people have had to lose their jobs. For me the important thing was communication. I was honest with people and said, ‘We’ve got an issue here and we’ve got to do something about it.’
“If I’d just worked on the problem behind the scenes, some people would have left the company. People afterwards said that I had been far more open than they expected.”
Sheila Gunn said one of the biggest problems organisations experienced with change programmes came from an inability at managerial level to get points across and take people with you. She added: “No one can deliver change without taking risks!”