Note: some of the linked articles below require an FT subscription to read
Notes on a scandal
In this excellent view on the legacies of corporate scandal, the FT’s management editor Andrew Hill considers what German car maker VW might learn from BP’s experience with Deepwater Horizon disaster. In the short term, VW’s scramble to draw a line under its US exposure looks sensible, he writes. But before the heat starts to abate, companies can expect lawsuits, independent reports, official external reports, documentaries, books and even Hollywood movies. Moreover, old cultural failings may resurface long after new managers think they have stamped out former bad habits. ‘The half-life of corporate scandal is long — and largely beyond companies’ control.’
In the FT’s opinion, ‘picking a deceptive strategy and then (if all the allegations are true) doubling down on it as the net closed looks mad.’ The bigger problem, however, is one of regulation, in which ‘poor regulatory incentives met a governance regime that discourages accountability.’ Fiat Chrysler, too, is defending itself against similar emissions-evading accusations by the US Environmental Protection agency, and could face a $US4.6bn fine.
Industrial strategy by tweet
‘Government by tweet’ may be a novel way to communicate industrial policy, but US companies seem to be taking it seriously. Car giant, Ford, appears to have responded to President-elect Trump’s tweeted threat of stiff import taxes on General Motors if it shifts production abroad. Ford has now agreed to scrap plans to build a $US1.6bn plant in Mexico, saying it will invest $US700m in a Michigan factory instead to build new electric and hybrid vehicles, with obvious HR implications.
Reinforcing his US-first message, Mr Trump made his final economic appointment, selecting the protectionist Robert Lighthizer as US trade representative. Meanwhile, the proposed Secretary of State, Rex Tillerson, is to receive a $US180m payout to sever ties with his former employer, Exxon. Presented as a conflict of interest issue, the staggering sum raises more questions than it answers: not least whether there is any upper limits on executive pay, and what such a deal might imply for Mr Trump’s own business interests.
Rethinking reputation risk
The old adage - that it takes 10 years to build a reputation and 10 seconds to lose it - is worth bearing in mind when reading this very useful analysis of reputation risk. It argues that a crisis typically has many causes that remain unrecognised and unmanaged. If corporate leaders think they understand the risks they face, they should think again. One problem is hierarchy, which may deter those who have noticed problems from coming forward, creating a ‘risk glass ceiling’ through which no bad news can penetrate. Groupthink, self-importance and lack of relevant expertise can also play a part. As Warren Buffett once wrote: ‘We can afford to lose money - even a lot of money. But we can’t afford to lose reputation - even a shred of reputation.’
China stemming capital flows
Key investment data from China might help foreign investors frame their investment strategies for 2017. Chinese companies tripled investment in the US to $45.6bn in 2016. But the appointment of several China-hawks in Washington might reverse this trend in 2017. There’s plenty of internal pressure to stop the outflows too. As renminbi and forex reserves fall China is clamping down on outbound M&A with a tighter deal approval process. At the same time, the government is allowing a surge in household debt as rising incomes and banks show more willingness to compromise lending standards.
Trump’s America: what can business learn
What can business learn from US President-elect Donald Trump’s cabinet selection? In this video, FT's Peter Spiegel and Demetri Sevastopulo discuss the significance of the new Treasury and Commerce Secretaries, and considerations over appointing a Secretary of State. Balancing financial expertise with knowledge of Washington is a tricky trade off, given that Mr Trump also wants to be seen to ‘drain the swamp’ of insider Washington politics. His appointments so far appear to lack executive experience which could suggest highly unpredictable policymaking.
However, large scale infrastructure spending, a central feature of the Trump economic plan, was positively received by the OECD, which the FT reports ‘would increase US growth, combat inequality and energise discouraged workers’.
The OECD argues that if low interest rates are used to boost capital investment, advanced economies will become stuck in a low growth trap. Indeed, US policies might even help get the world out of a rut. More active fiscal policy, it says, “should revive expectations for faster and more inclusive growth.” An important caveat is if he carries out his threats to raise trade barriers, or pulls the US out of important trading relationships, such as TPP, in which case the economic gains would disappear.
Ten business implications of a Trump presidency, discussed at an FT|IE Corporate Learning Alliance breakfast briefing event, can be read here.
How to negotiate a Brexit deal
‘The unpredictability of the exit process from the European Union is a major downside risk for the economy,’ writes the OECD. But as a negotiating strategy, the UK government might prefer it that way even though a hard Brexit looks increasingly likely. Brexit negotiations offer the business executive an unparalleled case study in how to (or not to) negotiate. ‘London is confident it has a strong hand,’ reports the FT; the question is how to use it. The LBS provides more negotiating tips here. One issue not mentioned, however, is how the UK government could bolster its position by offering an alternative vision of Europe that other, EU-sceptic countries might support. This could break the EU’s united front against Brexit, alter the balance of power, and press EU negotiators to seek a quick compromise.
While negotiators position themselves, others are seeking to exploit the uncertainty. Paris is trying to woo financial services, while some UK business schools fear they will lose EU students concerned about job prospects—though in both cases, these worries appear somewhat exaggerated.
Perhaps the UK economic future will be determined less by its future relationship with the EU and more by its low productivity. One solution may be to enhance training of its skilled workers, as this video about BAE Systems' new training academy demonstrates.
Why executive pay keeps rising
Despite the annual hullabaloo over executive pay, companies are not always discussing the issues in the right way. The UK government’s new corporate governance proposals continue to miss the key point. Giving shareholders a binding vote on pay, for example, may seem to give them more power to change behaviour. Yet, despite shareholders having an advisory vote remuneration reports are almost always approved. Somehow, CEOs always seem to provide a justification for their own high pay, even while agreeing that others’ salaries are hard to support. Here are seven typical excuses.
Of some relevance is work by 2016 Nobel prize-winning Oliver Hart and Bengt Holmström’s on contract theory which considers those business situations in which individual contributions may be hard to determine, and where incentives may lead to distorted outcomes. Others argue that the problem goes deeper. At its heart is a ‘talent myth’ according to which difficulties in measuring or attributing individual performance allows a CEO to claim that he possesses the rare talent that justifies his stratospheric pay.
New faces: graduate recruits and returning expats
Graduate recruitment season is underway. Here, PwC considers what it wants from potential recruits, and where too many applicants go wrong. Once hired, many candidates view a stint working abroad as an essential career stage. However, as this FT article, explains, following such a posting, companies are not always prepared for their homecoming. The ex-expat’s inevitable disappointment when the promised career trajectory fails to materialise causes serious talent problems, to say nothing of wasting money. But why does this happen, and how might companies ease the transition? Managing expectations and rewards, and sharing experiences might help.
If things still don’t work out, executives may consider a career change. Inspired, perhaps, by FT columnist Lucy Kellaway who recently announced she was leaving to become a teacher, others share their experiences and how to make the career change work out.
Cyber-attacks and how to respond
If executives weren’t sufficiently alarmed by news that a billion Yahoo accounts were hacked, then a more day-to-day threat might galvanise staff action over cyber security. For example, innocuous-looking Word documents carrying malware asking you to ‘Enable Content’ should really read ‘Disable Defences.’ Other threats, and how to respond, are contained in this FT cyber attack survival guide.
Trump presidency: some business talking points
Senior executives are struggling to understand what Donald Trump’s US election victory means for business. It’s difficult to draw firm conclusions during this transition period. In this video interview, The FT’s Martin Wolf explains to Martin Sandbu some of the possible economic repercussions.
Meanwhile, other business talking points arising from recent developments include the following:
An assertive Wall Street: Will the incoming Trump administration help New York become the world’s premier financial centre again? The FT’s Gillian Tett sets out four reasons why this might occur: possible rolling back of some Dodd-Frank financial regulations; healthier US banks; reflationary fiscal policy; and Brexit uncertainty over London.
However, Barclay’s chief executive Jeff Staley tells the FT’s Patrick Jenkins that Trump’s election victory marks an end of the free trade assumptions and US monetary accommodation. According Mr Staley, Dodd Frank, Basel and other cornerstones of financial regulation are unlikely to be reversed, not least because Mr Trump will have other pressing issues to worry about. Other bankers’ opinions were expressed here at the FT Banking summit., including the impact on emerging markets.
Urgency in Asia: Japan’s prime minister Shinzo Abe appeared to jump the diplomat queue to meet the U.S. President elect, and reported a “warm” meeting with “a leader I can trust”. Mr Abe’s deft move suggests a degree of urgency about getting on the right side Mr Trump. As the FT notes: “Mr Trump’s approach to Asia will have huge implications for Japan — shaping Tokyo’s relations with Beijing in particular.”
Security priorities: Mr Trump has many crucial appointments to make and various interests to satisfy. He has asked Michael Flynn, a retired three-star general, to be White House national security adviser. Mr Flynn is believed to be at odds with conservatives on some social issues but as the FT notes, “he has been criticised for accepting money to attend a dinner in Moscow where he sat besides Russian president Vladimir Putin, which further fuelled concerns about Mr Trump’s relationship with Russia.”