Note: some of the linked articles below require an FT subscription to read
What do we want? Less work, lower pay!
If it’s true that no-one ever regrets spending too little time in the office, that message appears to be spreading, at least in the UK. In this article Chris Giles, the FT’s economics editor, notes official data showing that 3.3m workers would now prefer to work less for lower pay, compared with only 2.7m who would prefer to work longer for more—the largest such gap since the financial crisis in 2008.
The aggregate effect of this ‘overemployment’ may be less dramatic than it seems, as those seeking to reduce their hours only want to do so a little, while those wishing to work more, want to by a significant amount. Nonetheless, the figures reveal a significant proportion of the working population wanting to do less work—and that should sound a warning for human resources managers. Surprisingly, the tighter labour supply hasn’t increased workers’ bargaining power. This may be because of a residual fear of unemployment, as reflected in an uptick in the ‘index of unemployment fears’ in the wake of the Brexit referendum.
HR leaders might also consider what lies behind this trend and how it might apply to their own staff: It could be a sign of general disengagement, a rebalancing of work-life priorities, the need for more flexible employment, a question of tax disincentives, or simply the best way to preserve one’s job. Could it even be a sign of a more prosperous workforce—at least for those whose bills are readily met? More generally, companies might factor in the potential impact on future labour supply, particularly given the effect of Brexit on the supply of EU labour.
The true face of Artificial Intelligence
For companies pondering the transformative nature of technology, particularly Artificial Intelligence (AI), several FT articles provide valuable context. ‘Mapping the contours between humans and machines is becoming one of the most intriguing, and at times creepy, challenges of our times,’ writes John Thornhill, the FT Innovation editor. ‘You shouldn’t anthropomorphise computers because they don’t like it,’ he quips. His interaction with a robot called Sophia which (or ‘who’) possesses ‘mesmerising lifelike facial features’ shouldn’t be viewed as anything more than ‘technological tools or digital slaves designed to do our express bidding.’ The ‘cutesy human stuff’ is nothing more than ‘false advertising’. Today, robots function as security guards, nursing assistants, teachers and sex toys; but a decade hence, they will be smarter, and could even include some moral agency. ‘Algorithms in self-driving cars, for example, already indirectly involve life and death decisions, prompting some car companies to employ philosophers to devise ethical settings in their systems.
Understanding how artificial neural networks make judgments is important particularly for doctors and the military but also companies. According to Richard Waters, the FT’s US West Coast editor ‘even the experts cannot tell exactly why robots come up with the answers they do.’ He points to the Tesla car driver killed when the ‘autopilot’ software failed to identify a white truck on a sunny day. ‘It’s a big black box — it can’t engage in a conversation with you.’ Researchers are now looking to employ teachers to train AI systems as if they were normal students, starting with simple concepts. It’s an approach that might work well for the human/AI workforces of the future.
Tim Hartford, the FT’s economics leader writer, is less fearful of AI’s impact on jobs. He believes that it will enhance rather than replace human activity, improving pay and creating more interesting work for humans. Indeed, his concern is that the AI revolution isn’t happening fast enough, and writes mockingly: ‘Sorry: this robot takeover could not be completed at present.’
In another, fascinating article, ‘What we get wrong about technology’ Hartford argues that ‘the most influential new technologies are often humble and cheap.’ It wasn’t the Gutenberg press that changed the world as much as the invention of paper on which it printed, giving rise to everything from wall decorations to toilet paper. Similarly, the invention in 1874 of barbed wire enabled American settlers to protect their crops from roaming bison, while the simple shipping container, invented in the 1950’s, transformed global trade.
In our rush to understand AI, corporate leaders should not overlook the modest innovations whose impact might be just as dramatic.
How will the Internet of Things affect your company?
The FT’s big read The internet of things: industry’s digital revolution provides corporate decision makers and L&D professionals with valuable perspectives on some challenges and opportunities of digital transformation. The article notes how ‘the plunging costs of sensors, communications, data storage and analytics have made it possible to record and process huge volumes of information about physical systems, from trains to oil refineries to wind turbines.’
For example, the insertion of some 900 sensors on Amtrak trains in the US alerts the company to equipment failures, which has helped it reduce travel delays by one third in the past year. The range of measurements includes: ‘analysis of temperature, pressure, vibration, movement and flows of electrical current.’ This in turn helps ‘prevent failures, streamline maintenance, improve performance — and even change the way products are designed and made.’
According to the Boston Consulting Group, by 2020 companies will spend some €250bn annually on IoT, half of which will be in manufacturing, transport and utilities. Gartner research forecasts that by then business will use 7.6bn connected devices, double the current level. This affects recruitment and training too. One quarter of Bosch’s 20,000 software engineers, for instance, already now focus on IoT. Along with robotics and 3D printing, IoT will take manufacturing to the ‘next level of productivity.’
Needless to say, there are big challenges. With around 360 companies offering IoT platforms, it’s difficult to develop an industry standard. Also, large industrial companies worry about entrusting outsiders with important decisions, especially when it involves expensive and hazardous machinery. And there are obviously security concerns about third-party access to valuable company data. Start-ups, which are making much of the running, are often better than larger conglomerates at assuaging some of these fears by allowing customers to retain control of their own data. But this raises another important question: if managers ‘hand over control of their data, and defer to a service provider on decisions about how to run their operations, what value are they adding?’
Perhaps a bigger issue for learning and development is that many large companies are simply not in a position to benefit from the new technologies because they require radical organisational change which too many firms are simply not able to implement.
Brexit trade offs
One year on from the Brexit vote, is the business outlook any clearer now that negotiations have officially started? An inconclusive general election, the rise of a united, hard-left opposition, the emergence of a strong French president and the UK prime minister’s loss of credibility may have changed the negotiating environment. Should companies act now, plan for later, wait and see, or ignore developments?
The FT’s six Brexit scenarios (and this video) provide a useful starting point for consideration. At one end of the scale is the ‘clean exit’ or ‘No Deal.’ According to this scenario, almost every sector and business would face disruption, while leaving residents in the UK and Europe at the mercy of their host country. ‘A self-inflicted wound of historic proportions,’ concludes the FT. A less conflictual, but still hard, Brexit would be the ‘Divorce-only agreement.’ This highly protectionist outcome would require an interim arrangement relying on WTO trade rules, but would allow the UK to negotiate its own non-EU trade deals and devise new state aid rules. A ‘limited tariff-free deal’ would also give the UK freedom to sign trade deals, but would subject British companies to EU custom and regulatory checks, while the financial services sector would lose its ‘passporting rights.’
A Far-ranging trade deal would limit UK sovereignty, in particular over immigration, although freer labour movement would also benefit business. A Customs Union arrangement would be smoother, though not frictionless, and be welcomed by manufacturers. However, this outcome would negate a large part of the Brexit rationale of allowing the UK to negotiate its own trade deals outside the EU. Finally, membership of the single market would maintain the regulatory harmony and free labour movement that companies want, but the outcome would feel like the UK had remained in the EU but without a say on policy.
Uber not alles for corporate leaders
‘Imitation may be the sincerest form of flattery, writes Andrew Hill, the FT’s management editor, ‘but it is the most dangerous form of leadership development.’ He draws important leadership lessons from the management turmoil at global taxi firm Uber (whose founder Travis Kalanick has just resigned) which stands ‘accused of ignoring sexual harassment complaints, putting driver safety at risk and misleading regulators.’
A company that in eight years has achieved a $68bn valuation will inevitably win admirers and imitators. Many see Uber’s style of hustling, confrontation and dog-east-dog competitiveness as something to emulate. ‘There must be thousands of Kalanick clones out there who saw the way the Uber founder’s aggressive approach and mimicked it at their own companies,’ writes Hill.
For some, the Kalanick approach will be celebrated. Others will concede that it is an unfortunate but necessary by-product of driving ambition; at the very least, essential for survival. They point to Steve Jobs as the classic example of bad behaviour that is excused in the bigger Apple story. But is success and insufferable arrogance two sides of the same coin? Bill Gates is quoted as saying: ‘So many of the people who want to be like Steve have the asshole side down. What they’re missing is the genius part.’
The article carries a warning for slavish and lazy imitators (typically describing themselves as ‘the Uber of…’ ). A rotten culture left unchecked can eventually destroy a promising company. Some 15 years ago, escalating accounting fraud at much-admired WorldCom led to its bankruptcy and jail for its CEO. Suddenly the company ceased to be a role model for thrusting capitalists.
With Kalanick's departure can Uber change culture? Some basic management guidelines would certainly help: ‘set clear standards, measure compliance, reward those who live up to the new rules, get rid of those who do not.’ But change, as always, must start at the top.
The Brexit election: another fine mess
Seldom has the political cliché that ‘a week is a long time in politics’ been so true, as this discussion between FT editor Lionel Barber and political commentator Janan Ganesh explains. Last week, an all-powerful British Prime Minister was scheduled to meet the new French president who some felt would struggle to muster his own parliamentary majority. Today, the opposite, and more, prevails. This reversal of fortunes underscores important lessons not just for politicians, but risk managers and senior corporate decision makers trying to make sense of events.
First, received opinion, whether from polls or pundits, is still just opinion. As the respected US psephologist Nate Silver points out in his First Rule of Polling Errors: ‘polls almost always miss in the opposite direction of what pundits expect’. For business leaders, it’s sometimes wise to take the political temperature oneself. Although admittedly unscientific, simply talking to voters or customers without prejudice, and asking what they and their friends are thinking and feeling might just reveal something your market research is missing.
Second, look for deeper causes. Theresa May’s campaign was undoubtedly awful. But does that alone explain the outcome? With 42.4% support, it was one of the Conservatives party’s highest ever vote tallies. Perhaps it could have edged up a couple more percentage points, but the more significant factor was a 10 percentage-point surge to 40% for the opposition Labour party led by a largely unreconstructed socialist Jeremy Corbyn. For many, especially voters under 45 years old, the ideological wars of the 1980s are ancient history. The winning idea of that era, free-market meritocracy, like all ideologies, eventually loses some of its intellectual vigour. Its benefits are taken for granted; its failings—a global financial crisis, corporate corruption, stagnating household incomes and soaring executive pay—are ongoing sores. The anti-market backlash may have further to go.
Third, the investment future seems as unpredictable as ever. A united Labour party has the political momentum (in all senses) and would relish another contest with a weak divided government that is about to embark on its quixotic Brexit journey. A Corbyn-led government arguably represents a bigger threat to business than even a botched Brexit. Though the worst may yet be to come, political fortunes can also reverse in surprising ways. The UK election has been interpreted (albeit on shaky evidence) as a call for a soft Brexit. The election fallout could change the dynamic in negotiations with the EU where some leaders welcome a relatively straightforward departure as an opportunity to get on with ever closer-union for an inner core. The added threat of a hard left Britain emerging from the chaos might even focus minds on minimising the disruption.
Populism and its dangers
Free-market democracies have seen a wave of populism, from the far right, far left, and religious parties, lapping the defences of western political systems. Populism has enjoyed huge success from the US, across Europe, to Russia. Even the success of centrist Emmanuel Macron in France’s presidential election should not obscure the strong showing of his Front National opponent. Now, UK voters go to the polls in a febrile atmosphere in which a far-left message is proving to be alarmingly potent. One thing that populists share is their disregard for the fundamentals of free-market economics which has helped companies thrive for many decades.
It’s therefore worth corporate executives and investors pondering the damage that populism can wreak once it has taken power. The FT’s account of developments in two democracies, Turkey and Venezuela, illustrate those all-too-familiar paths to political and economic ruin. This short FT documentary describes how citizens of formerly oil-rich Venezuela (for long an inspiration for western-based socialists), are now scrambling desperately to find bread and medicines. Meanwhile, the political regime in Turkey is firing or imprisoning political ‘opponents,’ by the hundreds of thousands. This is sure to affect the country's economic and investment prospects too. As the FT’s Chief Foreign Affairs correspondent argues, ‘Turkey’s slide into a repressive autocracy serves as a warning to American citizens’ too.
Here we go again? The dangers of consumer debt.
After the 2008-09 financial crisis, policymakers said they had learned important lessons and vowed to check the uncontrollable build up of debt. Regulators promised to clamp down on complex syndication tricks and banks agreed to end unscrupulous lending practices (though not all did). CEOs and risk managers, not directly linked to the financial sector, were also taught a vital lesson: to scrutinise credit default data for signs of a broader economic malaise. Three important FT articles shine light on these developments in the US, UK and China. The warning bells are ringing louder.
In the FT’s Big Read, Ben McLannahan in the US writes of ‘a seven-year boom in car loans that has strong echoes of the pre-crisis mortgage frenzy’. Intense competition among finance companies has again led to relaxed underwriting standards, this time pushing up outstanding auto loans by 70% since 2008 to a new high of $1.17tn. Total household debt is at a record, $12.7tn. Delinquencies are rising and car values are falling, thus trapping consumers with unsustainable loans, and leaving lenders scrambling to reduce their exposure.
Although car loans are still much lower than the $9tn mortgage market, the article notes that 90-day overdue debt is at its highest in six years, while ‘deep subprime’ has risen from 5.1 per cent of total subprime deals in 2010 to 32.5 per cent last year. Recovery rates for some lenders have fallen below 50 cents on the dollar. A potential bust could hurt the US economy badly.
Regulators appear to have been remiss. Auto dealers escaped Dodd-Frank constraints as the focus of concern turned to misleading advertising rather than payment affordability. Loan repayment periods now stretch out for years while contracts allow excessive high loan-to-value, and debt-to-income, ratios with obvious knock-on risks. Also like subprime mortgages, car loans have been sliced up, repackaged and syndicated so it’s hard to know who ultimately owns what debts. Big banks say the risks can be contained. Wells Fargo, for example, has reduced its exposure by 29 per cent from a year earlier. But is it too little too late?
A similar consumer debt story is emerging in the UK’s credit card market. As in the US, lenders have been fighting for customers in an era of low interest rates. But outstanding credit card debt has risen steadily since the crisis, with 64 million cards now carrying some £68bn in debt. A sluggish economy has left 8.8m people relying on credit to cover everyday household expenses, while 3.3 million borrowers pay more in interest and charges than principal over an 18-month period. The government says ‘a repayment plan backed by law will help households with serious debt get back in the black in a more manageable way’ the FT reports. It sounds like a managed default.
Finally, an in-depth FT analysis of China’s property boom considers parallels with 1980’s Japan and its ensuing ‘lost decades.’ Put simply, ‘China has halved its growth rate and doubled its debt over the past eight years.’ Overall indebtedness has risen from nearly 200 per cent of GDP in 2010 to 250 per cent today. Non-financial corporate debt-to-GDP ratio has also reached 155%, similar to 80's Japan. Classic warning signs are cropping up everywhere: in soaring costs of specialist teas, fortunes paid for art, and the cost of a 100 sq. metre Beijing apartment that is 50 times the local annual average income. A crash would severely harm the global economy: China accounts for 40 per cent of global growth, and 20% of US imports (as did Japan in the 80's). But at least China’s authorities are prepared to crack down on speculative behaviour with ‘a formidable arsenal of weaponry.’
Crisis management or poor planning?
Here's a question for corporate leaders: When is a crisis not a crisis? FT management editor, Andrew Hill, pours cold water on the crisis management culture and its consultants. True, there are genuine crises—an unheralded event such as the Fukashima nuclear accident or a response to sectoral disruption, as faced by Nokia—but ‘genuine internal crises came around about once every 15 years’ says one CEO. Corporate leaders have ‘fetishized’ crisis management, partly because of the appealing idea that a crisis always represents an opportunity – though mainly for crisis management specialist. They have ‘an interest in fostering a nervous sense of constant uncertainty,’ Hill writes, aggravated by the concept of never-ending disruption.’ Worse, some ‘managers assume they must foment a sense of crisis to get anything done.’ Too often, it’s just ‘an easy excuse for self-inflicted failures.’
Whether James Quincey, the British born 51-year-old new CEO of Coca-Cola, turns to crisis mode will be an interesting test case, given the challenges the company faces. According to the FT’s Monday Interview, these include: refocusing on its core function of developing and marketing drinks rather than distribution; consumer pressure for greater variety and nutrition; regulator pressure to tax sugary drinks (which represent three quarters of Coca-Cola’s sales volume); and falling sales as a consequence of less thirst-inducing online shopping.
Perhaps most challenging is repositioning a brand that for decades has been a byword for US-led globalisation. Once a brand leader, Coca-Cola has slipped to 27th over the past decade, according to BrandFinance rankings, and its share price has underperformed that of its rival PepsiCo. ‘A brand has to stand for something’ says Quincey. But the backlash against its Super bowl ad suggests that not everyone agrees with the company’s message of inclusivity and diversity. Like many other big companies, Coca-Cola was also caught in a political cross-fire during the presidential election. On the one side, there are important policy areas, such as an anti-obesity drive, where government relations is vital; on the other side, many anti-Trump consumers want the company to distance itself from the new administration.
WannaCry havoc and let slip a cyber war
An estimated 1.3m systems remain vulnerable to the recent WannaCry ransomware attack, though the dangers may be receding for now. The world’s most powerful governments, intelligence services and some smart cyber freelancers are on the case of what is probably an organised crime group. Its ransom demands have so far netted a mere $40,000-worth of bitcoins --so perhaps not the most impressive risk-return KPI -- though that could yet change. Future attacks may be more discrete and targeted, and equally dangerous, and leave companies to fend for themselves.
Indeed, there were almost 200 high-level cyber attacks in the UK in the last quarter of 2016 alone, and many more in the US and EU, most of which did not hit news headlines. In some cases, organisations are known to have quietly paid large ransom sums to recover their files. They could have reduced the risks with some basic precautions. In an FT opinion piece, Keren Elezari, of Tel Aviv University Interdisciplinary Cyber Research Center, advises companies to update legacy software, install end-point security measures, and, crucially, educate users about the risk of opening email attachments, clicking links or running unauthorised applications.
FT|IE Corporate Learning Alliance’s Cyber security programmes have also strongly warned about employee carelessness. ‘Cybersecurity is not about making machines work better. It is about preventing people…doing mindless things with computers, wittingly or otherwise.’ That means viewing staff as a ‘first line of defence’ rather than ‘the weakest link.’ Companies that remain complacent may soon find it harder to get insurance, and could suffer significant legal and reputational damage. At least they will have Maija Palmer’s cybercrime survival guide to help them through the worst of it.