The British economy needs to have strong, effective CEOs behind its back in order to grow.

That’s according to John Cridland, the director-general of the Confederation of British Industry (CBI), who spoke in favour of strong CEOs after the former RBS chief executive Fred Goodwin was stripped of his knighthood.

“Britain needs successful and growing companies,” he claimed. “It needs the best CEOs wanting to come here. It’s vital that international companies are based in the UK and if we lose them the country is the poorer.”

In addition, Mr Cridland has got behind high-ranking executives who work hard for their paypackets, citing Tony Blair as the last PM “bold enough” to say top performers deserved higher levels of pay, cites The Sun.

He explained: “I would urge all three political parties to recognise that people earning good money are very welcome in the UK. The last person I remember saying that was Tony Blair.

“There is no question that rewards for failure, millions for mediocrity, are wrong. But we seem to have lost focus on the flipside – that it is acceptable to pay for performance,” he added.

Mr Cridland even went on to cite the pay received by footballers, claiming that teams need well-paid stars to reach the top of the league, much like businesses.

In light of the recent storm over Stephen Hester’s bonus, it might not be a huge surprise to learn that 13% of the businesses who responded have frozen or scrapped bonuses in the last year. Perhaps more startling are the top three rising benefits trends. The ability to buy or sell annual leave is on the up as are the increased availability of money purchase pensions and subsidies on bicycles. Of course, the rise of money purchase pensions is mirrored by a decline in final salary pensions but the idea that pushbike subsidies are becoming more popular would seem to mark a culture change.

Indeed, according to the survey, the company car is only just more popular than the subsidized bike.

Leadership development for senior managers has been named a top priority according to a new survey, HR Magazine writes.

The Corporate Learning Priorities Survey 2012, carried out by Henley Business School, revealed that around half of all respondents named this as their first or second concern. Many others stated that they would consider using learning and development to aid growth.

This suggests that respondents see leadership development as key for business growth – a notion that has not diminished due to the current economic “turmoil”. 84 per cent of those polled said they would be carrying out the same or more learning and development training in 2012. 

Learning and development was also highlighted as key for middle managers, staff engagement, succession planning and managing change.

However this should not come at the expense of creativity, according to Chris Welford, director of Serco Consulting. He told Personnel Today that tomorrow’s leaders need to generate ideas, view the world differently, challenge accepted norms and create conditions conducive to allowing the workforce to do the same.

Speaking about the survey results, Henley Business School’s vice dean of executive education, Hugh Evans, said: “Respondents’ comments echo the requirement expressed by our clients for development interventions that are pragmatic, that address current and future business challenges and that equip leaders to lead collaboratively, ethically and sustainably.”

Where are we now in Europe?

Europe continues its fudge and bodge, it continues to ignore the core problem which is that the Monetary Union just cannot work under the current framework.

The Core Problem

Under a system of freely floating exchange rates (the dollar and sterling are free floating, the Renminbi is not) the market on a continuous basis bases prices in a combination of factors. These are: the level of domestic interest rates, the inflation rate, the Government’s budget position, the balance of payments, in particular the current balance (this is the net of visible and invisible flows), and the way in which this is being offset through the capital account (in particular by Government borrowing from outside the economy).

If the market decides that in combination, the country is in an unsustainable position, they sell the currency. There is a devaluation. This with time lags results in an adjustment via more profitable exports, more expensive imports, higher interest rates, and for a time, lower growth. It takes about three years for the rebalancing to work. But it does work. We in the UK have been doing this on and off for the last 45 years.

The Eurozone problem is that this adjustment mechanism doesn’t exist between Euro member countries.

In any currency union the balances of the public sector, the private sector and the external sector must sum to zero.

From the beginning of the Euro, the following countries ran surpluses on their external account (i.e. with other countries): 

• Netherlands
• Germany
• Belgium
• Austria
• Finland
• and only just, France

They were selling more than they were buying.

The following countries ran deficits on their external account.

• Italy
• Greece
• Ireland
• Spain
• Portugal
• Estonia

They were buying more than they were selling.

The balance of payments for any country must balance each month. This is a feature of double entry book keeping. The surplus countries exported capital (money) to the deficit countries. These flows were organised by the private sector with bank lending, through M&A, and the middle classes buying property abroad. The flows were large and deemed low risk because there was no exchange rate risk.

When the credit crisis hit in Oct 2008, these private sector flows ceased. Individuals in the deficit countries stopped spending and began to reduce their debt as their wealth collapsed. As individuals and companies moved from deficit to surplus, their Governments moved deeper into deficit (it happened in the UK too!). So debt moved from the private to the public sector.

No longer is the private sector in the surplus countries willing to finance the debt of the deficit countries. Instead it is a combination of the European Central Bank (ECB), the International Monetary Fund (IMF), and the European Support Fund (ESF).

Germany is a third of the Eurozone. It therefore is the dominant underwriter of the ECB. Germany is adamant that the ECB should not buy sovereign debt, apart from to supply short term liquidity.

The latest EU agreement is that the size of Government deficits will be limited, and policed by Brussels. The limit is current borrowing to be no more than 3% of GDP, unless there are exceptional circumstances! This does not address the current problem.

Deficit countries within the Eurozone must reduce their external deficit, i.e. they must sell more and buy less from outside. Because they are so uncompetitive, their only way forward is a deep recession, i.e. buying less because their wages are falling. Germany doesn’t seem to realise that its exports to the deficit countries will collapse. So ITS surplus will fall due to lost sales.

What can be done?

The ECB should be allowed to buy sovereign debt. This will give the markets confidence and ensure private sector flows return. It will reduce the cost of funding for the Club Med countries. It will not be inflationary. It will also prevent a meltdown of the European Banking system and give UK Banks a boost (because the credit default swaps payments will not be triggered).

The alternative is chaos and a horrendous feedback loop which would run as follows. Italy would only be able to borrow at 8-10%, Standard and Poors would then downgrade their debt because tax income is insufficient to cover payments at such a level. It would apply to the IMF for credit. The IMF would impose very tough conditions. Even more of the Italian Economy would go unofficial further depressing tax receipts. The same for Spain.

Will the ECB Act?

Yes but not before Europe as a whole is in recession. The change will come at the end of this year when Germany has experienced zero growth due to a sharp reduction in exports to the Eurozone.

What does it mean for UK Business?

The exchange rate risk is increasing, particularly Sterling-Euro. Ideally business would match income and expenditure by currency type, thus neutralising the impact of currency movements. For many this is impossible. They have only two options, buy forward (expensive) or make sure the margin is sufficient to cover the swing in rates. The average for 2012 I guess to be 1.18, but it could go as high as 1.26 and down to 1.08. There are many who would suggest 1.30 plus, but this is highly unlikely because the finances of the UK are fragile and we have a difficult year ahead. S&P are downgrading sovereign debt in the Eurozone primarily because, unlike in the USA and the UK there is no lender of last resort i.e. a central bank willing to purchase significant amounts of Government debt from private sector investors. This action creates liquidity and confidence so that at auction Government can get the credit they need at a price which is manageable.

The French seem to think that their recent downgrade is due to some Anglo-American plot, rather than the simple fact that quantitative easing is an essential monetary tool which the ECB is forbidden to use and therefore financing the French deficit is more difficult.

How Deep Will the European Recession be?

It is my opinion that it will be deeper than many expect for the following reason: since October last year European banks have been shedding assets at the rate of 35Bn Euros a month. They have sold these assets on. This doesn’t reduce the supply of credit or money, but they are doing the easy bit first as they try desperately to meet the July 2012 deadline for their core capital to be at least 9% of their balance sheet. From now on they will be reducing their net loan book, and withdrawing credit from central and Eastern Europe. In the last two weeks (January 16th) they stopped lending to each other. The wholesale money market is key to the proper functioning of the credit system. The UK market seized up in October 2008, the impact on growth was quick and substantial. The same is happening today in the Eurozone. On January 16^th 2012 Eurozone banks had parked 501 billion Euros at the ECB. This is money which should be oiling the wheels of commerce. The chart on the next page illustrates my view.

My guess is the Eurozone will shrink by 1.5% by the end of 2012, and with no change in ECB policy, by 2.0% in 2013. We have to hope that this will cause Germany to rethink its current stance on lender of last resort for the ECB, but once credit crunch begins the feedback loop is powerful in a downward spiral.

The Impact on the UK

The EU is the largest importer and exporter on the planet. 50% of UK exports go to the region. Of our top ten markets, 8 are in the EU. This trade is worth 3.5 million jobs, and around £2300 per household. So a 2% contraction in the Eurozone, translates into a 4% nominal drop (assume a 2% inflation rate in Europe) which is in round figures £100 per household income contraction. This is on top of the increase in income taxes which Gordon Brown announced three years ago would apply in 2012.

A new CEO would do well to allow the use of personal mobile devices, such as smartphones and tablets, in the workplace.

That’s according to network security firm Blue Coat Systems, who believe that employees bringing in their endpoint devices as a tool for work is fast becoming an inevitability, cites managers.org.uk.

Nigel Hawthorn, vice president of marketing EMEA at the firm, claims that these devices are being used for both personal and work matters, which is why most CEOs allow their staff to bring the devices into the office.

“The idea of trying to stipulate exactly what devices people use is impossible now,” he added.

In addition, the price point of such gadgets means that an increasing number of consumers are racing to buy the product and bring them into work.

Work and personal use of gadgets “means that in all but the most top-down organisations people already bring in their own phones and iPads” he added, cited by Women in Technology.

Of course, CEOs need to consider the possibility that additional gadgets in the workplace can be a threat to business security.

According to a poll by Damovo UK, 68 per cent of CEOs are worried about the increased use of mobile devices’ effect on business security and believe the consumerisation of IT has been ‘over-hyped’.

CEOs looking for behavioural changes at their company will have to lead by example, it has been claimed.

Speaking at the CIPD Employee Engagement Conference, Nampak Plastics managing director Eric Collins stated that a CEO who shows the required behavioural changes themselves were much more likely to improve productivity and employee engagement within their firm.

Collins, whose company won the employee engagement award at the CIPD People Management Awards in 2010, also stated that “courageous and honest” conversations with staff about behaviour were also crucial to building stronger workplace relationships.

According to People Management, he said: “Through relationships we have opportunities, and through opportunities we have possibilities, action plans and, ultimately, delivery.”

Adding his opinion to the subject of workplace culture change, customer experience guru Shaun Smith recently claimed that shareholders are no longer prepared to wait years for the implementation of change programmes.

Writing for mycustomer.com, he blamed the recession for the added pressure on CEOs to correct any faults within their workforce as soon as possible.

He said: “Because of the pressure on business, people are looking to achieve things quickly. They are not really prepared to sit around, having a culture change going on for three years before they see any results.”

The “crucial role” middle managers play has been lauded, after a survey revealed that they are the group who feels most disengaged, Fresh Business Thinking reports.

According to the Chartered Institute of Personnel Development’s (CIPD) latest Employee Outlook survey, middle managers are the group most likely to feel the pressures of the current economic downturn.

Nearly half of middle manager respondents said that they were put under excessive stress at least twice a week, if not everyday, compared with 37 per cent of others surveyed.

Additionally, dissatisfaction with work/life balance was highlighted, with 66 per cent of middle managers unhappy, compared against 30 per cent of non-managerial staff.

They were also the group most likely to be looking for alternative employment, with 29 per cent fearing they could lose their job. Consequently, the CIPD is urging CEOs not to forget the valuable contribution middle managers make to any business.

Steps that could be taken to demonstrate this might include introducing flexible working to alleviate presenteeism or leadership development, providing an investment into future career progression.

“Middle managers are often caught in the middle between delivering strategic objectives and managing under-pressure line managers,” said the CIPD’s Ben Willmot, head of public policy to The Grapevine Magazine.

“They can also be first in line when organisations look to reduce head count. While middle management will undoubtedly bear its share of job losses in organisations needing to reduce head count, it is also important to remember the crucial role these managers play in managing change, translating the objectives of senior managers into actions and motivating others.”

As Facebook gears up for a rumoured initial public offering later this year, the company has been keen to demonstrate its value to potential buyers. One way of doing this has been to commission a survey from Deloitte to quantify how much business Facebook generates in the UK. The report figures that the company has contributed £2.2 billion to the UK economy and that it supports over 35,000 jobs.

One of the companies to have made good use of the Facebook platform is Morphsuits. Set up in 2009 with reported seed capital of £9000, the company sells spandex fancy dress suits. By building a community of Facebook fans who send in photos of themselves wearing the Morphsuits, the company has accumulated over 750,000 friends and sold over 500,000 suits. According to this report from the BBC last summer, this equates to a turnover greater than £10 million.

The Scotsman has a full report here along with quotes from Richard Allen, Facebook’s head of policy in Europe, Middle East and Africa. Allen is quoted saying, ‘There are businesses that use Facebook to engage new markets and develop a larger order book and are therefore able to employ more people.

‘Morphsuits is a classic example as it has been able to grow the business in a way that wouldn’t be possible without the existence of this word-of-mouth marketing mechanism where it can build a loyal following that then passes on their recommendations to others with similar interests.’

 Malcolm made a bold opening statement to the group at the workshop.  By applying his negotiation tools and techniques the group in total would, in a short space of time, be able to save £250,000.  Needless to say the members took this with a pinch of salt!

In the last group meeting of 2011 it became clear that the members had not only reached this target in the space of three months, they had in fact achieved savings of around £400,000.

What is particularly interesting is that the members managed to achieve this by seeking ‘win-win’ negotiation outcomes.  Malcolm’s phrase “this has got to work for us” has quickly become a mantra for some of the businesses, and everyone is now aware of the importance of having a list of negotiation tradeables.  One of the group members also said: “We’re having so much fun negotiating now!”