Cassandra 2012 Headline Animator

Thursday 29 December 2011

New Approaches to Management Not Enough


I recently came across an interesting article on the forbes.com business and management website. Written by Steve Denning it was a comprehensive review of a book called Fixing the Game by Roger Martin. Martin holds that by concentrating on maximising shareholder value executives have begun managing expectations instead of managing the business. It is clear from Denning's article that he is a fan of Martin's thesis. Indeed, Denning has also written a recent book, The Leader's Guide to Radical Management in which he expounds his own theories of what constitutes good management.

The goal of maximising shareholder value need not be as destructive as Martin and Denning suggest. What is required is an acceptance of two things: that shareholder value can only be maximised by keeping on doing well what the organisation does best and that shareholder value means the long term return in the form of high dividends paid against the value of shares held. Martin and Denning argue that what has been happening is that "shareholder value" has been confused with share price on the stock market.

According to Denning, Martin argues that encouraged by bonuses paid in the form of share options executives have devised and followed strategies that produced increases in share price based on market expectations. The executives have managed those expectations by means of regular announcements and predictions of profitability. So long as the predictions proved to be accurate within narrow margins demand for shares in the company was generated pushing up the price of those shares.

Old Ideas Re-invented Not the Answer
Reading the article I was struck by the similarities between the ideas being put forward in the wake of the financial meltdown of the last few years and ideas that were being widely embraced 30 years ago. In my own article ahead of the 2010 general election in the UK I discussed ways of successfully implementing efficiency savings and referred to a process called Total Quality Management. Almost twenty years ago one of the several roles I undertook in a small engineering company was that of TQM "facilitator" explaining the various techniques and strategies covered by that broad title to fellow employees.

The problem with management theorists is that they base their ideas on the assumption that economic growth is a natural and desirable goal. They are simply seeking and advocating alternative ways of achieving that goal now that the methods of recent decades have been shown to be incapable of doing so. Some of the most prescient of commentators have been advocating for at least the past two decades that this never ending pursuit of growth is killing the planet. Is it not time to take a closer look at sustainable developments of the kind advocated by the late Richard Douthwaite and other members of the organisation FEASTA?

Monday 19 December 2011

Car on Fire? Don't Call the Fire Brigade!


I was listening on Midlands Today this morning to an interview with a poor man who has received a huge bill from Laois County Council. Back in July last year he was returning home to Portlaoise from working a night shift in a homeless centre in Dublin when smoke started coming out of the cooling vents in his car. He did what any of us would in the circumstances; pulled over onto the hard shoulder, took out his mobile phone and called the emergency services.

As the fire took hold a couple of trucks pulled up and the drivers attempted to tackle the blaze with fire extinguishers from their cabs. The blaze was too severe. By the time the fire brigade arrived half an hour after the call the car was destroyed. A few weeks later the man was shocked to receive a bill from the County Council for €3.5k. After he had contested the amount it was reduced to a little over €3k. His insurance company will contribute €1k leaving the man with €2k to find.

In my previous post I discussed the forthcoming Household Charge and noted that whereas most services provided by local councils in the UK are free of charge with a proportion of the cost raised via a locally determined tax called the Council Tax, here in Ireland most services are either funded centrally by the state government or charged for. This incident illustrates precisely what is wrong with that system. Local councils are free to charge whatever they deem to be appropriate for a fire service call-out. In the case of Laois County Council the charge is based on the number of men attending and the length of time that elapses between receipt of the call and the return of the men to their respective stations. The charge is doubled for calls received between midnight and 7am.

Nineteen Men to Extinguish a Car Fire
On this occasion two fire tenders turned out from two different stations involving a total of 19 men. I have no idea to what extend that level of turn-out was determined by the firemen's terms of service but it is well known that public service workers in Ireland are grossly over-indulged; it's one of the reasons the country is bankrupt. Leaving that aside, however, the iniquity of having to pay for a service when you have absolutely no control over the cost of providing that service and no alternative is obvious.

At this point it is worth looking back at the history of fire services. Long before they were taken over by local authorities they were provided by insurance companies. You paid an annual premium to the company and in return they came and put out any fire that occurred on your premises. It was fair because the company published statistics about the number of fires attended together with an account of income and expenditure. Prospective clients could judge whether the proposed premium matched the cost of the service and whether or not it was worth paying on the basis that if they didn't pay up front they would not get the service should they ever be unfortunate enough to need it.

Where the service is provided as part of a package funded by local taxes the general point remains true. The local councils in the UK publish annual accounts showing the actual cost of running the service in order to justify the level of tax being levied. In Ireland there is no such requirement. So the council, no doubt aided and abetted by the fire-fighters, can determine how many men to send to an incident and what to charge. Moreover, where such arbitrary charges are met from the vehicle owner's insurance it has the inevitable effect of pushing up premiums for everyone.

The remedy, at least for car owners, is to have a fire extinguisher and use it should the need arise. Whatever you do, don't call the fire brigade!

Friday 16 December 2011

Ireland's Household Charge - the Final Straw for Hard Pressed Citizens?

The first of January 2012 sees the introduction in Ireland of a charge of €100 per annum to be imposed on every occupied house in the land. In theory this is supposed to be a payment towards the cost of services received by the occupants of the house. In fact it is nothing of the sort. To understand why it is necessary to look at how such services are currently funded.

In Britain in the 1980s Margaret Thatcher attempted to introduce a similar charge levied from every adult member of a household. Officially called "Community Charge", it was quickly dubbed "Poll Tax" by press and opposition parties and was widely regarded as grossly unfair. It soon met considerable resistance with rioting and widespread refusal to pay. It was not long before the idea was dropped and replaced by a "Council Tax" based on the notional value of a property.

There are a number of differences between Ireland's new Household Charge and Britain's former Poll Tax but the most significant of these is the fact that whereas the Poll Tax was a replacement for an existing levy the Household Charge is entirely new.

In Britain householders have for many decades paid a contribution to the cost of operating local government. The Poll Tax was an, albeit unsuccessful, attempt to replace an unpopular tax called "rates" - essentially a levy based on the assessed rental value of a property. Rates provided a significant proportion of the funding for local government at a time when local councils in Britain had significantly greater powers than they presently do and far more than any in Ireland.

Unfair and Undemocratic
The system was regarded as unfair because based roughly on the size of a house whereas in many instances a large house that may once have been occupied by a family now grown up could still be occupied by a single elderly individual who would be paying more towards local services than a large family in a smaller house in a less salubrious part of town. The Poll Tax attempted to remedy this by charging every person of voting age the same amount. Families with grown-up children living at home suddenly had to pay more than they had been under the old system. Because it was possible to evade the tax simply by not registering to vote it was deemed undemocratic.

Council Tax was, and remains, based on the notional value of a property but was, and has been further, ameliorated by an increase in the contribution of central government funds to local authorities together with the removal of some of those authorities' more costly responsibilities. But the tax is set and collected by the local authorities.

Local government in Ireland is presently funded part by central government and part by business rates. Moreover County Councils in Ireland have far fewer responsibilities than their opposite numbers in Britain. People already pay for refuse collection services, for example, and in most areas these are privatised. There are charges for other services - libraries, leisure centres and municipal theatre performances - and whilst these are subsidised and therefore lower than corresponding private sector facilities there is an inevitable feeling that this new levy means people are paying twice.

Prisons Overflowing
This feeling is not helped by the fact that the new charge is part of a large package of increased taxes and charges levied in the recent budget and therefore not obviously a new way of funding local services. Unlike the British Council Tax it is set by central government so there is no sense of local control over the amount or the way it is spent. It is a levy that had been signalled by the previous government with an underlying assumption that it would be offset by a reduction in other taxes. The new government seems to have used it as a means of keeping their own promise not to increase income tax. Having broken so many other promises, it might have been better had they broken that one as well instead of introducing such a regressive tax at a time of widespread hardship.

Many citizens - including several members of the Irish parliament - have vowed they will go to prison rather than pay. In itself this is a frightening prospect for it is already the case that the only way our prisons can accomodate the people that the judiciary send them every day is by the early release of existing inmates. So we could see the imprisonment of innocent citizens whilst hardened criminals are released onto the streets. There is a growing movement to oppose the charge. Many see it as the last straw in an ever increasing series of impositions on a hard pressed population. It will do nothing to assist the achievement of a "yes" vote in any referendum on measures to defend the Euro. Time for a re-think, Mr Kenny?