Monthly Archives: August 2008

Adam Jones

Last week I pointed out that McKinsey was offering to take a bullet for Wall Street by suggesting that it might not be a bad idea for investment banks to spend less on consultants.

Now the Sydney Carton of the consultancy world has a new insight likely to please bankers. A couple of its directors have co-authored an article declaring that the best companies view downturns as a good time to make acquisitions.

McKinsey isn’t suggesting that every company will be in a position to find the funds to purchase rivals. But for financially-solid businesses its advice seems plausible – and it certainly won’t hurt the flow of M&A fees into the investment banking industry.

Elsewhere:

Adam Jones

It emerged today that members of the biggest union at Acas, the British conciliation service that acts as a go-between in rows between employers and workers, have voted in favour of strike action.

The Public and Commercial Services Union (PCS), which represents a large majority of Acas workers, said a pay rise that was supposed to take effect this month hadn’t even been negotiated. It also reckoned the eventual pay offer would be well below inflation.

Acas staff have previously taken part in industrial action linked to general public sector grievances – Acas is funded by the UK state – but neither side of the dispute could remember them ever downing tools over an issue linked solely to their own workplace.

A strike is still a threat rather than a certainty; other forms of action are also possible. If a strike did happen, I guess it could delay the resolution of disputes elsewhere simply because of a lack of mediators (I am assuming that relationship counsellors at Relate wouldn’t want to step in to cover for them).

But could a strike also harden general opposition to pay increases that lag inflation? After all, if the conciliatory folks at Acas walked out over a cut to their real wages, wouldn’t it be hard for them to persuade others to make a similar sacrifice?

I put the question to Dave Cliff, the PCS national officer for Acas. He said a strike wouldn’t limit the ability of Acas advisers to resolve disputes, saying it was accepted that there were times when an employer needed to offer below-inflation pay increases - during periods of financial distress, for instance.

Either way, I don’t think there is any doubt that it is a fascinating stand-off. Acas said discussions were ongoing and that it hoped to find a resolution.

Adam Jones

Adam Jones

As well as getting rid of staff, financial firms have put the squeeze on their travel and entertainment spending in response to deteriorating economic conditions.

Now McKinsey claims that some US investment banks could save up to $2bn a year by cutting costs in ways that are less likely to antagonise their remaining workers.

The consultant reckons that for some banks, spending on things like real estate, IT and office supplies grew too fast during the fat years and could now be pruned aggressively without sowing discord among the troops:

Inititatives to curb expenditures need not be extremely demoralizing to frontline employees… 80 percent of fixed costs have minimal or no impact on a bank’s employees or culture. Launching initiatives that target these areas, we estimate, could in many cases produce most of the noncompensation savings that banks aim to achieve while reducing the possibility of targeting areas that could damage employee morale.

Hang on a minute. I’ve just noticed the fifth entry on McKinsey’s list of investment bank costs that could be cut with “minimal or no impact on employees/culture”. The entry says “consulting”.

Let me try to get my head around that. Is McKinsey - a consultant – seriously recommending that investment banks consider ways of cutting their spending on consultants?

It looks that way to me. A McKinsey spokeswoman declined to comment.

Stefan Stern

All eyes will be on Denver, Colorado, next week, as the Democratic party gathers to salute its Presidential nominee Barack Obama. This week we should be finding out who will be joining him on his ticket as Vice Presidential nominee.

Leadership transitions are done pretty carefully in the otherwise fraught world of US politics. The general election is set for Tuesday November 4, but the new administration will not begin its term until inauguration day, January 20 2009.

In Britain things are done very differently. Our general election is traditionally held on a Thursday, and by the following morning the new government – if voters have opted for a change – takes office. Former prime ministers can be kicked out at very short notice, sometimes, as with Edward Heath in 1974, effectively becoming homeless on their eviction from No.10 Downing Street.

The new mayor of London, Boris Johnson, has been finding out just how difficult these leadership transitions, British-style, can be. Having been elected in May, he has just lost his second deputy mayor (his third senior appointee to go in as many months).

Stefan Stern

It could get worse, of course. The markets, I mean. “The worst is not/So long as we can say, ‘This is the worst’,” as Edgar cheerfully points out in King Lear.

Several big institutional investors expect to see another major banking collapse. A survey of 146 of them, carried out recently by Greenwich Associates, the US financial services consultancy, found that almost 60 per cent believed another failure would take place within the next six months.

Serves them right, you might say. All that absurd financial engineering was bound to end in tears. The former editor of The Economist, Bill Emmott, wrote last week that our sympathy for the Masters of the Universe should be limited. “The past year has actually not been very bad at all – unless you are a banker, a bank shareholder or Gordon Brown,” he said.

Now the financial wizards – or at least some of them – are copping it from another, unexpected quarter. A paper presented at last week’s annual gathering of the US Academy of Management in California suggested that there is something else we can blame the investment banks for: the spread of management fads.

Continue reading ‘Column: Beware of fad-loving analysts

Adam Jones

People often sign up for an MBA as a way of easing themselves out of one career and into another. But is a spell at business school really such a good platform for that kind of professional reinvention?

Philip Delves Broughton, an FT contributor, studied for an MBA at Harvard and wrote a book about his experiences. What They Teach You at Harvard Business School - called Ahead of the Curve in the US - has been getting deservedly good reviews. Its prose is crisp and evocative, its author playful yet sincere.

Mr Delves Broughton frets about the failure of elite capitalists to balance professional achievement with family life. He also casts doubt on the ability of business schools to enable a career switch, a theme picked up on by Della Bradshaw in her FT review.

One of Mr Delves Broughton’s classmates is quoted as saying:

They say this is your chance to change industry, but very few are succeeding. You see, the problem is that the path of least resistance is to do banking or consulting. Now, if you wanted to do either of those, you probably could. But if you wanted to get out of them you really have to fight…If you don’t have experience in an industry, they don’t want you, so you end up going back to the industries that you do have experience in.

Adam Jones

Many marriages buckle under the pressure of a foreign posting. The expat life often involves one partner slaving away miserably while their unemployed “trailing spouse” – what a soul-destroying label! - flounders in the absence of friends and workplace routine.

I mention this because my colleague Richard Tomkins has written about divorce, London-style in this weekend’s FT. He argues that the divorce system in England is “uniquely favourable” to the lower-earning partner, usually the wife. This is partly because pre-nuptial agreements are currently unenforceable, he says.

What really caught my eye was a quote from Sandra Davis, a partner at Mishcon de Reya, a London law firm. She expresses surprise that more companies posting staff to England do not warn them about the risks of being ordered to fund a massive settlement if their marriage implodes over here, pre-nup or no pre-nup.

Should companies provide divorce advice to expats alongside tips on tax planning? Have any readers been given such guidance?

Personally, I think financial advisers to expats are more likely to be bridesmaids than divorce strategists. In France, for instance, the tax benefits of being married or joined in a civil partnership called a PACS can be substantial. A decent tax adviser would at least lay those options on the table. They might even get a secret thrill if their clients wed.

Adam Jones

Adam Jones

Richard Thaler and Cass Sunstein, authors of the book Nudge, will be answering questions on FT.com tomorrow (Friday, August 15). Their work, which looks at how people choose what to buy and what to do, is proving influential in the US and UK.

Indeed, David Cameron’s public enthusiasm combined with their perceived influence on Barack Obama means their ideas could eventually help to shape business regulation in both countries.

Readers can submit questions in advance by emailing ask@ft.com or completing a form. The professors will start responding at 4pm London time. Questions can still be submitted at that time. Answers will be posted here.

As a warm-up, read this blog post I wrote in June, this sceptical FT leader and the authors’ subsequent defence of their theories.

I see that they have also written about business regulation in the Wall Street Journal today. The article did little to ease my previously-stated concern that their ideas rely too much on bombarding the public with information in the name of greater transparency.



About the authors

Stefan Stern writes a column on Tuesdays on management. He is winner of the 2010 Towers Watson award for excellence in HR journalism, and has previously won awards from the Work Foundation and the Management Consultancies Association.

Ravi Mattu is the editor of Business Life, the FT's management features section, and a former editor of the Mastering Management series. He joined the FT in 2000 from Prospect magazine

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