Thursday, 21 March 2013

A great event that underwhelmed the world

By Martin Roche,  Etoile Partner

Early in March a rather frail Queen Elizabeth ll signed The Commonwealth Charter at a ceremony at Buckingham Palace. For the first time, this organisation of 54 sovereign states has agreed to a written declaration of the values and “16 core beliefs” that bind the Commonwealth together. Cheers and celebrations all round you’d think. Well actually the reception for the Charter was, if the UK media is representative of global opinion, extremely muted.

What a shame, say I. Have we become so jaded in the world that we don’t jump for joy when politicians and countries act from the finest motives? Have we stopped cheering for human and civil rights, for democracy and civilised conduct in the affairs of humanity? Are we consumed by scepticism simply because some signatories to the Commonwealth Charter have pretty poor records on protecting their own citizens, or are we so jaundiced by the way of the world that we dismiss all efforts to make it better as simply wallpaper?

If all that is the case then we are not in good shape in the world. I for one want to celebrate the good men and women of the Commonwealth who worked so hard to get the Charter committed to paper. They have achieved much to be proud of.

First, every nation of the Commonwealth can now be held to account at the court of global opinion. When, and it will for some be when not if, they fall short, the world can point to The Charter and ask why they have failed to live up to their written, signed and agreed set of core beliefs.

The Commonwealth, with its new Charter, has given itself a moral force it perhaps lacked until now. It as a body has won for itself the moral authority to speak for good because all its members have signed up for good. It has with the Charter given itself the potential to be a far more vocal and persuasive force than hitherto.

Two years ago, we at Etoile commissioned a piece of independent research about the Commonwealth among some very important opinion formers and business and political decisions makers. The starkest finding was that very few of these highly educated, worldly aware and well-connected people found it easy to articulate what the Commonwealth was for and where its values lay. They can’t say that now.

Stand up and wave some flags. Ring out the sound of joyful trumpets. Let choirs sing songs of rejoicing, for in March 2013 the Commonwealth found its way in the world. Where it had seemed directionless, vague and to many a post-colonial club of doubtful legitimacy, it now knows what it is and what it is for. It’s the best news I’ve heard in the field of international affairs in many a long year. But it must be simply the beginning. Now the Commonwealth must use every opportunity and every technology to take these new messages of hope to the world.

A new dawn has arrived for the Commonwealth. It will take great effort, great reserves of political capital, some money, endless imagination and moral courage to turn The Charter from powerful rhetoric to the stuff that stays the hand of violence and injustice, stimulates democracy and wins the hearts and minds of men and women to win a better world.

The Charter had a muted response to its birth. Let’s us wish it a long and successful life.

Tuesday, 5 March 2013

Is there a new force in British politics?

By Martin Roche, Etoile Partner

Last month, the Liberal Democrats, the minority party that shares power with the much larger Conservative party in Britain’s coalition government, won a by-election in the affluent southern England constituency of Eastleigh.

The election was won despite a turbulent time for the LibDems, but they are not the story. The big story is that the Conservatives came third and the United Kingdom Independence Party (UKIP) came a good second. It was UKIP’s inaugural second place in a seat the Conservatives felt they could win. They had hoped to tear it from their LibDem coalition partners and had a reasonable ambition of winning again at the 2015 General Election. Eastleigh is listed as vital to a Conservative majority in 2015.

UKIP began life in 1993, founded mainly by anti-EU Conservatives convinced that a new party of the Right was needed to force the UK’s disengagement from Europe. Twenty years on it feels its cause is at last catching the public mood. Its steadily improving poll ratings and string of impressive by-election performances may hasten the day that the UK takes its leave of the EU. The alternative view is that UKIP may so damage the Conservative Party at the next election that the giant could take decades to revive, if it revives at all.

It’s not that UKIP – a party that has never won a seat in the Westminster parliament - is heading for electoral victory. Indeed, it’s entirely possible it will win no seats at all in 2015. The British first-past-the-post electoral system used at elections to Westminster makes it extremely difficult for small parties to win seats. UKIP may win little tangible reward in the House of Commons, but a string of high seconds could make it the executioner of the Conservative Party. LibDem candidates could pour through the gap left by the Right and the occasional Labour candidates could find themselves the MP for most unlikely Labour seats.

In 2015 a very strong UKIP showing in traditional Conservative seats may be enough to deprive the Conservatives of a parliamentary majority and turn it from a party of mixed views on the EU to one sworn to quit Europe as soon as it can again get its hands on power.

If the Conservatives badly lose the 2015 election the winners will either be Labour with an outright majority or Labour in a coalition with the pro-EU LibDems. Both would happily see the EU pushed off the higher reaches of the British political agenda. To win, Labour may have followed the Conservative lead of a General Election promise of some EU renegotiation followed by a national referendum to endorse or reject the new terms. It would be a high risk move for Labour. Voters like to give governments a bloody nose.

A dream position for Labour would be to find itself back in office just as the economy is recovering. Better economic conditions under Labour may have come as a result of the Conservative-led government’s policies. That will matter little to voters who prefer united parties to divided ones and prefer work and earnings over endless debates about Britain’s place in Europe. Visibly rising wages, jobs for the young and spending in the shops will bring hope after years of going backwards. An EU referendum in a strengthening economy, run by a new government advising a yes vote, is much more likely to see the people of the UK opt for staying in Europe.

If there’s no obvious upturn Labour can find lots of reasons to delay a referendum on the EU and many in Brussels and Strasbourg will be happy to accommodate Labour in keeping renegotiations at a snail’s pace.

What then happens to the Conservative Party out of office? If it fails to find a position that binds enough people on the Right and Centre-Right of British politics it could, like the once-all-powerful Liberal Party did in the 1920s, almost expire.

Throughout the 19th century the Liberal Party alternated with the Conservatives in leading Britain. It has not ruled on its own in 100 years.

Fractured parties are not confined to the distant past. In the 1970s the Labour Party split in two, lost office in 1979 and did not win it back until 1997. Oh and the Conservative Party has not won a Parliamentary majority since 1992. Its then Prime Minister, John Major, lost office after five years of party fighting over….yes you’ve guessed it…the EU.

We may be now watching the long slow death of the political party that above all others in Britain understood that the only thing that matters is being in power*. For many MPs in David Cameron’s party today, the matter of Europe is seen to be worth the risk of splitting the Conservative Party and splitting it from power, perhaps for a generation. Maybe for many generations.

Let me though bring some cheer to beleaguered Conservatives. Their party may still win an outright majority. If so, UKIP will still be breathing down its neck in dozens of constituencies. That will ensure the Conservative Party in power takes UKIP’s clothes and leads Britain out of the European Union. It will do so under the banner of national interest. It might even convince itself that the interest of the nation and that of the Conservative Party is the same thing.

UKIP may never have an MP in Parliament. It looks though to be at the centre of a very great series of changes in British politics.

*Tony Blair’s great legacy to the British Labour Party was to get its leadership to understand this simple reality; Blair knew that without power a political party is only a set of promises without foundation. That is one reason he won three General Elections in a row.

Monday, 19 November 2012

The future of the Commonwealth

Etoile submission influences UK Parliament's Foreign Affairs Committee report

by Martin Roche, Etoile Partner

London 15th November | The UK House of Commons Foreign Affairs Committee published the findings and recommendations of its hearings into the role and future of the Commonwealth, from the point of view of the United Kingdom. Etoile had submitted written evidence to the Committee. The essence of our case, which is strongly echoed in the Committee’s report, is that while the Commonwealth is rightly highly valued in diplomatic, political and sporting circles, its core values are little understood, even by elites (the Committee cites Etoile’s Populus survey of senior 100 UK influencers. See page 24) and huge numbers of citizens in member countries lack any clear understanding of its values and function or its relevance in their lives.

We made two fundamental proposals:

1. Turn the Commonwealth into a global democratic foundation:
with the mandate to speak for democracy and the common man in a way that no other international organisation can. It is the “North” and the “South”, the “East” and the “West”, it straddles both hemispheres and contains 30% of the world’s population. As such it is uniquely equipped to offer examples of a multiple versions of democracy, not just the “western” model with all its historical baggage, which may have limited appeal or relevance to other emerging economies/states. It thus has the potential to be a great force for good in the 21st century in a world where democracy cannot be taken for granted.

2. Build it into a growing economic development force in the world:
There are many diverse economic philosophies to be found across the Commonwealth and it would be naïve to imagine that the Commonwealth might rally round a single economic dogma, but all want economic success to improve the well-being of their people and assist many to escape from poverty. Etoile would endorse moves to build structures and processes that generated far more trade and investment— and accompanying development—across and between Commonwealth countries, and indeed other countries not currently members of the Commonwealth, than is currently the case.

In its summary, the Committee noted:

“The Commonwealth has appeared less active and less publicly visible in recent years and there is evidence that it is missing opportunities to influence events. The Commonwealth Secretariat must sharpen, strengthen and promote its diplomatic performance.
The Commonwealth must speak with greater unity in the international community;
  • there is a growing perception that the Commonwealth has become indifferent because it fails to stand up for the values that it has declared as fundamental to its existence
  • on issues such as development, trade and investment, climate change and global pandemics, the Commonwealth is in danger of becoming immaterial as beleaguered nations look elsewhere for the help they need, and
  • the work programme assigned to the Commonwealth Secretariat requires critical review with the objective of concentrating on priority matters that will bring the greatest benefit to the people of the Commonwealth.”

Etoile was not alone in expressing concerns about how the Commonwealth positions itself and communicates across the globe. We were however the only geopolitical and communications consultancy to submit evidence and ideas to the Committee and the clarity, robustness and sense of our analysis and recommendations resonates in the Committee’s report. Commonwealth nations account for 30% of the world’s population and include huge economies such as India and the UK and many of the world’s fastest growing economies in Africa. Etoile believes the Commonwealth is rich in potential as a force for democracy and peace and as an instrument of global trade and greater economic stability. But time is short. The Commonwealth has to win the support and relevance of many millions of people worldwide and do it soon before minds find new places to rest. The Commonwealth must communicate better, stand up boldly for its core values and reach out to a world hungry for its message of democracy, rule of law, peace, stability, human rights, mutually beneficial economic progress and the brotherhood of man.

That’s surely something worth doing very well and doing soon.

NOTE: Etoile’s submission to the Committee was written by Graham Barr, Roger Cartwright, Ron Hepburn and Martin Roche.

Thursday, 2 August 2012

South Africa can be a new international finance star

Article first published in South Africa's Business Report

By Martin Roche

In 2007 just before the world suffered its worst financial crisis in living memory, the head of one of Europe’s most respected financial regulation authorities asked for a report into the reputations, regulatory structures and market potential of a dozen “new wave” economies around the world. The report grew in importance as the financial crisis worsened. It provided some of the answers to the big questions being asked by the finance houses, and the big legal and accountancy practices; “If the United States and Europe are in crisis, where should we be seeking new opportunities?”

Greatest potential
Of all the countries in the study, South Africa had the greatest potential. It has a regulatory structure rated among the very best in the world and a sophisticated and long-established commercial legal system with skilled practitioners and dependable courts. Its accountants are admired worldwide for the quality of their training, their probity and industry. The country has sound banks (untainted by the failures and scandals of the global crash) and solid businesses in areas like insurance and fund management.

How could this potential be unleashed? How could the biggest financial services economy in Africa position itself to become the financial hub for a booming “New Africa” - and compete on the global stage as a finance centre to rival other successful hubs like Singapore or Beijing?

It’s a very big idea. At the core is a strategy designed to bring wide-spread benefits to South Africa. One that will widen and deepen the economy, bring new business and employment opportunities and do so in a way that protects and enhances South Africa’s reputation for honesty and fair dealing in finance. It’s an idea that will enable the country to win the confidence of the world’s financial policemen, media and governments.

Its key objectives would be to bring new business to indigenous finance concerns, attract international finance and allied firms, provide an ever-growing number of high quality jobs for local people, stimulate the business hospitality, convention and tourism sectors and steadily grow revenue for city, provincial and national exchequers.

To capitalise on this extraordinary opportunity, South Africa has to develop a strategy with a universal set of credible brand benefits and express them in a way that informs and persuades mobile capital and gives local voters and international observers real confidence that the benefits of building the finance sector will be deep and lasting.

The way any country presents itself as a centre for finance has to be very different from five years ago. Then, with booming economies across the world and a seemingly non-stop growth in personal wealth everywhere, the finance industry was seen as the saviour of the universe.

Finance reputations in tatters
The reputations of many of the world’s largest finance concerns are now in tatters and hundreds of millions of people have had at least a third wiped off their personal wealth. Scandal follows scandal, heads roll; jail doors open, share prices collapse and people in banking and finance now enjoy lower public confidence in Britain, Europe and the United States than estate agents, journalists and politicians.

Trust has evaporated and with it went belief in the credibility of the marketing propositions and brand promises made by finance houses and finance jurisdictions. Thus the strategy for South Africa and the guarding of the country’s reputation have to be seen to be driven by a partnership of democratically-elected politicians, regulators, the central bank and the industry. Every word, every detail and every nuance matters.

Most important to the attraction of foreign investment is that very few people in the world know of or understand South Africa’s credentials in finance. So it will require a sophisticated strategy and a highly-professional campaign to alert, inform, stimulate and motivate the world of international finance to the potential of South Africa as a country with a view of finance and its supervision that the world is hungry for - because it needs the rebirth of trust.

It calls for the skills and experience of people who work in this world and have a track record of helping countries make breakthroughs in this field.

In 2009, Etoile took this thinking to the government of the Western Cape, where it received a warm, professional and enthusiastic reception. A finance industry body is now considering the idea.

We hope that what will emerge is a partnership between public and private sectors with the right strategies and plans to deliver a breakthrough and give the world new reasons to admire, support and applaud South Africa.

There is a great deal at stake and no time to lose. The Economist Intelligence Unit, the highly respected in-depth research arm of The Economist magazine, recently forecast that while South Africa’s finance industry will grow in the next decade, its predominant position as Africa’s top finance centre will be eroded by competition from other African countries.

The most recent entry into the business of hosting international financial operations is Botswana, which offers a stable Government and sound governance, regulation and infrastructure. Its initiative is already proving successful, much to the benefit of the country and its people.

Windows of opportunity rarely stay open for long. South Africa needs to grasp this opportunity now while it still can and to look to the best people in the field to help it achieve the breakthrough that is possible. It would be a great pity if the opportunity were to be squandered by treating it merely as a short-term marketing opportunity for the local finance industry.

Martin Roche, a partner of geopolitical consultancy, Etoile Partners, has worked on place marketing and foreign direct investment assignments across the world.

Sunday, 8 July 2012

Trust broken – can it be mended?

By Ronald Hepburn, Etoile Partner

The Economist this week leads with an indictment of the lack of morals of the banking industry, globally (see Banksters). They it accuses them of “a culture of casual dishonesty”; collusion, cartels, greed and a scant regard for the truth are not trust makers. The finance industry relies on one thing, trust. It is the core attribute which persuades people to allow the industry to handle their money; but trust is now the last thing we can bestow upon our bankers.

I have a small confession to make; I worked in the investment banking industry for 10 years, through the heady Champagne days of the 90s. I saw the deregulation of the industry and the free-for-all that ensued. I saw first-hand the destruction of value of the broking house for which I worked as it collapsed. At first it thought it was above regulation, then it tried to fiddle its way out of trouble, then it lost the trust of the regulators and shareholders. This was a Japanese collapse and the shock to the people of Japan was as palpable as they were forced to question their faith in the system.

Then as now, the issue remains the same. Bankers – and for that matter all people involved in the financial services industry – go wrong when they forget the fundamental social purpose they are there to serve. That purpose is not to make money for shareholders – that is merely a by-product. 

Banks need to rediscover their social purpose
About three years ago, just after Lord Turner, then Chairman of the FSA, accused the industry he regulated as being “socially useless” (Financial Services Authority chairman backs tax on 'socially useless' banks), I found myself chairing a meeting of City communications directors. I challenged them to answer the “socially useless” accusation of their own regulator. To a man and woman, they referred to their CSR policies – the thin veneer of do-goodery of the financial services corporation. After some further discussion there was general agreement that in fact they had no “social” purpose - other than to make money for the shareholders – and themselves of course, which could be seen as anti-social. And here is the rub. With such an attitude, moral rectitude in business dealings flies out of the window. They were all wrong in fact and I shall explain why.

Money and the single-minded pursuit of it flies in the face of the real purpose of the financial services industry, the social purpose which gives it permission to exists, which is to take custody of money lent to it by the public (shareholders, savers) and make sure it doesn’t get stolen or frittered away. Ideally it should also grow and be safe, while be put to good use. Most importantly it should still be there when the people whose money it is need it. This is the social purpose of the finance industry in an oversimplified nutshell.

Ah! But clearly there must be exceptions? Please let me have them? Proprietary trading? Surely that has no social purpose? It does actually, although the traders themselves wouldn’t recognise it. Proprietary traders (who use their own funds to trade securities for profit) provide much needed liquidity in the market. Derivatives traders? Amongst other things they provide farmers in Lincolnshire, Denmark and Alabama with valuable information about the price of their pork bellies in the future and allow oil and gas exploration teams to estimate the future viability of their finds.

The banking industry needs to buy back its soul, remember its real purpose and keep in mind that the money they are playing with is not theirs. They are just keeping it in trust. And the people, the regulators, the governments don’t trust them.

Thursday, 5 July 2012

Time for Barclays tabula rasa

By Etoile Partner, Martin Roche

On Monday, my colleague, Trevor Datson, suggested that Barclays Bank chief executive, Bob Diamond, would be unlikely to hold out against the clamour for his head to roll in the wake of the LIBOR rate fixing scandal. Trevor’s instincts were spot on, for the very next morning, even before London’s financial markets were open, Mr Diamond had quit. Now it’s said in informed circles that what finally did for the mega-high-earning Mr Diamond was pressure from the Governor of the Bank of England, Sir Mervyn King, and from the Chairman of the UK Financial Services Authority, Lord Adair, for him to fall on his sword. If the rumours are true, and they make perfect sense to me, the regulators have acted at speed to try and limit the reputational damage to the City of London, send a signal to the world that the authorities are firmly in charge and give Barclays the earliest possible chance to start again with a tabula rasa – a clean slate.

So, what kind of man or woman is needed to rescue one of the world’s biggest banks from the trough of public despair and disgust into which Barclays has been plunged by the LIBOR rate-faxing, the miss-selling of retail and small business products, legal but publicly unpopular tax avoidance practices and a breathtaking degree of corporate arrogance by its now departed chief executive?

Who runs Barclays matters to the global economy and particularly to the places Barclays does most of its business, London and New York. The bank came through the crash of 2008 in a strong position and with a balance sheet that allowed it to snap up what was left of Lehman Brothers to become a much bigger player on the New Your investment banking scene. That fast and clever move was seen as a typically self-confident piece of entrepreneurial chutzpah of the type that had for centuries put London at the forefront of world finance.

Who runs Barclays matters, because the banks – those bailed out by the taxpayers and those like Barclays that were not – have since the crash of 2008 to keep winning the public’s “licence to operate”. How they behave is no longer simply a matter for shareholders and regulators, but also for politicians and the general public. All of the banks hold our financial future in their hands. The indebtedness of the UK’s banks is greater than the entire GDP of the United Kingdom, so now they are playing in the last chance saloon. More scandal and more failure could result in the City of London losing many of the privileges and tax benefits that give it a global competitive edge. The public wants the City to succeed, but not at any price.

The challenge for the new boss of Barclays will be to find ways of keeping the bank rich in swashbuckling dash, derring-do and breathtaking deal-making, whilst reducing reliance on high-risk trading and derivatives products, expanding lending to business in what is still a very uncertain market, satisfying the ordinary banking needs of corporate and retail customers, giving regulators little cause for concern and rebuilding the bank’s reputation for integrity. Perhaps even bringing it back to being the uncompromisingly principled and scrupulously honest bank of its Quaker founders. Maybe our readers will tell me if they think I’m being naïve in seeking a more ethically based banking culture.

Without doubt, the new boss at Barclays will need the toughest and thickest of skin, lots of high level experience in finance, in managing people and turning strategic theory into winning banking for customer and shareholder. But I venture that it will be personal values and strength of character that will wholly condition whether the new captain steers a straight and true course safely into port or strikes a reef and goes down with the ship. He or she will need an outstandingly gifted head of communications who comes with an equally strong reputation for integrity and strength of character. Such creatures are rare in most walks of business and public life and have all but disappeared from the City in recent years.

Let me give you an example of the type of advice the new Barclays’ communications chief must have the guts and experience to give his chief executive. Yesterday, the departed Bob Diamond gave evidence before the Treasury Select Committee of The House of Commons, one of the most powerful committees of Parliament. Now Mr Diamond is an American, though he’s no stranger to the UK, having lived here for 16 years, so he knows how the British behave in formal and informal situations. Yesterday he referred to every member of the Select Committee by their first name. That action sent all the wrong signals. Firstly, it showed discourtesy to Parliament and to the Committee (the Committee chair and members at all times called him Mr Diamond). It could also mislead the outsider into thinking that Mr Diamond and each Committee member are personal friends. What Mr Diamond appeared to be trying to do was what we in the communications business call “borrowing interest.” In short, he was trying to get some of the status and authority of the Committee and its members to run off on him and convince us he is as good a guy as they are and not the banker he is thought to be. Personally, I would not buy a used car from Mr Diamond. But he is history. His successor has to have very special qualities and a truly brilliant communications machine in support. Advice note Number 1 – when in formal settings be formal. That’s how proper bank managers behave.

Anything else will not be a tabula rasa. It will be a false start not a fresh start.

Monday, 2 July 2012

London does not have a divine right to rule the banking world.

by Trevor Datson, Etoile Partner

Forget the individuals: Institutionally, London's banks are beginning to look and behave like wounded animals, and rival financial centres old and new are not only right to be licking their lips, they would be foolish not to.

Emerging relatively unscathed from the credit crunch, Barclays might have been forgiven for a moment of self-congratulation, no matter how weakly deserved. But the breathtaking audacity of the dodgy dealings on its trading floor has unseated its chairman Marcus Agius, whose resignation stands only a limited chance of saving the scalp of CEO Bob Diamond. If Diamond is forced to go - and the British media are unlikely to settle for less as they enjoy a moment's respite from examination of their own equally pernicious practices - then that sets a very troubling precedent for rival bosses. Because the one thing that we do know for sure about attempted LIBOR fiddling is that no one bank would stand an earthly chance of achieving this by itself. There are many more skeletons in the cupboard, and it's only a matter of time before the U.S. DoJ and the UK's FSA shake them out.

The advisers of these woebegone CEOs would do well to consider fronting up before the truth is dragged out of them. Currently, the spotlight is on Barclays, but it will only take one or two more dominoes to topple before the entire industry is held guilty by association. If the truth is merely murky rather than entirely black, better to get it out there while one or two people still actually care about the detail of what happened.

Needless to say the City of London can't rely on Westminster to dig it out of its self-created abyss. It's an interesting tightrope for the politicians, and one that history suggests they will straddle in a spectacularly painful fashion. Prime Minister David Cameron knows full well that Britain's unbalanced and tottering economy can't survive for long without the tax take from the City, but equally he knows that voters will have absolutely no truck with any expressed sympathy for his paymasters. Ed Miliband is in an identical position, albeit with the advantage that no-one will hold him too much to account just yet.

About the only thing that London's bankers have earned honestly in recent years is their awful reputation. Can it be recovered? Of course, but we're talking years, and that recovery will only ever be partial. The banks will be hamstrung by their own past and by a political and regulatory environment that might once have saved them, but which will now open the doors to the competition.

London does not have a divine right to rule the banking world. It has in some sense already abdicated. And the conventional pretenders to the throne (New York? Paris? Frankfurt? Really?) are assuredly not whiter than white. So, in some small way, the door to new ideas in banking is ajar. And bankers in Asia, the Gulf and even southern Africa are taking note. Honest bankers have nothing to fear from the sunshine.