Britain’s weak negotiating position in Europe

As we draw closer to the UK’s referendum on leaving the EU, the economic arguments for and against Brexit are becoming clearer.  A favourite europhile argument is that half our exports go to the EU, and we mustn’t jeopardise that trade by leaving the single market.  The eurosceptics have a very compelling response, brilliant in its simplicity:

We buy more from the rest of the EU than the EU buys from us (think of all those BMWs and bottles of French wine), so the EU will want to maintain the same free trade relationship with us even if we leave.

This makes complete sense.  It suggests we hold the stronger negotiating position thanks to our EU imports.  It’s an easily understood truth that is regularly deployed by Nigel Farage and other eurosceptics.

But as the Economist points out this week, there is a competing truth to consider:

The EU takes almost half of British exports, whereas Britain takes less than 10% of the EU’s.

Now who has the power?

The first truth refers to the absolute value of our imports and exports; but the more relevant truth, as far as a negotiation is concerned, is the relative importance of those imports and exports to each party.  Bluntly, the EU is an awful lot bigger than the UK, and isn’t going to care nearly so much if trade breaks down.  Of course, it’s in everyone’s interest to maintain free trade, but if other factors complicate EU calculations – such as our general awkwardness – then the EU is much better placed to walk away from the negotiating table than we are.

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Leaning in and reshaping reality

In explaining the origins of her timely and influential book Lean In, Sheryl Sandberg recalls the prevailing assumption throughout many organisations in recent years that the battle for gender equality had been won and women could now expect to be judged and promoted just the same as men.

“People just thought, ‘Oh yeah, women are doing great!’ And I’m looking around, and every year there are fewer women in the room.”

By her analysis of the historical data, women made great progress for several decades but that progress stalled ten years ago. Women currently hold fewer than 6% of the top CEO jobs in any country. Women represent a minority in every government, NGO and industry.  In the US, 75% of workers in the non-profit sector are women, but only 21% of the big non-profits are run by women.  Yes, there are practical challenges for women with children, but that’s not enough to explain the imbalance.  Her conclusion: we still choose leaders based on their gender and we still put barriers in the way of professional women.

I too was guilty of the lazy assumption she identified, perhaps because I grew up in Thatcher’s Britain, and because in consulting and publishing women do tend to thrive. But it’s also the case that the leadership teams and executive committees I work with across Europe and America tend to be around 90% male. Aside from in HR and Comms roles, women are dreadfully represented at the tops of most organisations.

So Sandberg’s realisation that our perception of reality had become distorted and needed to be reshaped resonates with me. We had let ourselves be misled by an old (and possibly outdated) truth — that opportunities for women are improving — into missing a more important competing truth — that we still have a long way to go.

LeanIn.org

The door marked “Authorised Personnel Only”

Mike Lynch, one of the founders of Autonomy, tells a story of the early days of the software corporation.  Back in the 90s, the fledgling business was operating out of a single room in Cambridge, and Lynch was concerned that potential clients might be put off by their visible smallness.  So he put a sign on the door of the broom cupboard marked “Authorised Personnel Only”, and told visitors they couldn’t go past that door “for security reasons”.

‘I like to think they imagined thousands of computer scientists coding frantically, tapping away at machines behind the door, rather than the reality of an old mop and a bottle of detergent,’ says Lynch.

Was he deliberately misleading? Yes, certainly.  Was he actually untruthful?  Not necessarily: it was his right to determine who was and was not allowed in that broom cupboard.  The ploy was both harmless and a masterful example of shaping reality, and it helped give those early clients just enough confidence to turn a tiny start-up into one of Britain’s greatest tech success stories.

Flexing the brand

Nokia logo (1865)

Nokia logo (1865) (Photo credit: Wikipedia)

The Nokia brand has been on a remarkable journey.  To early Finnish consumers, the brand first meant wood pulp for paper, then rubber boots.  To my generation, it means sleek little mobile phone handsets.  Following the company’s recent calamitous decline and now Microsoft’s acquisition of its devices business, it’s set to change again. To future generations, assuming Microsoft eventually drops the brand on mobile handsets, “Nokia” will mean something completely different… mapping apps perhaps, or whatever else emerges out of the rump company’s extensive patent portfolio.

The name means nothing in itself — Nokia is a town in Finland — so perhaps it is innately flexible.  But what about the Microsoft brand?  Software for Microcomputers?  Until this month, Microsoft had remained reasonably true to its software roots, building on its two great monopolies of Windows and Office, although it had made exploratory forays into the hardware field with the Xbox and the Surface tablet.  Now, with this $7.2bn investment in mobile devices, the old brand identity has gone out of the window; Microsoft is clearly positioning itself as an integrated hardware/software brand to rival Apple.

Apple, of course, has been on its own brand-stretching adventure, from desktop computers via music retail to smartphones, mapping, TV, publishing and everything else.  A brand which was once all about computing has now come to represent primarily an abstract combination of design, quality, usability and attitude which, one suspects, could be comfortably extended to solar panels, space travel or kitchenware.

This is all fairly remarkable when we consider what a brand is meant to be.  Every expert will offer a different definition, but a core feature of the brand is a promise to the customer.  We buy XYZ brand rather than a cheaper rival because we trust the promise implicit in its name, logo, colour scheme or mascot that the XYZ product or service will perform or benefit us in a particular (often unexpressed, even inexpressible) way.  And for that promise to be credible, to hold its value over repeated transactions, it has to be — at least to some extent — true.

So what is the truth of a brand that can change as much as Nokia, or Microsoft, or Apple?  Can a brand bear multiple truths?  Can it bear competing truths?  Can it mean different things to different people, in different places, at different times, and still maintain its integrity?  This is a subject of great debate among branding gurus, and for every successful brand transformation story like Virgin or Samsung there is a cautionary tale about the brand that stretched too far (Zippo perfume or Colgate food, anyone?).  FMCG brands that represent luxury in one geographical market yet target the mass market in another come unstuck as globalisation and the internet reveal all.  Banking brands that mean financial prudence and safety to one consumer segment are playing with fire if they promise high risk super-profits to another.

Nevertheless the general trend has been away from the disciplined consistency that marked early brand management and towards fluidity across all the many media and social media platforms now available to marketers.  And where brand identity used to be closely tied to the core products and services offered (BMW=cars; Gillette=razors), now brand shapers concern themselves more with core principles, values or emotions.  These are intended to be fundamental, almost primeval in their longevity and deep meaning, but of course they also have the benefit of being endlessly flexible in terms of the products and services that can be tacked on to them.  If your brand says “Environmental Responsibility, Playfulness and Family Unity” you are far less restricted in your future business activities than if it spells out “Safe Air Travel”.  This is helpful in a world where companies everywhere are radically rethinking the business they are in.  Tool manufacturers now see themselves as selling holes rather than drills; handbag designers aspire to shape lifestyles; car companies have become financial services providers; mobile phone operators hope, at least in one extreme case, to sell “everything everywhere“.

But this is surely problematic.  If a brand no longer promises anything directly related to the product or service you are actually buying, how can it still convey a truth of any practical consequence?  What truth about our clothing are we supposed to derive from the fact that it bears a well known cigarette or motorcycle brand?  What about supermarket brands on our mortgages and current accounts?  If Google brings a driverless car to market, what brand truth can we cling to from our experience of their search engine that will see us through that first, nerve-wracking ride?  Should we content ourselves with hoping the car will do no evil?

Ultimately, brands have to offer some truth more than “we’re a successful company you’ve heard of so you can trust our product to work”.  They have to confer an extra element of value on products and services, be it reassurance, excitement, glamour or meaning.  And they have to do this in a business environment where rapid, radical innovation is increasingly the norm.  Multiple truths are therefore inevitable, and some of these truths will seem contradictory, even when they are well supported by one or other facet of the evolving business offering.  Where competing brand truths arise the trick is to have an extremely good story, consistently expressed by all members of the organisation, as to how they all fit together.  “Beyond Petroleum“?  Well, maybe one day.

Our Democratic Deficit

The Economist Intelligence Unit's 2010 Democra...

The Economist Intelligence Unit’s 2010 Democracy Index map: lighter colours represent more democracy (Photo credit: Wikipedia)

Do you live in a democracy?  That depends as much on your definition of the word as your place of residence.  Plenty of countries are designated democracies: Freedom House counted 118 electoral democracies (out of 195 countries) in 2012, so unless you’re Chinese there’s a good chance you live in one of them.  The citizens of many of those electoral democracies enjoy wide-ranging freedoms, and that is something to celebrate.  But freedom is not democracy.

In its purest form, democracy is government by the people, as practised in ancient Athens (other than by slaves and women, of course).  Such direct democracy is impractical for large populations, so we settle instead for representative democracy, electing MPs, congressmen, deputies and senators to make policy decisions on our behalf.  In theory if we don’t like those decisions we have the option of replacing them at the next election.  A handful of  political systems even allow disgruntled voters to recall and replace their representatives before their term is complete.

But do you have any practical opportunity to contribute to the formation of national public policy?  That’s what real democracy should entail.

For most British voters, the reality of our political power is this: we can cast a vote every few years, but it makes no difference because the incumbent in our constituency has a substantial majority; in any case the choice of candidates is limited, and none is likely to reflect closely our particular combination of views on different issues; our elected government has limited freedom to act on our behalf, given international market forces and the growing power of the EU; we have no power of recall; we can make representations or protest, but only within a highly managed system, and even when we get thousands onto the street we are unlikely to change policy; very occasionally we may be given a vote on a specific issue in a referendum.  Can we really claim we live in a democracy?

Which is not to say that a truly democratic society would be better.  Rule by the majority can be a frightening thing: ill-informed, self-interested, prejudiced, unfair.  As Benjamin Franklin may have said, “Democracy is two wolves and a lamb voting on what to have for lunch.”  Even with rights of veto to protect ethical principles and minorities, as Occupy’s recent attempts at consensus-based decision-making showed, it can be chaotic, inefficient and ineffective.

Does it matter that the truth of our electoral democracy must be balanced against the competing truth of our political powerlessness?  In our daily lives it is probably not politicians’ decisions that most concern us.  Far more important on a day-to-day basis for the billions of employees around the world are the decisions made by their employers.  And very few employing organisations, whether large or small, public or private, commercial or non-profit, are democracies.  Typically a Chief Executive is in charge; his or her decisions may be guided to some extent by a small board or a few powerful shareholders, but they will certainly not be beholden to the wishes of the employees.  And at every level of the organisation an appointed individual gets to command the next rung down; they may be benevolent, they may even show an interest in the views of their direct reports, but they hold the power.  Your boss can potentially dictate what you say, what you wear, what you eat, even when you go to the toilet.  That’s totalitarianism, not democracy.

This is a very real truth for many millions of employees in numerous electoral democracies: they have little freedom and even less say in the forces that shape their lives.  But although employees rarely get to set the political agenda of the organisation in which they spend most of their waking hours, they are not entirely powerless.  They have the option to resign, a last resort not available to citizens of a truly totalitarian regime.  In most countries they have employment rights that must be respected, and often unions to fight their corner.  And in many jobs they have the more subtle weapon of discretionary effort: as an employee, you have the power to do your job well or merely adequately, to make an effort or to coast, to care about the customer/patient/passenger or to tick boxes, to devote yourself wholeheartedly to the corporate mission or to spend your time updating Facebook.  Collectively, employees have the power to determine whether an organisation succeeds or fails — particularly in competitive markets — and employers are increasingly waking up to the need to engage their staff through consultation and increased involvement in decision-making.  It’s still not democracy, but it’s getting there.  Add to that labour market forces that might one day favour the employee and a much more democratic mood could eventually develop in the workplace.

Would that be a good thing?  Corporations and other employing organisations are entities designed to deliver something, be it shareholder value or public services or a ballet.  Democracy may not be the most effective way of achieving that goal.  Armies don’t seek consensus amongst the ranks.  On the other hand, there is plenty of evidence to show that employees are more effective in their work if they enjoy a degree of autonomy.  Like freedom, autonomy is not democracy, but it may sow a few seeds.  And every management consultant will tell you that employees often have a better understanding than their leaders of the failings of an organisation as well as the opportunities for growth and improvement.  More freedom and more democracy in the workplace may be good for everyone.  Just ask John Lewis.

This is an interesting list of democratic workplaces.

There is another way to view the extent of our democratic power with respect to such mighty organisations.  As consumers, we have increasing influence over the behaviour and values of the corporations and non-profit organisations with which we interact.  Where you spend your money, or indeed bank it, is a form of voting.  Which charities you back, which hospital you trust, which websites you visit, which TV shows you watch — all votes.  And unlike in politics there are no safe seats when it comes to consumer choices.  Every vote counts.  In fact given the ratio of profit to turnover in industries with large fixed costs, your vote can be highly leveraged: losing a few thousand customers may mean the difference between black and red ink for even the biggest of companies.  Best of all, in this age of social media, we can let those organisations (and other potential consumers) know exactly why we are dissatisfied with their products, service or behaviour.

So it’s true that many of us live in a democracy, and it’s true that we don’t really live in a democracy.  It’s true that many of us are subject to highly undemocratic forces at work, but it’s also true that employees may be able to make a very democratic contribution to their organisations.  And while it’s arguably true that powerful organisations severely limit democracy in most societies, it’s certainly true that they themselves are subject to a consumer democracy that offers us all at least some say in how things are.

The thankless task of the consumer affairs regulator

Last night, the Archbishop of Canterbury led a discussion about “Good Banks”.  One of the speakers was John Fingleton, the former CEO of the Office of Fair Trading. Responding to a question about the ethically-spirited Co-op Bank’s recent debt rating downgrade, he observed that while it is true that people say they want “good” banks, it is also true that they don’t tend to support them with their business.  He suggested that a “good bank” might be one that charged a fair fee for current accounts rather than claiming they are free and then recouping its costs through unfair overdraft charges or inappropriate product-pushing.  How many of us would give up our existing free banking to pay a monthly fee at a “good bank”?  Another characteristic of a “good bank” discussed by the panel would be ethical investment choices; if eschewing tobacco and arms investments led ultimately to lower interest rates for savers, would consumers applaud or complain?

Fingleton pointed out that the problem is not unique to the banking industry.  He gave another example from food retail: people say they want corner shops, then do all their shopping at Tesco.

Pity the poor regulators that we expect to safeguard our interests.  They ask us what we want and we give them one truth (we’re not lying, are we, when we say we want good banks?); but they must set the rules and supervise markets in a way that accommodates the competing truth revealed in our self-serving consumer behaviour.

“Consumers are a bit schizophrenic,” said Fingleton.  A useful word for a world of competing truths.

Some truths about arms dealing

The Eurofighter Typhoon is the second most exp...

Eurofighter Typhoon (Photo credit: Wikipedia)

The Economist has published an extensive article about “offsets”, the side deals that are made to grease the wheels of the international arms trade.  We all know that outright bribery has been, and perhaps still is, commonplace in the world of arms dealing, but no one would argue that is a legitimate practice.  By contrast, offsets are legal: in order to win a contract to supply weapons to a nation state, an arms company may be required to make a sizeable investment in some unrelated, civilian project in that country.  For example, Raytheon had to set up a shrimp farm in Saudia Arabia, while cash from various arms companies has funded a gas pipeline and residential beachfront property development in the UAE.  Such offsets can be worth billions of dollars.

One truth then (the one the parties involved like to publicize) is positive: arms companies are helping to build the civilian infrastructure of developing countries; indeed, the procurement officials and ministers making the deal can truthfully claim to have attracted substantial foreign direct investment to their country.

On the other hand, it would be naive to think that arms companies are simply giving this money away.  It is a cost of doing business with certain countries, and it is undoubtedly factored into the pricing for those countries.  The bill is passed on to the customer.  According to the Economist, “Politicians and officials in procuring countries know that they are paying the bill through padded prices, but they accept this because offsets give them some grand projects to trumpet and sometimes provide palm-greasing opportunities”.

So the alternative truth is this: the procuring nation (sometimes quite a poor nation) is in fact stumping up the cash for investment into its own development projects, while the arms seller gets the credit (and the arms deal).

This might not be all that terrible, so long as the projects receiving investment are worthy of taxpayers’ money.  But who chooses them?  Might they be pet projects of the procuring minister/official?  Might they benefit some business interest of the procurer?  Might some financial incentive be offered to choose one project over another?  The opportunities for corruption are rife in such a system.  Various cases of not-quite-outright-bribery being dressed up as offset deals are currently being reviewed by prosecutors, including one involving EADS selling Eurofighter planes to Austria.  And the outcomes are, it seems, frequently poor.  That Saudi shrimp farm went bust.