How sweary chefs, innuendo-fuelled bakers and exasperated hoteliers guarantee great customer service

Most businesses nowadays at least pay lip service to the importance of customer service. Yet many customers remain dissatisfied.

Astute businesses pick up on that sentiment and try to do something about it. And that’s where the problem starts…

Don’t mistake activity for making improvements

One of my favourite Ronald Reagan quips is “Don’t just do something, Stand there!” It always reminds me that we shouldn’t mistake activity for making improvements. Sometimes “doing something” is worse than doing nothing at all.

And in the pursuit of great customer service, there are nearly always better, simpler and more cost-effective ways of making improvements than introducing new procedures. (In fact I’d argue that I’ve never seen a new formalised procedure, beyond a threshold level, adding any value from a customer’s perspective at all.)

It’s not just new procedures for your customer service reps, of course. Especially in our busy, tech-centred world, it’s tempting to think whatever problem we’ve got, customer service or otherwise, can be addressed by introducing more technology…a revamp for the website, allowing online purchases, optimising for mobile or getting that Shopify store up and running.

Too many businesses think improving service is only about revising their procedures or implementing new technology. Almost nobody spends time thinking about what they should stop doing to improve customer service.

But if you’re serious about creating a world-class customer experience for customers, your first question…to real customers, not a software vendor or consulting firm…should be “what specifically do we do now that irritates or annoys you?”.

Then, whatever they say, stop doing that as quickly as you can unless there’s some legal reason you can’t. And here I mean a real legal reason, not the sort of thing people say when they don’t want to do something. If in doubt, ask to see the precise clause in an Act of Parliament that stops you, Unless someone can show you that, just politely press on regardless.

Of course, you should always seek appropriate professional advice if there’s any doubt, but even where laws and regulations do exist, they’re usually far less all-encompassing than people inside your business, or external parties with an angle to push, like software vendors and consultants, would have you believe.

And in a sense it shouldn’t be too surprising that you can improve customer service by taking things away.

Sweary chefs, bawdy bakers and exasperated hoteliers…

Watch just about any Gordon Ramsay programme when he works to turn around an under-performing restaurant. Part of his turnaround plan is nearly always paring down a hugely ambitious menu with 77 different choices across 8 different styles of cuisine into a dozen or fewer meal options.

Seemingly overnight, the business becomes easier to run, quality tends to be better, service happens as it should and customers leave at the end of the evening, well-fed and happy, intending to recommend the revamped restaurant to all their friends.

Same for The Great British Bake Off. Hugely talented people try to squeeze too much into their recipes and crash out the competition on a weekly basis. A simpler approach would have produced something they could be proud of, not a “soggy bottom” with the standard of decorative icing a 4 year-old might have been ashamed to bring in for “cake day” at their primary school.

And you see it in just about any edition of my favourite reality show… “The Hotel Inspector”. You can really sense Alex Polizzi’s intense frustration as, for seemingly the umpteenth time, she summons every last ounce of her sorely-tested patience to explain to a hotel owner that their extensive Lego collection has no place in the hotel bar, or that having their pet lizards running free around the hotel might be putting guests off a little, or that “tasteful” Victorian prints shouldn’t be hanging up in a motel tacked onto the motorway services.

What’s fascinating is that all these would-be hoteliers say the same thing… “none of our guests have ever complained about our Lego (or lizards or whatever) so we thought people liked them”.

That’s not completely untrue. If you want to run your hotel as a specialist retreat for lizard-fanciers, there might well be a good business in that. But don’t expect to become the world’s largest hotel group with a lizard-friendly approach to overnight accommodation.

But it’s also true that while few guests have complained, the hotel owner never asked them either. They just presumed that “no complaints” meant “good news”.

It might be astonishing to all these would-be restauranteurs, bakers and hoteliers that their personal eccentricities might not be valued quite as highly valued by their target market as they do, but hopefully it’s not news to you.

So before you try to improve your customer service by adding in more things, have a really good think about what you’re already doing and see if you can remove elements that annoy, irritate or frustrate your customers first.

Your business will be easier to run, your running costs will be lower and your customers will be happier.

The hidden knack to great customer relationships

But there’s a hidden knack to this.

Normally people like me, Finance Directors and CFOs, are happy to do fewer things because they quickly work out if you fire half the call centre then the wage bill halves as well. Usually, not doing things is a popular choice for a red pen-wielding Finance Director or CFO.

However life isn’t as simple as they teach you at bookkeeping school.

Although our sweary chefs, innuendo-fuelled bakers and exasperated hoteliers do cut down the menu choices and remove hotel owners’ personal garbage from their guest rooms, that’s only to get the business to “ground zero”.

It’s what they do next that is the ultimate secret of their success.

Yes, they do fewer things. But they do them so much better than they used to.

Instead of frozen steaks of questionable provenance, Gordon Ramsay brings in fresh, grass-fed Aberdeen Angus steak from an artisan butcher at perhaps twice the price of the restaurant’s more dubious historic choices. Sometimes the prices go up a bit too, but as the value to the customer increases exponentially, even after the price increase, they’re happy to pay the new prices.

Out go elaborate moulds for the finishing touches on a Bake Off cake, but much more effort goes into getting the taste of the icing absolutely perfect which is then just simply piped onto the cake.

Alex Polizzi gets rid of all the pet lizards, but she also does a stylish refurbishment of a previously tatty bar to attract guests and locals alike. They’re now happy to spend their hard-earned cash at the hotel bar in a way they weren’t before.

Building a reputation for great customer service is hard.

In the short term, you can make dramatic improvements in service just by cutting out all the things that annoy or frustrate your customers. To really cement the relationship, you take what’s left and dramatically improve the quality of your solution so that customers see a massive benefit from dealing with your organisation.

Do that well, and you’ll be a world-class service provider in no time at all.

And don’t just take my word for it…sweary chefs, innuendo-filled baking programmes and exasperated hoteliers find this everywhere they go. So you will too.

What could your business stop doing today that would make your customers happier? Ask them…their answers might surprise you…

Corporate Governance is an action, not a framework

If you’re not a Finance Director or CFO, the intricacies of corporate governance isn’t the easiest thing to get people excited about. (Trade secret – even if you are a Finance Director or CFO, it’s still hard…)

Yet good corporate governance is fundamental to the effective working of the modern free enterprise system. We need to have at least a degree of trust in the people looking after our money, whether we’re customers, investors or employees waiting for our next salary payment. Without that, the whole system would collapse.

The trust that’s necessary for businesses to operate isn’t is much harder to create than it used to be. When we only bought and sold things with people in our home village, corporate governance was largely unnecessary because artisans had to be trustworthy and do least a reasonable job or they’d be thrown out of town, banished beyond the city walls.

But as the industrial revolution came along, creating multinational businesses which spawned global supply chains, we all started to depend on the honesty and trustworthiness of thousands of people we’re unlikely ever to meet in person.

Over time, structures and processes have evolved to give us all at least a modicum of trust in people in people we’ll never meet in person whether we’re buying or selling good or services, choosing which company we want to pursue our careers with and deciding which businesses have an ethos most closely aligned to our views on specific ethical or social issues we feel strongly about.

From a Finance Director and CFO’s perspective, one of the most important structures in a world where we need to demonstrate trustworthiness is the modern system of corporate governance.

In the UK, corporate governance is generally reckoned to have started, in however modest a way, when Parliament passed the Joint Stock Companies Act of 1856. After that, anyone could invest in a business with the protection of limited liability for the actions of the company. The business was now, in the jargon, a “separate legal person” from its individual owners.

Without that level of legal protection, it’s quite unlikely the modern economy as we know it would even exist. Holding thousands of individual shareholders personally responsible for the debts of Enron, say, or WorldCom would be a mammoth administrative task.

And on a practical level, one scandal of an Enron/WorldCom magnitude which resulted in thousands of investors become destitute would probably end for good the access businesses currently enjoy to equity capital from thousands of individual investors.

Back in the mid-1800s, in return for this new limited liability structure, the 1856 Act required companies to hold annual meetings and present the accounts to investors on an annual basis so they could satisfy themselves the company was being run properly.

The limited liability company, in a form we’d largely recognise today, was born. And, in the same breath, the early stirrings of good corporate governance.

The concept of a business having to report on its activities to shareholders who didn’t work within the business was established, but it would be another 100 years or so before the term “corporate governance” was heard regularly, even amongst lawyers, accountants, auditors and company secretaries.

But following a number of high profile scandals, in both the UK and the US, the term “corporate governance” came into much more common usage from the mid-1980s onwards.

In the UK, the first flurry of “corporate governance”, as we’d think of it today, was sparked by the publication of the Cadbury Report in 1992.

Following the Maxwell and BCCI scandals of the late 1980s and early 1990s, Adrian Cadbury was asked to lead a group of the great and the good, formally called “The Committee on the Financial Aspects of Corporate Governance”. Their findings, colloquially called the Cadbury Report, was the starting point for what would evolve into the Combined Code, or the UK Corporate Governance Code as it’s now known.

Today, it is a condition of listing on the London Stock Exchange that the provisions of the UK Corporate Governance Code are adhered to, whether or not the company itself is based in the UK. Nowadays, a well-organised corporate governance process is seen as essential to any business which expects to trade its shares on major financial markets.

At around the same time, the Savings and Loan crisis, along with some large-scale corporate collapses, such as Enron and WorldCom, led to the US passing the Sarbanes-Oxley Act of 2002. Between the mid-1980s and the early years of the new millennium, there were few hiding places from the increasing pressure for good corporate governance.

But neither the UK Corporate Governance Code, nor Sarbanes-Oxley, were perfect solutions to a freewheeling corporate decision-making approach. The global banking collapse in the late noughties, for example, took place despite the plethora of corporate governance procedures and Sarbox compliance large businesses had spent the previous 20 years implementing.

In the meantime, the costs of compliance, audit committees, internal audits, independent directors and goodness knows what else kept climbing….and show no sign of stopping any time soon.

It probably is fair to say the penalties for being caught evading principles of good corporate governance are getting tougher, especially if a corporate collapse triggers the attention of bodies like the UK’s Serious Fraud Office. But still companies collapse and investors, employees and customers find themselves out of pocket, despite all the corporate governance rules and regulations which are supposed to stop that happening.

As I write this article, the situation at Patisserie Valerie isn’t looking too pretty, the Carillion collapse remains fresh in the memory and another public service outsourcer, Interserve, seems to have just managed to squeak out of a similar fate by diluting their existing shareholders’ interests down to a mere 2.5% of the restructured business.

Yet all these operations had proper corporate governance in place, as did UK bank HBOS which recently saw a group of their former staff sentenced to a combined 50 years in jail for developing, in the words of the presiding judge, an “utterly corrupt scheme” to fleece borrowers and line their own pockets.

All these corporate collapses, or near-death experiences, have taken place under the noses of internal and external auditors, internal procedure manuals, independent non-executive directors and a panoply of other corporate governance structures, frameworks and processes.

The emergence of scandal after scandal, despite all the correct corporate governance structures being put in place, means the concept of corporate governance might have its credibility dented…perhaps even holed below the waterline.

But corporate governance is, I believe a valuable one. It provides reassurance and trust in a world where those qualities are sadly lacking, and which are essential to the proper functioning of a modern economy.

Here’s what most people miss, though…

Corporate governance isn’t about procedure manuals kept on a shelf somewhere. It’s about whether anyone follows them.

Corporate governance isn’t about having an audit committee. It’s about whether or not the audit committee asks searching questions about company finances, rather than just accepting vague reassurances from the CEO or CFO, ticking a box and moving on.

And corporate governance isn’t about being able to point to a rule book and saying “we did everything we were supposed to” after the balloon goes up. It’s about hiring trustworthy people and making sure they behave honestly towards customers, investors and colleagues.

Ultimately, corporate governance is about what you do, not what you say.

Earlier in my career I had the misfortune to work, very briefly, for a business whose supposedly independent directors appeared to think it was their job to sanction the Chief Executive’s kleptocracy, rather than stepping in to stop the Chief Executive’s unacceptable behaviour while running a business under severe financial strain.

All the independent directors were smart, intelligent people with jobs outside the business of considerable trust and responsibility. So I have to assume that they were also smart enough to realise the importance of good corporate governance. They certainly all attended the directors’ training courses on the subject.

But they took no action to put a stop to the Chief Executive’s behaviour. Ultimately this led to a major financial crisis which, in turn, resulted in the abrupt departure of the Chief Executive. (Either that or they were all in on a scam of some sort, which would be even worse corporate governance than merely being incompetent in discharging their duties as independent directors.)

Following the near-collapse of this business, an independent investigation personally censured the Chief Executive, the Chairman of the Board and the Deputy Chair for presiding over a serious business failure, caused by their poor oversight and inadequate governance.

Ultimately, the failing of this board, and the entire corporate governance structure of the business, came about because the noblest of aspirations, and all the procedure manuals in the world, counted for nothing without action.

The people with the responsibility to exercise independent control over the business were, even on the most positive interpretation of their behaviour, asleep at the wheel.

In concept it wasn’t much different to the situations at every major bank during the global banking crisis, or investors in Carillion, RBS, Patisserie Valerie and countless other large companies which have hit the buffers in a spectacular fashion over the past few years.

Every one of those businesses had in place all the rules, procedures, structures, committees, internal audit, independent directors, external oversight and other corporate governance structures and processes in place.

But they still collapsed in disgrace because their auditors, independent directors, the in-house company secretarial team and many, many others passed up the opportunity to action, hold the business to a higher standard and get things back on track again.

Without action, no amount of corporate governance procedures are going to save your business….as shareholders, employees and suppliers working in, and for, the large businesses which have collapsed in recent years can testify to.

Don’t make the same mistake those businesses did.

Corporate governance…when applied properly…is an important safeguard for your business in an uncertain world. Don’t just think the corporate governance procedures manuals will look after themselves, because they won’t.

Take action before it’s too late. Your business, your employees, your customers and your suppliers will all thank you.

(Photo by Jakob Owens on Unsplash )

The tiny difference that sold 50 million records, and what it means for your business

Business is a tough gig. Fine margins separate the winners and losers.

In two broadly equally-matched companies, success is often the result of something small which gives one party a slight “edge” at first. This compounds over time until one business is top of industry awards lists and the other so far behind, it’ll never catch up.

Here’s three quick examples. Then we’ll get to the 50 million records…

Facebook is currently one of the world’s most valuable companies. But when they started out a dozen years or so ago, was their service vastly better than MySpace, social media’s early market leader?

It was not. Yet today, Facebook is everywhere (perhaps in too many places, if you value your data privacy) while MySpace languishes in some almost-forgotten corner of the internet.

At first, the difference was tiny…and the smart money would have been on MySpace to win. You can read more about it here… Why Facebook beat MySpace.

Then we’ve got General Motors. In the early years of their century-long tussle with Ford over who could claim bragging rights as the US’s biggest-selling automaker, their tiny difference was to offer easy credit terms to people wanting to buy cars, which Ford was reluctant to do. That tiny change to make it easier for people to buy a GM car boosted sales volumes without GM having to solve a single extra engineering problem or make their cars any better.

And VHS beat Betamax, even though Betamax was generally agreed to have been technically better. The tiny difference was that VHS worked out how to put more recording time on a single tape, until movie studios could fit a whole movie on a single VHS tape. By the time Betamax got round to copying this feature, pretty much everyone who was going to buy a video recorder had already bought a VHS-format one and it was “game over” for Betamax.

Tiny differences are talked about more often in the business world nowadays, in no small part due to Dave Brailsford’s approach to leveraging 1% improvements for the British Cycling Team. With his strategies, a team of also-ran’s become world-beaters in pretty short order.

If you’ve made it this far, you might be wondering what all this has to do with selling 50 million records…

Well, those 50 million records (and counting…) were sold by Aussie rockers, AC/DC…

The one tiny thing AC/DC do differently from their industry which has given them a 40-year career at the very top of the music business. AC/DC’s 1980 “Back In Black” album remains one of the best selling albums of all time, outselling arguably more famous collections like Fleetwood Mac’s “Rumours”, The Beatles “Sgt Pepper” and Pink Floyd’s “Dark Side Of The Moon”.

While you might feel that examples from social media companies, the car industry, video-tape recorders and competitive cycling don’t have much relevance for your business, anyone can adapt AC/DC’s “secret technique” to make their business more successful.

And here it is…

When AC/DC make a record, they record it “live” with everyone in the same room at the same time. Many bands record their individual parts separately…sometimes on entirely different continents, not even in the same studio.

You can make perfectly acceptable music by recording each musician individually and stitching the results together in the studio. Most music you hear on the radio today has been recorded exactly that way.

But AC/DC, whose energy-filled live performances made their reputation long before they sold millions of records, recognised the energy they generated when they played off one another in the recording studio, just like they did when they were on a concert stage, gave their music an energy and an immediacy most other acts lacked.

This tiny difference in how AC/DC worked together in the recording studio resulted in “Back In Black” selling somewhere north of 50 million copies, more than just about any other record in history (Michael Jackson’s “Thriller” and The Eagles “Greatest Hits” are about the only albums most published rankings put ahead of “Back In Black”.)

So what’s the business application for all this?

The term “teamwork” is over-used, and often wrongly used, in the business world today.

I’ve only rarely felt part of a team during my working life. “Team” has just become an easier way to refer to a particular group of people – the Sales Team, the Production Team, the Senior Executive Team, and so on.

But in practice, there’s very little true teamwork going on. Most businesses run in a succession of silos with senior executives coming together for monthly meetings where they argue about whose fault it was when things go against them, and scrap for a share of the credit when things are going well, whether or not they had anything to do with making it happen.

Between meetings, however, those senior executives and their respective teams spend very little time with one another.

Some would say it’s more efficient that way. Tasks have been assigned and allocated. KPIs have been set. Bonuses have been tied to meeting objectives. People are often just expected to put their blinkers on and hurtle as quickly as possible towards hitting the criteria that triggers their bonus.

Which, in my view, leaves a major opportunity untapped.

You can’t truly operate as a team with people you never see and only deal with via reports and emails, with only the occasional formal meeting adding a touch of theatre to inter-departmental rivalries.

You get an energy from being together, and feeding off one another that the members of AC/DC, and their ace production team, understood.

When teams get out of their silos, my experience is that not only do you tend to get better solutions, you also find them a lot faster than wading through three or four formal monthly meeting cycles in order to get one department’s pet solution signed off.

And in the Darwinian world of business, as MySpace, Ford and Sony, the inventors of Betamax, discovered, it’s often the fastest to a solution, not necessarily the biggest or the strongest, that wins the battle.

So if you want to get to a solution faster, follow the example set by those best-selling Aussie rockers…make sure everyone is in the same room at the same time. Nobody leaves until you’ve made something you’re proud of.

That’s teamwork.

(Photo by ActionVance on Unsplash )

Are billionaires paying their “fair share” of tax?

Most people, if they’re asked whether billionaires pay their fair share of tax, answer with an emphatic “no!” But whatever your views of billionaires might be, it’s fair to say that some pay a lot more tax than others.

It can’t be because they lack access to top-notch financial advice. Your average billionaire has almost instant access to the finest legal and accounting minds on the planet any time they want to find a way to pay less tax.

Some just choose to work the system to their own personal advantage as much as they can, while others take the view that they should be paying tax in the same way as any of the employees in their business would.

I’m not expressing a moral judgement on that decision, one way or the other. It’s just an observation.

However, this debate has been ignited in the UK recently by the publication of the Sunday Times Tax List 2019, which aims to identify the UK’s top tax payers.

A couple of caveats though.

Firstly, I do understand the position might be different in other tax jurisdictions. All I can offer is a UK perspective on this as that’s where I work as a Finance Director and Chief Financial Officer (or CFO).

Secondly, as the Sunday Times itself acknowledges, their analysis is prepared from publicly available documents so this may well be less than the complete picture of any one individual’s tax affairs.

However their analysis recognises one important aspect…again, under UK tax law…which is that once someone is paid a salary or dividends in those legal forms, the same tax rules pretty much apply to everyone.

Unlike the US, for example, where there are multiple write-offs and exemptions which could significantly reduce someone’s pay for tax purposes, relative to their “headline” pay packet, things are pretty clear in the UK and, nowadays at least, there are very few ways to massage the salary appearing in your publicly available accounts into a much lower number to share with the tax office.

The Sunday Times has also added in the Corporation Tax paid by those companies run by high earners and a few other things as well.

Again, this is a pretty reasonable approach. If you’re running your a business, even a very large one, which you own personally, or perhaps close family members, it’s your own efforts which create the business profits which the Treasury assesses for Corporation Tax.

If your business didn’t exist, it wouldn’t make the profits that get paid in Corporation Tax, nor would it generate the salary payments that will be accounted for under the same PAYE arrangements as every other UK taxpayer.

So, the Sunday Times’ methodology is probably good enough for a “sighting shot” of the top-earners’ tax payments, as long as you accept that, again in the UK at least, every taxpayers’ tax affairs are strictly confidential. The only people who really know the true picture are your local friendly billionaires and HMRC themselves.

Reading the Sunday Times’ article, and a lot of the subsequent comment pieces on it, however, it’s clear that most people don’t understand how the UK’s tax system works.

For better or worse (more on that in a moment), the UK tax system over the years has become much more highly dependent on catching money-flows and removing a slice of those money flows as they pass through the system.

Again, for better or worse, VAT is a good example of that. Most things you buy in a shop in the UK have a 20% VAT uplift applied to them which the shop-owner sends on to HMRC after deducting any VAT they’ve had to pay on the things they bought to sell to you. The “added value” (the clue is in the title) is taxed at the point the money flows through the retailer’s till.

Last year, £125 billion was collected by HMRC for VAT in this way.

PAYE is another good example. If you’re paid a salary, however large, your employer has to account for the tax due direct with HMRC and pay it across on a monthly basis. The tax arises when the money flows from the employer’s bank account to the employees’ bank account so it’s easy to see and track, and there’s no dispute about the value paid across.

Systems like this, which work for many other taxes as well in the UK, use the exchange of money to capture the value that has been created and raise whatever tax charge Parliament, in their infinite wisdom, has chosen to apply.

But it comes as a big surprise to many people that wealth isn’t really taxed at all in the UK. There are some exceptions, but they are relatively minor for your average billionaire, so we’ll leave them on one side for the moment.

And there’s a good reason for that. Just because you’re wealthy, that doesn’t mean you’ve got any money.

I know…sounds crazy, doesn’t it, but it’s true.

Let’s consider a tech founder whose start up has just taken in some early stage funding from a VC or angel investor for a relatively small percentage of their business. If the founder gets £1 million of funding for a 10% stake in their tech startup to find the development of an idea (ie the business itself isn’t selling anything to customers yet), that means the business is “worth” £10 million in total. £9 million of that belongs to the founder, £1 million of it to their investor.

By most measures, someone who owns a £9 million share in a business would be considered rich. But people I know personally in that situation are earning nothing at all or are getting along on something like an average UK wage, currently around £25,000 per annum (on which they, too, pay tax of course) because any cash that comes in, whether from investors, customers or elsewhere, is used to build their business. Most founders don’t get paid unless everyone else is paid first.

So, how would you tax someone who owns a share in their business worth £9 million, but who has to live on, say, £1500 per month, after tax?

If you taxed their wealth at even a measly-sounding 1%, that would be £90,000 a year, or more than three times the income they have to live on each year.

And that assumes the business really is worth £10 million…the truth is that the business might turn out to be worthless, or it might turn into a billion-dollar business. At the time an investor puts their development funding in, there’s no way of knowing which the business will turn out to be.

The rate of tax on a business worth nothing is clearly zero. But how do you tax a business that might be worth billions, but on any look at the entrepreneurial odds is probably, on average, worth even less than its £10 million theoretical valuation, if it’s worth anything at all.

And, on a much smaller scale…in economic terms at least…taxing people on assets rather than income was the thinking behind the Poll Tax (properly called the Community Charge) which doomed Margaret Thatcher’s Prime Ministership and brought the career of one of the UK’s most transformational politicians of the last century to an end.

(Whether or not you supported her, I’m sure we can agree she transformed a lot of things in the UK during her time in office.)

So taxing wealth rather than income is a tricky business. You have no way of knowing what an asset is worth, really, until someone buys it or sells it and money changes hands.

And even if you do assess its value somehow, which was the idea behind the Poll Tax, to make people pay a tax based on the value of their property (an asset) irrespective of how much they earned, that’s not without its own problems.

Some 90 year-old lady living on her own, eking out a state pension in a house happens to be worth £1 million just because she and her husband bought a derelict wreck after the war, did it up, and 60 years later the “in crowd” decide that part of London is a desireable place to live for some reason…how would you tax her?

She’s got no money, but she’s a millionaire on paper.

Some people might say she should sell up, live somewhere cheaper and hand over some tax, but I think most of us would agree that’s no way to treat a 90 year old widow, whether she’s worth £1 million or not. Destroying an old lady’s life memories in the home she’s lived in for 60 years just so you can shake her down for some cash is no part of the values of any civilised society.

And that’s the problem with taxing wealth. If you start putting in too many exceptions and exemptions…even perfectly plausible and reasonable-sounding ones…you’ll end up with such a minefield of complexity that people who are minded to do so will work with their lawyers and accountants to find a way around that. (In a nutshell, that’s how the US tax system works.)

Billionaires the world over would be signing over their fancy London homes to their 90 year-old grandmothers because we don’t make those people pay tax on the value of their home. Designing a tax system which discriminated correctly between 90 year-old widows living in fancy houses would likely be outwith the skills of even HM Treasury’s most gifted parliamentary bill-writers.

So, if you read the Sunday Times article…or perhaps one of the many other articles that followed on from it to say “why isn’t this billionaire or that multi-millionaire on the top tax payers’ list?”, just remember that wealth and income are not the same thing, even though a lot of people think they are.

90 year-old grandmothers, tech founders and the like might have plenty of wealth, but very little income. And, at the end of the day, people can only pay tax out of the cash they’ve got.

The UK tax system isn’t perfect…far from it…but at its heart is the pretty sensible realisation, especially after the Poll Tax debacle, that the most unambiguously fair way to collect tax is to focus most of HMRC’s attention on picking up the money flows in the economy and leveraging a percentage of whatever cash is changing hands into HM Treasury’s coffers.

Of course, some people abuse the system…all the way from tradespeople who work for cash and don’t report their earning for tax purposes right up to billionaires who use offshore trusts and complex tax planning to sneakily move their wealth out of the reaches of their home country’s tax authorities.

But once you accept that people can be wealthy and not have any money because they don’t get much of an income, the UK tax system starts to make a lot more sense.

And it’s also good to see that some of the highest earners in the UK declare their income from salaries and dividends, just like you and I do, when it wouldn’t be the hardest thing for their accountants and advisers to put everything through complex tax minimisation arrangements.

Here, if you being paid a salary or dividends, as declared in your business’s end of year accounts which the team at the Sunday Times dug out for their Tax List 2019, HMRC will be automatically picking up the proper amount of tax as laid down by Parliament. There’s little or nothing those billionaires can do about it.

So I take my hat off to the ladies and gentlemen of the Sunday Times Tax List 2019 for not taking advantage of the tax system the way some others might.

Billionaires aren’t perfect, I’m sure, but at least this lot are playing fairer than most with the tax system. And in a country currently mired in Brexit gloom, I’m looking for positives everywhere I can find them at the moment.

Accountancy…the second oldest profession

We accountants like to joke that accounting is the second oldest profession…which might give you some idea why we’re accountants, rather than stand-up comics.

But ever since commerce became more agreeing how many chickens I’d need to swap at an ancient market so I could take a goat home with me instead, accountants have been an important part of the economic system across cultures and continents.

From ancient Mesopotamia, through the lives of ancient Egyptians and Babylonians, there were people whose job is was to track what people spent and how much they owed to one another. Some of the oldest documents to survive from antiquity are tax records.

Accountants might not be quite the second oldest profession, but we’ve certainly been around for some time.

Any profession which has been around for some time, though, is in danger of becoming a little stuck in its ways. Which might not matter quite so much if the world hadn’t got a lot more complicated in recent years.

So how do you know if your accountant isn’t just trundling along in a way that might have worked perfectly well 20 years ago, but doesn’t quite cut the mustard anymore as we travel deeper into the 21st century?

As the 2010s give way to the 2020s, I believe there are three areas where the “old rules” of the accounting profession need to change and modern accountants, especially Finance Directors and CFOs, need develop a different way of thinking in the face of a new economic reality…

Cost v. Bottom Line

Accountants are used to tracking costs and budgets. It’s often the first thing people think of when you say the world “accountant”. But that’s not enough any more. The key question now is how much of a positive impact an accountant, Finance Director or CFO makes on the bottom line.

Imagine you currently spend £100,000 a year on something. Whilst you want to make sure you’re getting good value for your business’s expenditure, the maximum impact anyone can make on the bottom line with “cost-based thinking” is £100,000.

That is, if you stop the activity completely, you’ll save the entire budget of £100,000 a year. It can never be any more than that, no matter how much time and effort you put in because you can’t reduce any cost below zero, no matter what you do.

But what if your accountant concentrated their efforts making the biggest positive impact on the bottom line…what difference might that make?

For starters, a bottom line-focused accountant might recommend you don’t reduce your £100,000 budget at all, and perhaps even think about increasing it.

Let’s imagine the £100,000 was your business’s budget for customer loyalty initiatives. Everyone knows that it’s much cheaper to retain a customer you’ve already got than go out and find a new customer you haven’t dealt with before.

Slashing the customer loyalty budget (a cost-focused approach) would result in customers becoming less loyal to the business over time, which would both reduce customers’ total lifetime value and increase the sales and marketing costs as the business would need to invest more money in attracting new customers to replace the shortfall in sales from existing customers.

Admittedly, if you were only thinking about the short-term, you could probably slash the customer loyalty budget and for six months or a year you might get away with it. The loyalty you’d built up in times gone my would probably see you through for a while.

But gradually, for reasons nobody could quite put their finger on at the time, the numbers would start going the wrong way. Customer loyalty would decrease, previously loyal customers would scale back their purchasing and the business’s income would reduce.

So whether your accountant focuses on the cost or the bottom line makes a big difference. If they’re not doing this already, I’d recommend you encourage your Finance Director or CFO to develop a bottom line focus as that’s where they can add the biggest amount of value to your business.

Tangibles v. Intangibles

Traditionally, we accountants have preferred things we can see, touch, feel and count, rather than the “fluffy stuff” like intangibles.

But the world has moved on.

Currently, the bulk of the market capitalisation of the S&P 500 is based , not on the value of tangible assets like factories, trucks and offices, but on their intangible assets. The precise number obviously varies with the stock market fluctuations, but at the time of writing solidly over 80% of the stock market valuation of the S&P 500 companies is not derived from the tangible assets on their balance sheet.

For example, Coca-Cola’s market capitalisation was a little over $200bn today. But their latest balance sheet showed a little under $10bn in fixed assets – their factories, machinery, trucks, and so on.

As you can see, the value of Coca-Cola is many times the value of its tangible, or fixed, assets.

Which creates a dilemma for accountants.

Traditionally accountants would focus on things they can see, feel and touch. But if that’s all you do nowadays, you’re not spending any time looking after the assets which account for the majority of the company’s value. Surely that can’t be right.

I tell people that, if 80%-plus of the value of the S&P 500 is made up of the value of intangible assets, a good accountant should be spending at least as much time thinking about those things as they do about the more traditional definitions of the word “asset”.

Whether they’re quoted on a stock market or privately-held, for most businesses, their intellectual property (IP), customer loyalty, brand name, track record of innovation and a host of other intangible factors will account for more of its total value to a shareholder or potential purchaser than its traditional fixed, tangible assets.

If you want to make your business as valuable as possible, make sure your accountant spends at least as much time focusing on the intangible assets that account for 80%-plus of your business’s overall value as they spend on the tangible fixed assets which nowadays accounts for a tiny proportion of the business value, but which are admittedly a lot easier to count.

Yesterday v. Tomorrow

As a friend of mine puts it, how much time does your accountant spend looking in the rear-view mirror instead of focusing their eyes on the road in front of the car?

Traditionally people think accountants are focused on events that have already happened…last month’s management accounts, last year’s statutory accounts, the last VAT quarter, and so on. And, of course, there is a need to examine what happened last month, last quarter or last year and report on how well the business did compared to expectations.

But you’re unlikely to create value for the business by concentrating on yesterday.

It’s like being a CSI who comes along after the shooting has finished and works out what happened. Of course that’s important, but isn’t it better to work in such a way that nobody gets killed in the first place?

In a business sense, that means looking into the future and anticipating problems before they arise, making sure the business’s operating model is well-honed and understood by all, and that the business takes profitable opportunities to grow its business as they come along.

All those activities build value in the business which is, after all, anyone with an interest in the business wants.

So next time you’re wondering whether your accountant is adding value to your business, ask yourself how well they are performing against these three tests.

The commercial world has moved on rapidly in the last 20 years. It’s vital for the success of your business that your accountant has too.

(Photo by Patrick Hendry on Unsplash )

The Abominable No-Man

Factories are great places for imaginative nicknames…I used to work with someone who was known as “The Abominable No-Man”.

That probably tells you all you need to know about his positive attitude to life and his communications skills.

And to be fair, that’s a nickname many businesses could probably pinch for their Finance Director or CFO as that’s the reputation that tends to precede us. People think we’re just there to crush their pet projects, moan about people overspending their budgets and rat them out to their boss when they miss their KPIs.

When I started out in the accounting profession, that was pretty much the brief for the Finance Department. But I was really lucky early in my career to work for the finest Finance Directors I’ve ever come across.

He was amazingly successful and, for a relatively young guy, was the Group Finance Director for one of the UK’s largest quoted companies. He’d got there by doing things very differently and he was a great mentor to me.

One of the things I learned from him was that it wasn’t the Finance Director’s job to say “no” to things. It was the job of a Finance Director or CFO to think through “if this is good for the business, how do we make this happen, even though we didn’t plan for it or set aside a budget for it?”

James – my old boss – had a great way of conceiving his budgets and strategic plans which is pretty much summed up by Stanford University Professor Paul Saffo’s “strong opinions, weakly held” mantra.

James was sceptical about anyone’s ability to write a strategic plan or a budget six months before the start of a financial year which would, with any great accuracy, predict the likely year-end out-turn 18 months later.

Which isn’t to say James didn’t do a strategic plan. He did.

What set him apart, especially at the time, was his willingness to change that strategic plan in light of new information, new evidence or new opportunities. He had to hit a margin target and a “cash at bank” target, but as long as he did that, neither the Group Chief Executive nor the City analysts cared much how he did it.

At the time he wrote the plan and set the budgets, James had a strong opinion that he had devised the best plan he could with the information available to him at the time. But if something better came along, those strong views were weakly held, and he devised a better plan instead without being overly precious about the plan he’d prepared a few months earlier.

This was James’s “X Factor” – the skill that, more than any other, set him apart. His nimble approach to running the finances of a large quoted company would set finance teams in many much smaller businesses into meltdown, even today when buzzwords like pivoting and re-imagining have seeped into the business vocabulary.

Even though it’s nearly 20 years since I last worked for James, I still use the approach he modelled for me every day as a Finance Director and CFO. And yet, it’s still a rare approach for a Finance Director to take.

I still see plans which are kept inflexible, unchanging and inviolable long after they’ve lost touch with reality. And, I’ve got to say, for businesses like that, usually the bankruptcy courts aren’t all that far away. Those businesses don’t seek help until it’s too late because they think that “staying strong” and “holding people’s feet to the fire” for their original plan shows the sort of strong leadership people are supposed to admire.

Maybe next time, by all means start out with complete and utter conviction to the plan you’ve just prepared. After all, you’ve done your research, you’ve done an options appraisal or two, carried out some sensitivity analysis and reviewed the risks. At that moment in time, it’s the best plan you know how to write.

But if something changes in your business, or the sector you operate in, make sure those strong opinions are loosely held.

It’s not a sign of weakness to change your plan in the light of new evidence…but it is a sign of monumental stupidity not to change the plan when it’s clear the plan you wrote a few months ago is never going to come close to the new reality facing your business.

Although he never used the term, and may well not even have been aware of it, the greatest Finance Director I’ve ever seen taught me 20 years ago that you ran your business plan and your budgets with “strong opinions, loosely held”.

And, for your business, that’s a darn sight better than being nicknamed “The Abominable No-Man”.

10 business lessons from one of the world’s greatest drummers

Former drummer for The Police, Stewart Copeland, fronted a great BBC 4 documentary the other evening. (At the time of writing, still on iPlayer for another month…don’t miss it!)

I’ve long taken the view that music can teach us everything we need to know about business…but to give myself an extra challenge, I thought I’d forget the rest of the band for a change and today focus solely on the drummer.

Here’s 10 fundamental business truths courtesy of the legendary Stewart Copeland (plus a bonus at the end)…

  1. Even in a short-ish programme, there were a couple of times Stewart Copeland grated on me a little…apparently this was pretty much Sting’s experience too, back in the day. But, even as a big music fan, I learned so much I didn’t know before from watching his programme. (Moral of the story: don’t discount what people you don’t like are telling you. They always know things you don’t.)
  2. Stewart Copeland has an irrepressible enthusiasm for his craft. He’s taken the time to study it, to find out the history of it, to seek out other practitioners of it. (Moral of the story: even if you’re world-famous in your area of expertise, there’s always more to know and more to learn. The greatest drummers, and business leaders, never stop learning.)
  3. Stewart Copeland works really hard. If you watch him on a drum kit, he never stops. His drumming defined the sound of The Police, one of the biggest bands in the world. He had to work twice as hard as most drummers to fill out the sound because The Police were a three-piece band, rather than the more usual four or more members. (Moral of the story: if you want to be successful, hard work isn’t optional.)
  4. The greatest people at any task are those who think differently about the job in hand. Buddy Rich, Keith Moon, John Bonham…and indeed Stewart Copeland himself…all had a very distinctive, instantly-identifiable style. (Moral of the story: the greatest successes come from doing things very differently from everyone else, not just doing what everyone else does 5 or 10% better.)
  5. There’s always a place in the market for something different. In the early years of rock and roll, drummers sat at the back of the band with their heads down, doing their best to be invisible. Then Keith Moon came along and the whole country knew the name The Who’s drummer, even if they weren’t a fan of the band itself. How many other drummers do you know the names of? I’m guessing not many. (Moral of the story: never think “everything has been done already”. It never has been.)
  6. It surprised me to learn that modern drumming started out in the distinctly un-modern world of the Deep South just after the end of the American Civil War. (Moral of the story: there’s always a deeper reason, and a longer history, for whatever you’re grappling with than you think. Problems, and opportunities for that matter, don’t just pop up from nowhere…they started out years ago, barely noticed at the time, and snowballed into the problem or opportunity you’re grappling with today. Pay attention to the little things that cross your path…sooner or later, they’ll become the big things.)
  7. One little invention – the foot pedal for the bass drum – seemingly inconsequential at the time, made the modern drum kit possible. Before that, there was no way a drummer could simultaneously play several different shapes, sizes and tones of drum to engage better with a tune and drive the song the way modern drummers do. (Moral of the story: don’t wait forever for a “big idea” to come along. Continual innovation, and trying to improve even a tiny amount every day is the best way to succeed. A simple lever was all it took to change the world of drumming for ever.)
  8. The segment with Sheila E. (Prince’s drummer and musical director) alone was worth watching the whole programme for. She made her own way as a woman in a man’s world and, I’m sure, wasn’t always met with the support her talent deserved as she climbed the ranks of professional drummers. (Moral of the story: never let anyone tell you that you can’t achieve your ambitions. Give full rein to your talents, and work hard. You can achieve anything as long as you don’t give up.)
  9. Also from Sheila E…what you do between the beat is as important as what you do on the beat. A 1-2-3-4 rhythm quickly gets boring and mundane. Great drummers add light and shade to help tell the story of the song. But she also said it was important not to overdo the “between the notes” playing or you’ll lose your audience too. (Moral of the story: more is not always better. And it’s a matter of art, not science, as to what the optimum balance is, even in something that seems as mathematically-governed as playing 4 beats to the bar.)
  10. Stewart Copeland played with a huge variety of amateur and professional drummers on his programme…from people on the streets of New Orleans to superstars in their own right like Sheila E, Chad Smith of the Red Hot Chilli Peppers, Taylor Hawkins of the Foo Fighters and John Densmore of The Doors. No matter what he was doing with another drummer Stewart Copeland had a smile on his face the size of a barn door. (Moral of the story: if you can find just one activity that makes your spirit soar, do it as much as you can for the rest of your life. Stewart Copeland won’t be going to meet St Peter grumbling to himself about spending too much time on his drum kit…it’s what he was born to do. Find out what you were born to do, then pray for one-tenth of the joy drumming gives Stewart Copeland. You’ll spend the rest of your life with the biggest smile imaginable on your face.)

Final bonus lesson…I got all this (and more, I could probably have written 50 points if I put my mind to it) from watching a TV documentary about very much a minority interest subject on a channel that is itself a distinct minority interest for the British television-viewing public. There’s always something you can learn, even in the unlikeliest places, if you keep yourself open to the learning opportunities that come your way.

If you’re a music nerd like me…or even (gasp!) someone who has no idea what this article is all about, you can see Stewart Copeland “on duty” in this great live performance… https://youtu.be/Ki97mpo6Y_Y

You see, learning opportunities are everywhere if you pay attention to what’s going on around you…and yes, even drummers can give you a lesson or ten about what really matters in your business.

(Photo by Oscar Ivan Esquivel Arteaga on Unsplash)