The Devil's Dictionary, Business Edition

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I is for:

Ignorance

You can’t help being ignorant, but that’s no excuse for being stupid.

It’s impossible to know everything that all your employees know (unless you are blessed with a particularly lacklustre workforce), but it’s stupid not to learn the jargon used by them and by the other people you work with.

You don’t need to become an expert, just to be able to understand the broad outlines of what people are discussing and establish a degree of credibility for yourself.

In most cases, it’s fairly easy to grasp the basics, even with complex or technical subjects, because you only need to talk at a management level. Learn enough to discuss systems with the IT manager, but leave him to talk detailed gobbledegook with his IT specialists.

There’s also far too much information for you to acquire – let alone remember – it all, but it’s stupid not to set up systems which allow you to get hold of it when you need it.

This is one of the very few areas where politicians have taken the lead over businessmen. Even the most ignorant politician can tackle complex issues with a reasonable degree of fluency given a few hours’ warning – because of the network of civil servants he can call on for a briefing. [1]

Most of all, it’s stupid not to realise your own ignorance. It’s only when you acknowledge your weaknesses that you can compensate for them.

The worst mistake is pretending to know more than you do. And the worst culprits are those managers who see a subordinate’s demonstration of expertise as an affront to their own dignity, and asking for advice as a sign of weakness. Even in relatively simple areas like jargon, the overconfident manager is setting himself up for a fall.[2]

The smart manager isn’t the one who thinks he knows it all. He's the one who knows he doesn’t.

[1] While you’re at it, set up systems that allow your employees ready access to information as well. A day spent inflicting a properly thought-out filing system on your employees will pay for itself in a week as productivity improves.

[2] Garages provide a good illustration. Take a car in for repair, saying that you have no idea what’s wrong with it, and you’ll be charged the normal inflated rate. Give an accurate diagnosis, in the right technical language, and the cost should come down. But throw out the names of a few engine parts at random in the hope of appearing to be in the know, and the garage will gouge you for all you’re worth. Although most women have an understandable fear of being taken advantage of, garages are actually equal opportunity abusers. While women generally pay the going rate, men are split equally between those who understand cars – and so pay less – and those who feel compelled to pretend – and suffer the consequences. (Men who don’t even pretend to understand cars pay the going rate, but have their sexuality questioned.)

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H is for:

High-fliers

In the new knowledge economy [1], companies compete vigorously for the employees they see as high-fliers.

They’re asking for trouble.

Recruitment is a notoriously imprecise art. Supposed high-fliers are just as likely to be skilled con artists – but at many times the cost of an ordinary employee.

And while you pay these exalted costs, the high flier, like everyone else, will be spending 80% of his time on routine tasks. When your high-flier makes a cup of coffee, you’re paying the price of a whole round of drinks in the pub.

The high quality 20% of his time may justify the expense. But it’s just as likely that the high-flier’s strengths are an illusion.

The ace salesman can only exist in a company where he is allowed to control his own little fiefdom, guarding his contacts to ensure that what makes him special isn’t diluted or devalued by sharing it around.

The IT expert has a natural incentive to ensure that systems are as complex and impenetrable as possible – or even that they break down occasionally (so that he can fix them).

More worrying still, the high-flier on an accelerated career path all too often lacks any real understanding and experience of life, work or people, a fact which can become all too obvious when something a little out of the ordinary happens.

Meanwhile, the high-flier can be a prima donna, difficult to manage and demotivating for other employees. His mere presence on the payroll is enough to set tongues wagging and bring a carefully constructed pay scale to ruin.

Too often, managers look for a high-flier as a quick fix to complex problems – and end up finding they’re in more trouble than ever before.

If you manage a high-flier, or are thinking of taking one on, ask yourself two questions:

1. Is he really worth all the expense and hassle?

2. If he’s really such a high-flier, how come he wants to work for you?

[1] The concept of the knowledge economy is enthusiastically endorsed by academics, consultants, people who were bullied at school for being swots and employees who feel unjustly undervalued, simply because they are incapable of actually producing anything constructive.

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H is for:

Headquarters

Effective decision-making relies on having the right information, the skill to interpret it, and the authority and communication skills to see that your decisions are put into practice.

But for some reason, managers often seem to think that the quality of a decision depends on where you make it and how extravagant the environment is.

While back office staff play sardines in the boondocks, headquarters is almost invariably in a prime location, with luxuriously appointed executive suites. The decision to invest large amounts of capital in the corporate HQ is rarely challenged, yet most of the justifications offered are almost entirely bogus.

1. A quiet, well-organised office environment does help managers think, but no more than any other employee. Ergonomic workstations and a good working environment are a must for all employees. Mahogany, in and of itself, does not contribute.

2. Managers can travel to one-off meetings, or have visitors. The only people they really need to be close to are their staff and their colleagues. [1]

3. Expensive headquarters do send a message to visitors, but it is the wrong one. They tell suppliers that you have plenty of money to spend, with little concern for value for money [2], and they tell customers that you are probably making excessive profits. Even bank managers get a bit twitchy if your premises appear to be out of line with your cashflow.

4. Opulent offices may help to attract new recruits, but not the ones you need. Managers whose prime concerns are comfort and status are rarely the most effective, and are unlikely to have a keen profit focus. Even the most ascetic are soon corrupted. Today’s leather armchair is tomorrow’s top-of-the-range company car (and next year’s corporate jet).

5. Senior managers can be expected to relocate. By contrast, premises may have to move to suit lower-paid employees.

6. Expensive commercial property may be a good long-term investment. But it may not. In any case, unless you are running a property company, you should be able to find better ways to use your capital.

Directors who opt for expensive headquarters have forgotten that they work for the business, rather than the other way round.

In the best run companies, management realises that it is providing a service, just like human resources or IT. Senior managers take the same cost-benefit approach to headquarters as to any other company plant and equipment. They end up with something adequate and effective – and a lot more money to invest in the business.


[1] In some industries, there may be a case for locating in particular centres of excellence, but largely for the benefit of employees, rather than managers. In this situation, managers may indeed end up near their peers in other firms. But those who find themselves spending too much time talking to them may need to consider relocating their HQ elsewhere, before the authorities start to suspect anti-competitive behaviour.

[2] Compare this with the current gambit at British Airways, where every conversation with a would-be supplier begins with the line “We are a loss-making airline – please bear that in mind when quoting your price.” Unfortunately, this gritty approach is undermined by the soaring splendour of BA’s futuristic £200m Waterside HQ, near Heathrow.

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G is for:

Growth

Growth isn’t the solution. It’s part of the problem.

Lured by the prospect of increased status and remuneration, and egged on by investors and investment bankers, chief executives everywhere base their strategies on endless expansion.

Board meetings commonly devote as much time to discussion of strategic growth opportunities as they do to updating remuneration and incentive packages. Few people question whether growth is necessary, desirable or even possible.

Sustainable, profitable growth is a worthy ambition. [1] But too often, growth strategies are nothing of the kind.

The aggressive pursuit of growth usually consists of little more than an extravagant shopping spree, buying customers through saturation marketing, loss-leader pricing or outright acquisition of other businesses.

It’s an easy life, while it lasts.

The primary strategic objective of increasing customer numbers gives a nice clear target that is always achievable (at a price). The thorny question of how to convert these customers to profitability can be put off to another day.

Sadly, that day of reckoning will come, and often sooner than expected. Such strategies work like a Ponzi scheme fraud in reverse, with each new customer increasing the promoter’s financial strain.

When the bank calls a halt to further financing (or, rarely, the board decides it’s time to move on to the fondly-imagined second phase of the strategy), the illusion behind your strategic achievements is exposed.

Even if you have a plan for recouping your investment in customer acquisition, you find that the customers themselves are unwilling to play along. They disappear, seduced by the next generous corporate donor, and you are left with nothing but your debts.

The best advice on effective growth strategies comes from an unlikely business guru, gardener Alan Titchmarsh. Understand the soil type in which you plan to grow. Water and fertilise, but not to excess. [2] Focus your energies not on trying to accelerate growth unnaturally, but on pruning dead wood and misshapen growth.

And recognise that your roots only go so deep: excessive growth, no matter how attractive, will always come tumbling down in the first storm. [3]


[1] And an elusive one, too. So, in a downturn, CEOs like to start talking about profit growth, as if that means anything much when sales are dropping like a stone. Any fool can create earnings growth for a few quarters – you just have to sack people and close things down faster than your sales are falling. But this is growth that leaves the company smaller, and that should ring warning bells for anyone not cocooned from reality in the executive suite.

[2] Avoid the common mistake of thinking that an abundance of manure will compensate for insufficient watering, or sustain a fundamentally unhealthy plant in a hostile environment.

[3] Many of the world’s larger companies are reminiscent of the giant corpse flower in Kew Gardens. For most of its life it grows steadily, to become a large, rather dull, plant. Just occasionally, it flowers spectacularly, with huge crimson petals bursting from a giant phallic stem to produce the largest bloom in the natural world. But even as visitors queue to see this amazing display, they are holding their noses at the stench of decay that emanates from it. A few days later, both flower and visitors are gone.

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G is for:

Goal-setting

Without goals, employees lack direction and motivation. They waste time on unimportant activities, fail to contribute to the company’s strategic objectives, and generally underperform.

So you give your employees goals. And they waste time on unimportant activities, fail to contribute to the company’s strategic objectives, and generally underperform.

Everyone agrees goal-setting is essential.

And everyone agrees that it seems to go wrong.

1. With too many – and sometimes conflicting – goals, employees are confused. They can always find an excuse for any goals they fail to achieve.

2. Focus on a handful of selected goals, and you soon find that essential parts of the job go by the board. Sales people focus on revenue targets, and ignore customer service. IT specialists are so busy making sure the new Web site is ready on the agreed launch date [1] that they no longer have time to troubleshoot practical system problems.

3. Give your employees a free hand, and they will do the wrong thing. Tell them exactly what to do, and they will lose initiative.

4. If you can’t measure performance, you can’t manage it. But once a measure is in place, achieving the numbers becomes more important than the underlying objective. Employees find the most unconstructive way to work the system. [2]

5. Low targets create complacency. High targets create stress and disbelief. And attempts to refine targets towards the correct level create indignation.

Goal-setting can work, but only if used with care: updating goals, operating in both short and medium-term timeframes, and continually checking on progress, problems and motivation.

And if you’re going to put that much work into managing your employees’ objectives, you might just as well do the work yourself.

[1] Actually, they spend about 50% of their time on this, and the other 50% preparing complex explanations of why the launch date was never achievable in the first place.

[2] Monthly sales targets are a classic example. Once the month’s target is achieved, sales are held back to be put towards the next month’s target. More subtly, indirect indicators – such as number of new sales leads – are achieved by focusing on easy, but ultimately low value, targets, at the expense of the prospects you really want to focus on.

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G is for:

Globalisation

Globalisation is an idea with enormous appeal for ambitious executives. No longer will they be limited to the domestic market – they now have the opportunity to take over the world.

A few companies have succeeded in making this work. [1]

But for most managers, globalisation is simply an opportunity to repeat tried and tested mistakes on a grander scale, and to demonstrate incompetence in a whole new theatre of operations.

The simple-minded manager who thinks that creating a global brand requires nothing more than throwing money at consultants to produce a new, internationally acceptable name has entirely missed the point. [2]

While the French may agonise over Hollywood and America’s cultural imperialism, national differences continue to outweigh the similarities.

The Coca-Cola Company’s wily marketing executives have understood what so many others have not. While Coke is indeed omnipresent, the recipe varies subtly from country to country to take account of local taste preferences.

The gradual – and overdue – recognition of the partial nature of globalisation has led many companies to retreat from their earlier strategies.

Local country managers, who had seen their freedom as colonial governors reined in, are once again enjoying increased discretion to develop local policies to suit local conditions.

As this process continues, the same tensions that prompted earlier moves towards increased centralisation will re-emerge, with growing conflict driven by both business and personal considerations.

For the country manager with a reasonable degree of self-belief, greater freedom to respond to local challenges must bring greater success, accompanied by a welcome elevation in status. For the head office manager, the reverse is true. The country manager’s flexibility to undermine your unified strategy, and to take credit for successful market penetration, is something to be resisted at all costs.

This destructive tension [3] is not the only problem faced by global operations.

Costs are higher, communications are strained, and complexity is increased. Wherever there’s a local competitor with similar resources, a focused operation and real local knowledge, the odds must be against you.

The best strategy – staying with the domestic market you know best – is rarely an option. Even suggesting this approach is seen as revealing a parochial and defeatist attitude.

The obvious alternative is to hand over as much control as possible to local managers, giving them the scope to create an operation free from inappropriate global considerations. But the implication that locals may be able to function more effectively without your input is hard to stomach.

Companies which follow this strategy do so only reluctantly and indirectly. Central management never completely cedes control, but instead attempts to create a structure where local managers’ success is seen as the result of head office’s delegatory prowess. [4]

The truly centralised global operation can only succeed in two circumstances:

1. Where customers are global or, for whatever reason, demand a global supplier. Customers that run centralised global operations themselves love to work with global suppliers. Global sourcing supports their own efforts to standardise, outweighing, as they see it, all the cost and quality drawbacks.

2. Where your brand is heavily image-dependent, and international (or American) values are part of what you are selling. Products with little intrinsic or tangible value are particularly suited to this. And as Western consumers’ demands rarely have much to do with any real need, that leaves plenty of scope.

It’s nice work if you can get it, and relatively low risk. As a strategy, it does rely on customers remaining essentially somewhat stupid. But as many of the world’s most successful companies can attest, this has yet to become a problem.


[1] In many developing countries, Coke is the most recognised word in the English language, football enthusiasts are as likely to support Manchester United as any domestic team, and upwardly mobile citizens look forward to the day when they can eat their first Big Mac. This is progress.

[2] While a name is not sufficient, it may be necessary. The English are unlikely ever to take to the French snack brand ‘Plops’, even with the opportunity to wash these tasty morsels down with a glass of ‘Pschitt’ lemonade.

[3] Constructive tension is rarely seen outside the textbooks. It demands leaders able to see through the posturing and manoeuvring of their subordinates, and impose corporate values. The best most chief executives can hope for is to recognise and correct destructive behaviour on a case-by-case basis.

[4] Typically, this follows a period of weak performance under central control. This allows head office to create undemanding budgets – excused by the need to develop or grow the operation – and then take credit for the outperformance which follows as the amount of central interference is lessened.

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G is for:

Geography

As any airline executive can tell you, the best way to do business is through face-to-face meetings – if necessary, flying to meet your counterpart. [1]

But ask any telecoms or technology provider and you will be told that geography no longer matters. It seems you can communicate just as effectively using the telephone, the Internet or video-conferencing (depending on which particular technology your adviser’s company happens to sell).

The fact that these selfsame companies choose to cluster together in capital cities and industry hotspots like Silicon Valley should in no way be seen to disprove their case.

Yet the airlines are winning the argument, even if their financial statements don’t always suggest it.

Geography still matters, and physical meetings are still the preferred way of doing business, for all but a few technophiles and misanthropes.

If anything, current trends seem set to support the continued concentration of population into the cities.

Today’s international executive is bold enough to relocate abroad, but only if he can rely on moving to a foreign city which is essentially indistinguishable from the surroundings he is used to.

There is an important lesson in this for the manager looking for international experience and hoping to combine it with improved quality of life.

You can’t.

Move away from the recognised list of key locations, in any direction, and you will find yourself in the slow lane.

No matter how grand your job title, or how often you visit head office to fight your corner, you will find it difficult to recover. Quality of life and business success are incompatible – and nobody takes a tanned Englishman seriously.

[1] To make sure you are on top form for the meeting, you will, of course, need to travel business (or preferably first) class. You’re worth it.

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F is for:

Financial illiteracy

If business is a game, money is how you keep the score.

Some understanding of how finances work is essential if you are going to play the game well.

Most businesses take it for granted that some people have to understand finances – people like the finance department, or the owner-manager. [1]

But then they assume that everyone else can do without.

To some, this stance is a convenient way of avoiding disclosing uncomfortable financial details, like relative salaries or the extent of profits. To others, it simply avoids wasting people's paid time on subjects which have nothing to do with them and which they won’t understand anyway.

Both of these views are badly wrong.

At the top of the organisation, basics like arranging the right financing and keeping control of your cashflow are a start – but that’s all.

Unless you can interpret the messages embedded in your financial performance, you have little chance of devising an effective strategy and taking control of your business. [2]

At best, financial illiteracy places you at a conversational disadvantage. Bankers find it difficult to respect executives who cannot distinguish between debtors and creditors. Professional advisers see an open field for fee maximisation. And potential merger partners get a clear indication of who should be in charge of the new entity.

But financial literacy is important at the lower levels, too. While not everyone needs to be a qualified accountant, all your employees will benefit if they at least understand the financial implications of what they are doing.

There is little point in allowing your best creative brains to develop new ideas unless they make financial sense.

Your sales people will never make a full contribution to profitability if their financial nous begins and ends with revenue (and the associated commissions).

And people throughout the company will always be tempted to waste money if they can’t see the impact they are having on the bottom line.

As for the popular idea that some employees are simply not equipped to get to grips with numbers, it’s a ludicrous misconception.

Strip away the jargon and accounting basics are no more complex than the thought processes people take for granted in their private lives.

Your employees are already interested in money; it doesn’t take much effort to help them understand it, too.


[1] If they don’t , they should. See Finances.

[2] Struggling companies sometimes replace the chief executive with a ‘company doctor’, typically with a strong accounting background, to turn the business round. When this approach succeeds, the company doctor is hailed as a business guru. Why can an accountant – with little or no experience of the company’s industry and particular circumstances – succeed where the existing chief executive has failed? Often because the business was well placed all along, but financial illiteracy has come near to destroying it.

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F is for:

Finances

Imagine a man who uses his overdraft, rather than a mortgage, to finance his house purchase. [1]

Someone who has no idea what his bank balance is and no idea what his bills are likely to be. Who gives a stranger his car keys against a vague promise that the stranger will send him some money later. Who does nothing when the cheque fails to turn up by the end of the month.

That man is behaving like a fool.

He is also behaving like a typical small business owner-manager.

By relying on overdraft financing, he puts the whole business on a weak financial footing, needlessly increasing risks and stress.

By failing to budget, he misses a quick, easy way to minimise the likelihood and potential impact of unpleasant surprises.

By extending credit to financially vulnerable customers, he sets himself up for defaults.

And by allowing unpaid invoices to accumulate, he adds an extra burden to an already shaky edifice.

Why?

It’s not stupidity. Most owner-managers are streetwise to a degree that puts the typical corporate drone to shame.

It’s not laziness. They live and breathe the business.

It’s not because there is no other choice. All sorts of financing options are not just available but positively thrust at businesses by bankers and suppliers.

And it’s not because the individual hasn’t got the time – though that is generally the preferred excuse.

It’s fear.

All too often, unhappy school experiences have left a permanent aversion to numbers. But, more than that, the owner-manager feels the pressure, worrying that the whole business could come crashing down around him.

Finance is the monster under the bed. The one he just can’t look at, in case it grabs him. The more he ignores it, the bigger and hungrier it grows.

So here are three vital words of advice to anyone who finds himself in this unhappy position.

Face your fear.

No more procrastination. No more relying on your accountant to look after it for you.

Turn on all the lights and have a good look round.

Nine times out of ten, you’ll find yourself wondering what you were ever afraid of. [2]


[1] You’ll have to imagine that the bank involved has an unusually flexible approach.

[2] The unlucky tenth person will find that he’s bankrupt. But, frankly, he was doomed anyway.

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F is for:

Fads

Faced with the incomprehensible, there is a natural tendency to look for explanations.

For centuries, philosophers have agonised over the meaning of life. The great religions have attracted followers in their millions. Beliefs are handed down from parent to child, slowly evolving as spiritual leaders reinterpret and update them to relate more closely to modern circumstances.

It’s not hard to see the attraction of a sense of purpose, certainty and belonging in a confusing world.

The same urge to understand drives many businessmen, and management theory is there to accommodate them.

Reading the odd book or article is enough to comfort those who merely seek to overcome the nagging sense that they don’t know what they are doing.

The more deeply frustrated businessman might consider subjecting himself to an MBA.

But for some, these dry bones are not enough.

They seek higher mysteries, a deeper understanding, something more exclusive than the broad church of mainstream management theory.

And in the wonder that is the free market economy, there is always someone willing to fill that need.

Like cult leaders, these self-proclaimed business prophets have excellent technique. They know how to create the sense of mystery and excitement which lures the gullible.

The ideas are new, only to be shared with a select band of followers. The mystery is protected from the casual view of outsiders with an acronym or an oblique title. The philosophy is explained in a special language only the higher level initiate can understand. A fad is born.

Treat the fad as a curiosity, an interesting or amusing new perspective [1], and the risk to you is minimal.

Most of us can dabble with the trivial fun of superstitions, or even the excitement of the ouija board, without coming to harm.

Start to believe, against the odds, that this fad’s promoters have suddenly discovered the truth which has eluded everyone else, and you run the risk of ridicule.

Deep down, everyone knows that the fad will be a short-lived affair.

A few months or years later, the fashionable crowd will have moved on. If you haven’t kept up, you’ll be left wearing last year’s fashions. [2]

Worse still, when the fad’s trappings are stripped away, you may find yourself revealed as the mutton you were all along.

But the greatest danger is for the true converts, those who immerse themselves in the new fad.

If a fad changes your life, it will almost certainly be for the worse.

You become cut off from friends and family, and find yourself relieved of your money. Deprogramming can be a long and painful experience. Be warned: joining a cult isn’t funny and it isn’t clever.


[1] There are so many fads available, you can choose pretty much anything that takes your fancy, from any time period. During 2002, many academics worked hard to reframe management theories in terms of football’s World Cup. Others persist in banging on about the lessons to be learnt from ancient generals and warlords.

[2] Jack Welch, former CEO of General Electric, was a famous believer in ‘Six Sigma’. But the credibility of this particular fad has taken a battering as doubts have grown about Welch’s reputation as a business paragon. ‘The man who mentioned Six Sigma’ would now make a good Bateman cartoon. If you are still a believer, keep quiet for the time being. Doubtless some consultant will soon be along to give the concepts new life as ‘Ten Tau’.

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E is for:

Excuses

When things go wrong, be careful how you respond. To the astute observer, your actions and strategies give the clearest possible indication of your maturity as a manager.

Use this handy guide to determine your management age group.

Evasion: Your instinctive response is to run away and hide. Colleagues pretend to sympathise, but secretly find your antics amusing or simply pathetic. When finally cornered, you try to look innocent and deny all knowledge. Age group: toddler.

Buck-passing: You have begun to realise that problems cannot be avoided altogether. Your focus has shifted to trying to avoid or at least share the blame. Typical excuses include ‘My employees let me down’ and ‘That’s so-and-so’s area of responsibility.’ Age group: juvenile.

Diversion: Your need for social acceptance stops you sneaking on others, but you still find it hard to take criticism. The world confuses you, and your behaviour is erratic, lurching from stoic acceptance to fits of self-pity. You use a wide range of excuses, but often try to divert attention from an issue by getting worked up about something else, or claiming that circumstances have changed in an unpredictable way that's just not fair. Age group: teenager.

Introspection: You think you are mature (though you aren’t). Your responses seem deep and meaningful to you, banal to others. You try to look deep inside yourself for the underlying cause of the problem, while at the same time letting slip calculated glimpses of your inner turmoil. You put yourself forward for additional management training. Age group: adolescent.

Assertiveness: You are the alpha male, within your team if not the whole company. When you're confronted with evidence of your mistakes, typical responses include ‘So what?’, ‘It was inevitable’ and ‘What are you going to do about it?’ If necessary, you'll counterattack to assert your dominance, or leave the company to find another pack. Age group: young adult.

Realism: You’ve been around a while. You know you haven’t seen it all, but there isn’t much people can do to surprise you. You know you’re good at your job, but not perfect. The odd mistake is regrettable but inevitable, serious but not the end of the world. You learn from mistakes rather than trying to excuse them. Age group: adult.

Fatalism: You know you have peaked and hope at best to maintain your position in the pecking order a little longer. The consequences of your actions seem less and less significant. You see no need for excuses, merely accepting the blame and looking for mercy. Age group: pensioner.


[1] The demographics of the western world suggest a growing pensions crisis, as a shrinking percentage of adults must support a growing population of pensioners. Declining birth rates and increased longevity are largely to blame.

In management, the crisis is already upon us, though the demographics are somewhat different: huge numbers of children who show little sign of reaching maturity, and an alarmingly rapid progression from adulthood to senility.

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E is for:

Ethics

Over the past decade, the subject of ethics has managed to insinuate itself onto MBA course outlines and board meeting agendas everywhere.

What a waste of time.

On the plus side, the newly-created role of ethics officer is a boon to managers looking to dispose of dead wood.

Even the dimmest employees had begun to realise that being moved into human resources wasn’t a promotion.

But attempting to teach ethics to a group of money-obsessed young hopefuls is a non-starter.

And ethics in the boardroom can be as disruptive as politics or religion in the barroom.

The chairman must clamp down at the first sign that ethics is about to raise its ugly head. (In any case, directors have better things to do with their time.)

In truth, there are only three ethical positions, none of which needs any teaching or discussion:

1. You are good. Being ethical gives you a warm feeling and doesn’t cost much anyway. Fine.

2. You want to tick some boxes, or include a statement on corporate responsibility in your annual report. Delegate this chore. If your chosen flunkey starts wasting your time and expecting you to become involved in a meaningful discussion, buy him off. Let him run a one-day workshop, go to a seminar, or do whatever it takes to get him off your back. Meanwhile, carry on as normal.

3. You are evil. Go with it. You’ll enjoy yourself, and are unlikely to get into any trouble that a good lawyer or a well-timed episode of Alzheimer’s can’t cure. In time, you will probably end up on the board of [company name deleted at legal adviser’s request]. [1]


[1] “The things we admire in men – kindness and generosity, openness, honesty, understanding and feeling – are the concomitants of failure in our system. And those traits we detest – sharpness, greed, acquisitiveness, meanness, egotism and self-interest – are the traits of success. The sale of souls to gain the whole world is completely voluntary and almost unanimous….” ‘Doc’ in Cannery Row (John Steinbeck).

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D is for:

Discrimination

Society has turned against discrimination, and politicians are obliging by producing increasing volumes of legislation designed to protect individuals.

Most businesses, rightly, try to comply with the regulations.

Unfortunately, they are almost all missing the point. Discrimination is wrong. It is also all but inevitable.

Anyone with a healthy ego (and there are plenty of those in business) reckons that he is good at what he does.

And it’s a small step to assuming that people like himself will be too. People understand other people who are like them—of the same background, race, gender, religion, body shape or whatever.

They feel comfortable with them. They find them easy to work with. They usually like them.

To some extent, discrimination happens almost as a matter of circumstance. People who are ‘different’ don’t even come into the reckoning. [1]

In other cases, individuals find it impossible to avoid some form of discrimination, driven by experiences from the past that continue to exert a strong, if subconscious, influence.

It’s a fair bet that the urge to discriminate is genetically embedded in everyone on the planet. [2]

No amount of anti-discrimination legislation and right-thinking business procedure can overcome that, whether you try to follow the letter or even the spirit of the law. Unless you take time to think deeply and really understand your own prejudices, you will continue to discriminate.

You’ll be hurting your business, missing out on a huge pool of unseen talent and diverse, invigorating differences. And, in the unlikely event that it is a just world, one day you will be found out.


[1] Even apparently harmless activities, like recommending an old friend for a job, have a powerful discriminatory effect. Taken together, this modern version of the old boy network is giving people like you an unfair advantage. Recently, the chief executive of a major US company revealed that candidates to replace him had each been ‘interviewed’ at a day on the golf course with the rest of the board. It’s hard to imagine a process better designed to pick a replacement who came from the right background, rather than the one best equipped for the job.

[2] If modern theory is correct, genes influence us to protect not just ourselves but others who share the same genes – and the more similar someone is, the greater the shared genetic material is likely to be. As long as people like us procreate (and greater business success should do nothing to hurt their chances of bringing up numerous offspring), our own genes win.

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D is for:

Directors, non-executive

The official view is that independent directors are an essential element in corporate governance, and a necessary counterbalance to managers, who might otherwise focus on their own self-serving interests.

Non-executives are seen as having a particularly necessary role on the remuneration committee – ensuring that directors’ pay is reasonable.

They are also supposed to be key members of the audit committee, where it is fondly hoped that they will help uncover any deliberate falsifications.

At first sight, if you’ve met a few of the country’s rougher chief executives, this view of the non-exec's role is hard to argue with.

But it only takes a moment to spot the flaws in this thinking.

Good corporate governance really depends on the company secretary and the auditors, rather than the directors.

It’s almost impossible for non-executives to overrule the will of the executive directors. (If they can, the executives are either trying to pull something so flagrantly wrong that it should be apparent to everyone, or they're such a weak team that they need replacing anyway).

But non-executives have a far stronger interest in the happy, healthy and wealthy survival of the board than the executives themselves.

A manager can quietly move on to another company. A non-executive who kicks up a fuss could find himself blackballed from boardrooms across the country.

Investors should be looking for a board that follows three key principles:

· Non-executives should bring a specific strategic benefit to the company, with experience and expertise in areas where the executive team is weak.

· Non-executives should have as few other directorships as possible, and certainly not be enmeshed in cosy networks of cross-directorships (‘I’ll sit on yours, if you sit on mine’).

· The board should have a cut-down, even emasculated, remuneration committee, which, at most, makes recommendations that are then voted on by shareholders.

As an executive director, of course, you should be fully aware of all these principles – and aim for exactly the opposite.

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D is for:

Directors

The function and purpose of the board of directors is a mystery to most who have never reached such heights (and, for that matter, to some directors themselves).

For many managers, elevation to the board is seen as promotion to a kind of super-manager status, providing recognition, extra pay and perks, and entry to the charmed circle.

They're wrong – and if they're not, they should be.

The idea that directors are superior managers is a complete misconception.

Like so many of the world's problems, it seems to have been caused by American investment bankers, with their habit of calling anyone who doesn't have to make his own tea a vice president or an associate director or whatever else they think sounds important.

Alongside the proliferation of complex corporate structures with numerous subsidiaries (each with its own board) and faceless offshore entities with directors whose sole purpose is to insulate the real controlling interests from any tax liabilities, this trend has devalued and muddied the whole concept of directorship.

In fact, the board has two purposes.

The first is rather tedious, making sure the company complies with all the legal requirements – fiddly details like filing moderately accurate accounts. Most modern boards decided long ago that they had little interest in this, and have delegated the duties and abdicated as much responsibility as possible. [1]

The second purpose, providing strategic direction, remains. But good managers don't necessarily make good directors.

The successful sales manager, focused on driving his team on to beat quarterly targets, may be the last person you need in a discussion about five-year goals.

Equally, a good director might be quite incapable of dealing with the nitty-gritty of awkward customers and demoralised sales forces.

As for the financial rewards of being a director, they are often very real – and thoroughly undeserved.

There may be little wrong with giving valuable employees increasingly outlandish remuneration and benefits. [2] But simply becoming a director does little to increase your value. [3]

The old justification – that directors need recompense for the potential liabilities they assume – has been insured away.

The true explanation is the charmed circle of directors, the last surviving specimen of the closed shop that '80s politicians attacked so vigorously.

But why is it a closed shop?

Because a myth has grown up that you can't be a good director unless you've been one already, a classic chicken-and-egg Catch-22 that keeps the supply of potential directors to a minimum.

The exceptions are those key managers, the ones who manage to negotiate a first-time directorship as a condition of loyalty, and then find out just how easy the job is.

Provided the chairman knows how to run a meeting, almost anyone can survive and thrive on the board.

Plan your own directorship career in three phases:

1. As a new director, make sure you are thoroughly briefed on your area of responsibility – but don't worry about it. Remember, the other directors know far less about what's going on than the colleagues you face every day. As far as other agenda items are concerned, keep your head down. When asked, just say you agree with whoever is coming out on top. Outside the boardroom, use your directorship to win arguments, explaining to those who disagree with you that there are strategic issues involved that you cannot reveal and they can't hope to understand.

2. As your confidence grows, look to take on a more activist role. Your aim is to build recognition, particularly among the non-executive directors, so that when headhunters ring and invite them to suggest candidates for other posts, your name comes up. A good strategy is to identify the weakest director and find opportunities to interrupt him. [4] Take an interest in every topic, not just your specialist area, to show how your strategic grasp has developed. Try to get appointed to the audit committee.

3. Recognise when you have reached your executive peak, and plan for a gentle decline (in activity, rather than remuneration). Build a reputation as the kind of director the chief executive can trust not to raise awkward questions or support dissidents. Look to chair remuneration committees – and ensure that generous incentive schemes are approved. Choose roles that require minimal preparation and input for maximum reward. Develop your taste in fine dining.


[1] Legally, directors can be held responsible for failings in corporate governance. So the experienced director insists the company insures him against the consequences of his own incompetence. This abdication of responsibility is becoming more explicit. Audit committees, responsible for overseeing the accounts, now like to preface their reports with increasingly candid disclaimers making it clear they have no idea what's going on.

[2] But see 'Remuneration'.

[3] A similar bizarre approach was apparent during the wave of privatisations in the '80s and '90s, when directors of newly privatised companies saw their pay shoot up to reflect their increased value in the private sector. How the privatisation process suddenly boosted the value and talents of a generation of jumped-up civil servants was never explained.

[4] You may think this will make you seem irritating. It doesn't matter. Research shows that people who interrupt are far more successful than those who don't. It's a nice example of the way business self-regulates, ensuring that those who listen and learn never gain too much influence.

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D is for:

Design

The first time you realise design is important, it can hit you like a revelation.

You see yet another red sports car, and you laugh about how the colour is more important than the performance … and then you begin to wonder whether something similar could work for your products.

Or you’re flicking through the ads in the local paper, and one of them just seems to jump out at you, even though it’s not for anything you’re interested in … and you suddenly think how nice it would be if your own marketing was as eye-catching as that.

Or you go shopping for a sofa, and you find one that doesn’t just look good but feels comfortable as well … almost as if it had been designed to work with your body.

So you make the bold step of investing in design, explaining to your colleagues that you know it’s worth doing, even if they don’t quite get it yet.

You hire a graphic designer to rework your marketing material, choosing a new typeface that not only makes your brochures legible (a good start) but somehow seems to tie in with the image of your company.

And you share the new wisdom with your production people, telling them how important product aesthetics and ergonomics are (and using those words to show you know what you’re talking about).

You even think about recruiting an art school graduate, instantly creating your own in-house design department.

You feel pretty pleased with yourself.

You’ve cracked design, and you’re another step ahead of the competition.

Wrong.

You haven’t cracked design. You’ve scratched the surface.

If you think design is nothing more than creating products that look good and function well, you understand it about as well as the man who thinks branding is just a matter of choosing a logo. [1]

But that’s not your only mistake. You made a bigger mistake some time ago, when you failed to think about design right from the start.

For a one-off brochure, you can just about get away with hiring someone to tack on a bit of design at the end to make it look nice.

But without a solid foundation of good design, the chances of producing a single, coherent image for your business are slim to vanishing.

That kind of image – one that speaks to your customers across all your marketing (and through all those other little clues, like the appearance of your premises and staff) and ties in plausibly with the products you are selling – doesn’t just happen.

Product design, too, is about far more than just a look. Image and aesthetics are a small part of the story. What about boosting product performance, making good use of the latest technologies and materials, cutting component costs, improving production efficiency, meeting legal standards, or reducing waste?

Leave all that to some ‘creative’ you find in Yellow Pages and you might as well give up altogether.

The truth is, design is fundamental and pervasive.

Unfortunately, the word ‘design’ itself conjures up all the wrong images.

The designers who promote design have made a poor job of it. Perhaps they should have spent more time trying to communicate just how far-reaching the effects of design can be.

Design isn’t just dreaming up pretty shapes and images. It’s thinking about what your customers want, and how you can plan your products and processes to help satisfy them. [2]

Design is making the right choices, on purpose.

Ultimately, you have a choice. Do things by design, or do things by mistake. You know which is more likely to get you where you need to go.


[1] See Branding.

[2] William Miller of the Consummate Design Center defined design in its broadest sense when he said it was ‘the thought process comprising the creation of an entity’. Like all business pundits’ definitions, this has its drawbacks, but at least it beats the old favourite that defines marketing as ‘satisfying customers’ needs profitably’. You could just about get away with hiring someone to take charge of design and telling him his job is to think through everything you are trying to create. Take on a new marketing manager and tell him to satisfy customers’ needs profitably, and he will either sink into a deep depression or resign on the spot.

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D is for:

Delegation

Modern management theory likes to talk about delegation in the most enlightened terms.

Gone are the days when you simply dumped unpleasant chores on your subordinates.

Instead, delegation now is all supposed to be about looking for opportunities to develop your employees, designing suitable tasks, selling the benefits, and providing ample support and backup.

What rubbish.

The theorists have missed the point.

It’s a simple and profound principle of business – before you do anything, work out what you are trying to achieve.

When you delegate, the primary objective isn’t to develop your employees: it’s to get rid of some work.

That’s not to say that developing your employees isn’t a worthwhile goal. It’s laudable, and there are all sorts of opportunities to provide training and experiences that will help them.

As it happens, dumping work on employees is a valuable development exercise. It helps them get used to doing boring tasks and develop a healthy sense of resentment towards you – an essential attitude if they are to fit in with their colleagues. And you get all this value for no cost.

You don’t need to go out of your way to design suitable tasks. As long as you delegate work the employee can do, you have got it out of the way.

You don’t need to make a great effort to sell the benefits. The employee probably realises that he can do the work faster and better than you in any case. If there is any confusion over this point, remind the employee how much more you earn than him – and hence how much more valuable your time is.

You don’t need to worry too much about support and back-up. A suitably motivated employee (‘I need this by Friday. And, by the way, it’s your performance review on Monday.’) will come to you with any difficulties. Better still, he will find a way round the problem by drawing on the experience of colleagues who are far more likely to help him out of a hole than they are to respond to a direct request from you.

All you need to do is keep an eye on progress to make sure there are no unpleasant surprises.

Then, when the work is completed, a quick thank you and … the next little job.

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D is for:

Decisions

Climbing the corporate ladder brings many benefits, from better pay and perks to the personal satisfaction of increased power and status.

At the same time, the successful manager, particularly in a large company, should find that he is required to do less and less actual work. Instead, he tells other people what to do, and then takes the credit for it – an extremely satisfactory state of affairs. [1]

Unfortunately, the manager also has one other duty: taking decisions.

And with decisions comes the terrifying thought that you may get it wrong, and be seen to have done so.

In response, many managers have developed an array of techniques for avoiding or deferring decisions.

Ducking responsibility is popular. Some managers try to delegate decisions, or put together some form of advisory committee to share the blame when things go wrong. The sad truth, though, is that it simply doesn’t work, unless your manager (or board of directors, or whoever you are responsible to) is unusually naïve.

Procrastination techniques are more subtle, but equally self-defeating. While it is always possible to claim you need more information, the excuse soon wears thin – and while you delay, the situation facing you is probably deteriorating.

Ultimately, the only solution is to overcome your fear of failure. It’s something only you can do, though it does help if you are lucky enough to work in one of those rare companies that foster a supportive and understanding atmosphere.

Meanwhile, a few thoughts may help you screw up your courage:

· Most of your employees are productive, most of the time. Even if you tell them to do the wrong thing, they will probably do something worthwhile, rather than totally destructive.

· Appearing decisive (but not impetuous) is good for your image. Employees will respond to you as a strong leader, colleagues will envy your strength of purpose, and superiors will see you as someone who is going places.

· It’s like going to the dentist. Most of the unpleasantness is in the agonising wait beforehand. The longer you delay, the more you suffer (and the more your teeth decay). You might as well get the pain over and done with.

· The sooner you make the right decision, the sooner you can reap the rewards. The sooner you make a wrong decision, the sooner you will realise your mistake. This will give you a much better chance of salvaging the situation.

· You can always change your mind.


[1] The John F. Kennedy Space Center is named, unsurprisingly, after the president who ordered the space program, rather than any of the designers, technicians or astronauts who sweated to make it happen. After all, crediting the rocket design team – many of whom developed their expertise working on the Nazis’ wartime V2 program – might have presented unwelcome PR problems.

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C is for:

Customer service

‘The customer is always right’ is definitely the second most annoying cliché in the book. [1]

It may have made some sense once, when businesses were struggling to move on from the Henry Ford ‘any color you like, as long as it’s black’ model of customer service.

But those days are long gone. Consumer activism and the increased visibility of competing products and luxury lifestyles have elevated expectations and produced ever more demanding consumers.

Most companies assume that they have to bow to the customer in order to be competitive. They are right, but only up to a point.

The customers are always right – but only en masse, not individually.

Companies need to compete for the sales they want. And, in most cases, that does not include the 20% of the customers who cause 80% of the aggravation.

The brave manager hunts out difficult customers and sacks them.

Try saying no to unreasonable demands.

Explain, truthfully, that you cannot provide the level of service the awkward customer wants at the prices you charge.

Then take our advice. Recommend he tries your closest competitor, whose efforts to satisfy the one customer you lose might force him to take his eye off the ball – just long enough for you to poach the twenty customers you really want.


[1] The outright winner is, of course, the perennial favourite: ‘Our employees are our most valuable asset.’ See Buzzwords and Cliches.

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C is for:

Cost cutting

Cost cutting waxes and wanes in importance in line with a company’s bank balance.

A few quarters of success (or, in the case of some of the more lamentable start-ups of recent years, anticipation of success) leaves cost control a very poor second to the excitement of spending money.

But when times turn bad, ruthless cost cutting takes over.

It is completely the wrong approach.

It is easy to control costs in the good times, because it is easier to avoid building up costs in the first place than to reduce them once they are built into the system.

Most of the costs it makes sense to cut were never justified in the first place.

A little planning – flexible contracts, for example – will make it far easier to reduce costs later in the face of falling demand.

Once you have built up unnecessary costs, cutting them in a hurry rarely works well.

· Marketing budgets are always slashed in every economic downturn, just when companies most need to boost sales – and when the cost-effectiveness of promotional activity is at is highest, with low media costs in an uncluttered market.

· Headcounts are cut, with experienced, talented employees usually the first to accept voluntary redundancy, lumbering you with the dead wood (and a sizeable bill).

· Investment in training and product development is wiped out, ensuring an inadequate workforce and outdated products for the future.

And any spare cash, of course, is paid out in bonuses to managers, as a reward for their sterling performance.

A permanent program of cost control works well. Sporadic cost-cutting is almost guaranteed to backfire.

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Uh oh. Long pause. Sorry about that. Cost Cutting's next and it's a fine little chunk of potted wisdom, but it's not our plan to keep you waiting in suspense.

Might even get it published tonight, if all goes well.

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C is for:

Consultants

You can’t win when it comes to consultants. Even when you choose to use them for the right reasons, you still get it wrong.

This is because of two deeply flawed assumptions: that the consultant knows what he is doing, and that he has your interests at heart.

No sane manager would make the same assumptions about his own staff. Applying the same scepticism to picking and managing consultants is one way of avoiding a lot of trouble.

Some managers prefer not to use consultants. They argue that they know what they are doing already, and a consultant cannot add anything.

This is a breathtaking piece of arrogance. Only the largest companies could possibly hope to have employees covering every area of specialist skills and knowledge in its industry, while the suggestion that your company’s management is beyond reproach is statistically shaky, to say the least.

Other companies seem positively addicted to consultancy.

Weak-minded managers love to use consultants to validate decisions they should take themselves (and may already have taken, implanting them, subtly or otherwise, in the consultant’s brief). And companies engaged in arbitrary cost cutting exercises traditionally lay off experienced employees, only to re-engage them as consultants – doing half the work at twice the price.

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C is for:

Computers

The origins of the computer lie with Charles Babbage’s attempts in the 1820s and 1830s to build a large ‘difference engine’ for the UK government.

This was a project that took years, went wildly over budget [1], cost the client huge amounts of money, and was eventually abandoned as a failure.

Nearly two centuries later, surprisingly little has changed.

Major computing projects – and, for that matter, all projects involving cutting-edge technology – are still prone to cost overruns, and the new software products that are supposed to bring about step changes for the better are always hard to implement and ultimately disappointing.

Of course, modern computers are a fantastic tool for improving productivity. But incompetent and ingenious managers have found ways to turn almost every advantage of the computer into a problem.

Here are nine reasons why Babbage is spinning in his grave:

· Computers improve productivity across most business functions – so managers ignore contingency planning and leave their companies exposed to disastrous system failures.

· Computers can hold enormous amounts of information – so data is inadequately backed up, and confidential information is routinely held on insecure systems.

· Computers allow documents to be refined and designed – so people get sucked into endless revisions and unnecessary prettification.

· Computers mean reports are easily generated – so reams of superfluous paperwork are produced.

· Computer software is available for every task under the sun – so PCs are loaded with unnecessary and conflicting programs, slowing performance and reducing reliability.

· Computers transfer data efficiently – so managers fail to link systems, or else bombard staff with detail they must read through, before they can tell it doesn’t apply to them.

· Computer software has become simpler to program – so managers forget that computer ‘experts’ no longer need a fundamental understanding of how systems operate, and in many cases are barely competent.

· Computers can provide global reach, via the Internet – so companies rush to invest in web sites, without considering customer needs and preferences, at home or abroad.

· Computers rarely make mistakes – so managers assume the output is correct, even when the input and operation are in the hands of idiots.

Over the last 20 years, computers’ capabilities have multiplied a thousand-fold.

Unfortunately, levels of managerial competence have remained completely unchanged.



[1] The British government invested about £17,000, equivalent to the cost of two battleships. Babbage’s own personal investment was at least half a battleship more. Babbage successfully completed a small difference engine in 1822. Work on the government’s large difference engine was started in 1823, suspended in 1834, and finally abandoned in 1842.

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B is for:

Buzzwords and clichés

Buzzwords and clichés are an excuse to switch your brain off.

In business, this is seldom a good idea.

‘Dotcom’ was the best recent example. For a couple of years, managers and investors approached anything labelled dotcom as if the label itself justified investment, without the need for a sound business plan.

After a string of highly publicised disasters, the buzzword’s meaning was reversed. It came to mean ‘Do not touch, regardless of any business case you may be presented with.’

Only now has ‘dotcom’ come to be treated as it should have been all along – as a shorthand way of noting involvement with the Internet, with no bearing either way on the need to assess the strengths and weaknesses of the business.

‘Our employees are our most important asset’ is a prime example of the way a tired cliché advertises its insincerity. Its frequent inclusion in annual reports – usually attributed to a chairman who wouldn’t recognise, let alone acknowledge, 99 out of 100 employees – is blatantly manipulative (and incidentally suggests a rather confused approach to accounting).

Don’t forget, these are the same employees who call in sick whenever the sun shines, gripe about working conditions, produce faulty products, annoy customers, and jump at any chance to desert the company for a few extra pieces of silver.

Get real. Say what you mean and mean what you say. If you want to take a stab at some odd business idea, but can’t justify it, say so. Only please don’t call it a new paradigm.

And if someone else starts dishing up buzzwords and clichés, just ask them to explain what the hell they are talking about.

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B is for:

Budgeting

Some managers do not budget. They claim it's a waste of time, or that the future is simply too uncertain to allow any realistic judgement of the likely outcome.

You can certainly make budgeting a waste of time, spending hours costing out insignificant details and fiddling about to make your spreadsheet look just right. Some managers find that a most satisfactory way of avoiding other work.

But basic budgeting – establishing your key assumptions, and working out their financial implications – is essential. Without a budget, you have no way of knowing what the outcome of your business activity might be, and unpleasant surprises are all too likely.

As for the future being too uncertain, if that really is true, you have failed to do enough market research. More likely, you are using this as an excuse to avoid the truth: that you are afraid of having to live up to your budget targets.

On the other side of the coin, most managers who do budget do it badly.

What’s more, bad budgeting practices often help feed the fears and resentments of managers and staff who did not want to get involved in budgeting in the first place.

The first mistake is to prepare the budget without involving the employees who must deliver the results. This has just two effects: minimising the chance that your budget assumptions reflect the realities that your employees understand (but you do not), and maximising the resentment of employees faced with unachievable (or, occasionally, laughably pessimistic) targets.

The next step is to make up the wrong figures.

Habit dictates that most managers make up budgets on the last-year-plus-a-bit principle, without any reference to how circumstances have changed. A more sinister technique is to set targets based on what they need to be – for example, in order to cover your interest payments – regardless of what they are likely to be. Making up unreal numbers almost completely destroys the purpose of budgeting. [1]

The next milestone on the road to ruin is to set the budget in concrete, as if the guesses you made a few hours ago have now become the only reality. A more sensible manager identifies the greatest areas of uncertainty in advance, prepares a range of budget forecasts [2], and is ready to update the budget as the situation alters.

Having prepared his unreal Budget of the Vanities, the incompetent manager then imposes it, without debate, on his subordinates.

Everything has been done, from the outset, to avoid any chance of people committing to the budget, and this is no time to spoil it by listening to any comments or suggestions they may have.

Lay it on the line, tell them you don’t want to hear any whingeing, and insist that the targets are there to be met. In its purest form, this kind of imposed budget can have a powerful motivational effect, encouraging employees to put in great effort and ingenuity to ensure that budget targets are missed.

Avoid making any effort to compare actual outcomes with the budget, or to analyse the causes of any variances. Only by being firm can you ensure that the whole exercise remains untarnished by the possibility of learning.

If, despite all this, you find that budgets are unaccountably beginning to correlate with reality, or even inspire employees, there are a few optional extras to try:

· Link the budget process to incentive schemes, so everyone aims for targets that are set as low as possible.

· Encourage managers to see the size of their budgets as a status symbol, creating relentless upwards pressure on spending.

· Claw back any budget allocations your managers foolishly neglect to waste. [3]

· Work to a fixed annual budget cycle, so all spending decisions are based on where you are in the budget cycle, rather than business needs. (Alongside the clawback option, this also ensures that willing suppliers are primed with a range of pointless, overpriced purchasing options to offer you as the end of the budget year approaches. [4])


[1] Be strong. Disciplined budgeting could take all the excitement out of life. Ignore the siren voices suggesting that you try establishing the standard costs others in your industry are paying, or benchmarking your operations against other companies. If you must dabble in benchmarking, choose poorly managed companies, or other parts of your own organisation, as the comparison, to guarantee that any figures you come up with represent a suitably unambitious level of achievement.

[2] This should not be confused with the extraordinary practice of setting ‘stretch’ targets, which can only be achieved if you are blessed with a string of lucky breaks. When these targets are comprehensively missed, they are airily dismissed on the basis that they never were realistic.

[3] Sophisticated companies sometimes tie themselves in knots by abruptly clawing back unspent budget at the end of the third quarter, to avoid the absurd distortions caused by the rush to spend at the end of the year. This can yield impressive savings in the first year. The next year, however, they invariably find there is no funding left for any activity whatsoever after the six-month mark. Managers, like lab rats, can learn fast.

[4] This was the thinking behind our plan to launch Fourth-Quarter Training Ltd, alongside our other businesses, such as December Retailing plc and February Flowers.

Fantastic response to the first few posts. Thank you all. With very little encouragement, we can keep this up for months to come, as most of the book is already written.

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B is for:

Branding

Some people consider branding immoral, particularly among consumer brands that focus on creating an image for the public to buy into.

It’s a pretty lame argument.

The fact is, consumers in the West have more money than sense and are amply provided with the necessities of life. If the customer gets pleasure from whatever intangible benefits your product offers, that is as valid a benefit as anything your competitors are offering.

In any case, your company and your products will develop brand identities whether you like it or not. The only question is whether you take control and make the brand work for you.

Building a strong brand is clearly a good idea. How much better to have a brand consumers can trust (even if you are only offering a second-rate product and service) than rely on the hope that they will use their own judgement and try out something new.

And don’t assume that business buyers are immune from this sort of behaviour: in the early days of computers, a key strength of the IBM brand was the knowledge that nobody ever got sacked for buying from Big Blue.

Contrary to popular belief, building a brand does not mean paying a design consultant an exorbitant amount of money to come up with a new logo and corporate colour scheme, and then watching the money roll in. The Inland Revenue has invested significant amounts of money in branding activities, but there is little evidence of people jumping over each other to pay taxes, or recommending the Inland Revenue to their friends.

Building a brand involves identifying the key values in what you are offering, and making sure that everything you do works towards maintaining and strengthening those brand values.

It’s a complicated, far-reaching process – which is why so many managers prefer to just buy a logo and hope.

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B is for:

Bankers

Why do so many business people complain about their banks? Why does the bad workman blame his tools? The answer to most of the moaning is that managers should try doing the basics right.

Keep your bank informed and spend your time building a healthy business and your bankers may not seem quite as unhelpful as their reputation would suggest.

Banks take a lot of flak, and some of it is obviously justified. But despite their irritating self-righteousness, they are not always as guilty as we like to think.

The case against them is usually based on five complaints:

1. They charge too much.
Well, maybe, and perhaps there is something in the allegations that they operate as a cartel. On the other hand, they do manage to push pieces of paper around for a pretty low price. Just as a benchmark, how much does it cost you to process your paperwork? And they are in business to make money. They need to bank profits in the good times to fund the horrible howlers they make every few years.

2. Their charging structure is ridiculous.
Yes, but at least they tell you in advance what things will cost. Compare that with a builder, a lawyer or a car mechanic, for example.

3. Service is poor.
On the whole, banks are fairly efficient, and the staff are polite. If banks’ systems were as inefficient as those of most companies, there really would be problems.

4. They won’t lend us money.
If you can’t convince them it’s a good idea, why should they? Do you lend your money to anyone who asks? You work full time at your company, and you still keep getting things wrong, so how can you expect a banker to understand what’s going on in the business? They’re not geniuses.

5. They cut up rough when we really need them.
Quite right, too. If you haven’t taken the trouble to work with the bank and present a good case for continued support, why should they throw good money after bad? When you know one of your customers has cashflow problems, do you step in and offer extra credit?

On the whole, most bankers are fairly decent people, providing a pretty good service.*

Using a bank is much like any other outsourcing deal – you negotiate what you want, at a cost-effective price, and try to keep things running smoothly by building a relationship.

* If anyone from the British Bankers Association is reading, can we have our £10 now please?

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A is for:

Assumptions

Managers have to make assumptions. Sometimes an assumption turns out to be wrong. It happens, and there’s no reason why anyone should hold it against you.

What managers don’t have to do is:

· Make unreal assumptions – like planning on the basis that sales will grow by 10 per cent this year, in the face of ample evidence that customers are still reining in spending and new competitors are gaining market share.

· Forget that their assumptions are, at best, educated guesses, and ignore the possibility that things will turn out differently.

· Assume that history will repeat itself, without bothering to investigate how the situation has changed since last time.

· Expect different people (especially customers and competitors) to react in the same way.

Unfortunately, managers, like scientists, spend most of their energy looking for evidence to support their theories, and trying to explain away anything that contradicts them.

It is always hard to predict the future, but it seems likely that managers will carry on making these same old mistakes. At least we can safely assume that won’t change.

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A is for:

Acquisitions

Building a new company, struggling to make those crucial early sales, just scraping together enough cash to keep your creditors at bay …. How exciting!

But spare a thought for those poor souls charged with leading the successful company into the future. They know their markets, they have good products and profits are growing …. How deeply, deeply boring.

No wonder so many directors feel the need to make an acquisition, even though it’s the fastest known way to destroy value.

You have to offer more than the seller thinks his company is worth.

He has all the figures. He understands his employees and customers. He knows his company’s problems and weaknesses.

You are guessing (and paying lawyers and accountants to convince you that your guesses have some basis in reality). The odds are stacked against you – but the urge is too powerful to resist.

Make enough acquisitions and you, too, could be running a struggling company.

So instead of doing the sensible thing and minding your own business, you try to come up with ways of justifying the acquisition. Here are some we prepared earlier.

1. The target company is being offered cheap.
It does happen, but only when the target is being actively offered for sale. Big companies sell off divisions which no longer fit their strategic direction and core competences (i.e. an investment banker has provided some lavish entertainment and ego-massaging, and told the directors that their share options will be worth more). Or managers have dug themselves into such a deep hole that they’d welcome any escape. More often than not, though, you are simply overlooking the key factor that makes the target worth less than you think.

2. You know something they don’t.
This works in the classic management buy-out, where incumbent managers deliberately delay sales and talk down prospects until they can buy the business on the cheap. But unless you have an inside track, it’s pretty unlikely in an acquisition.

3. You can manage the target better than its existing management.
There is no doubt that plenty of businesses could do with better management. The chances that you are that better management? Slim.

4. The acquisition offers synergies.
You know all the hoped-for economies of scale have usually vanished by the time you have given up trying to get the two businesses to co-operate. But synergies … irresistible isn’t it? You might like to try looking for an acquisition that offers a new paradigm as well.

5. Their products and/or customers balance your portfolio.
You’ve been listening to management consultants, haven’t you? Well, don’t.

Feel free to use any or all of these justifications to convince your colleagues, or for boasting to your friends. If you like planning ahead, have a quick look at Excuses, as well, for some suggestions on what to say when it all goes wrong.

Haven't yet found a neat way of handling Chris's acerbic (and often very funny) footnotes, which are really an essential part of the Devil's Dictionary text. But here are the first three, the ones that apply to the Accounting Tricks entry I posted yesterday.

[1] Investment analyst Terry Smith caused a stir back in 1991 when he had the temerity to reveal some of the accounting techniques being used by major British companies in his UBS Phillips & Drew research report, Accounting for Growth, and his subsequent book. A number of finance directors were rather annoyed.

[2] After years of abuse of ‘exceptional’ and ‘extraordinary’ items, rules in this area have been tightened. The response? Many companies now choose to present ‘pro forma’ accounts. These are popular because they show what the accounts could have looked like if they didn’t have to follow any rules at all.

[3] Terry Smith devoted a chapter of his book to pension accounting (though, at the time, the focus was on how companies dealt with pension fund surpluses, rather than deficits). It would be interesting to know how many of the companies currently complaining about having to account for deficits took advantage of earlier opportunities to boost earnings or strengthen the balance sheet with ‘pension holidays’.

See what I mean? You wouldn't want to miss them, would you?

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A is for:

Accounting tricks

In all but the simplest businesses, it is easy to gently massage the accounts to boost profits, strengthen the balance sheet, or set aside hidden reserves to call on when the need arises.

Small firms generally restrict themselves to the most basic techniques – recognising income earlier than might be considered prudent, reclassifying expenditure as investment, or just spreading depreciation over unfeasibly long time frames.

Larger companies push the boat out more, using off-balance sheet financing, complex financial instruments, ‘sophisticated’ acquisition accounting and all the joyous possibilities opened up by operating in more than one currency.

A particularly satisfying technique is to hide contingent liabilities deep in the footnotes to the accounts, presumably using the same logic as that of the ostrich when it buries its head in the sand.

At the time of writing, interest in these practical accounting skills has been spurred by the collapse of Enron and WorldCom, but there’s nothing new in all this. [1] Finance directors have often been tempted to ‘smooth’ earnings, or to ensure that they meet stockbrokers’ forecasts (often themselves based on hints dropped by those same finance directors, leading to a curiously circular mechanism for determining and delivering earnings targets).

Nicely inflated financial results can help companies access funds, or lower their borrowing costs. And, of course, directors whose remuneration is tied to share price performance have always had a strong incentive to deliver the highest possible earnings figures.

On the face of it, there may not seem to be all that much wrong with this approach, assuming your accounts remain broadly within the letter of the law (if not the spirit) and you can find an auditor enthusiastic enough to pronounce them ‘true and fair’. But leaving aside any ethical qualms, there are drawbacks.

At the very least, you will be spending time and money playing around with the accounts.

More dangerously, you may come to believe them yourself. And finally, you will end up assessing transactions not on the basis of their business merits, but on how they would affect your accounting position. It is a slippery slope.

Despite these problems, and the current fuss, dubious accounting techniques are not going to go away. Where regulators close one loophole, aggressive accountants will open another. [2]

Even amid the current (no doubt temporary) soul-searching, it is interesting to hear the complaints of finance directors faced with the threat of new regulations on pension accounting.

Regulators are being accused of forcing companies to close final salary schemes and offer money purchase pensions instead. But all these proposals really do is insist that companies recognise the inherent liabilities they are exposed to.

Whether or not the regulations change, the underlying reality won’t. The only question is whether boards of directors – or finance directors themselves – ever understood this. [3]