We reminded our guests
that the very next day we would be “celebrating” the 10 year anniversary of the
collapse of Lehman Brothers, the start of the GFC (Global Financial Crisis) and
the recession that began in 2008.
Our debate, amongst leaders from a
range of businesses representing financial services, engineering, manufacturing,
consumer and retail, focused on the impact of the GFC and how businesses' health
looks today as a result.
It came as no surprise that the debate was
kicked off by the CEO of a bank, who informed us of the range of resultant
changes, creating a far more regulated industry. This includes the Senior
Managers Regime (SMR) and the splitting of the Financial Services Authority
(FSA). From a CEO's perspective, he now feels there is far greater scrutiny than
before, both on the industry as a whole and as a leader.
the focus has shifted to the area of risk, especially in the context of the
retail financial services (FS) bubble and the apparent rush to lend money, which
is perhaps a disturbing development similar to that seen leading up to 2008.
It seems easier to borrow £500m than £5m!
businesses are finding it difficult to borrow money - the CEO of an engineering
group saying it seems easier to borrow £500m than £5m! He also pointed out that
there appears to be a greater appetite for risk in the UK compared to, for
The world today is far less trusting and
there is greater uncertainty.
One of the reasons suggested was the high
number of banks / financial institutions in Germany with a 'mutual' structure
(40%) compared to the UK (7%). At the other end of the spectrum, there is a
greater appetite for lending risk in Asia than UK.
Maintaining the FS
theme, the CEO of a Friendly Society, pointed out that as a result of the crash
nobody went to jail in the UK. Now, in part as a result of SMR, the world today
is far less trusting and there is greater uncertainty. Organisations may be
better capitalised but it is unlikely that there would be the same degree of
co-operation from the authorities should a repeat of 2008 happen again.
Our Chair shared that Mark Carney's speech, also on the subject of the 10th
anniversary, warned that the global financial community should not become
complacent and not forget what created the crisis in the first place. Mr Carney
added “there are risks around BREXIT for FS but China is at the top of the risk
register. The level of debt in China is enormous relative to the size of the
Chairs are now firmly in the firing line of the
Regulator and consequently these businesses will only have FS experienced
A sobering thought, prompting the CEO of a manufacturing business
to recollect his own experiences of 10 years ago. At the time he was leading his
business through a re-financing just as the crisis hit. Foreign owned banks
walked away but the UK banks remained supportive and “came through for
BREXIT is never far away from people's thoughts when contributing
to debates such as this and the same manufacturing CEO warned, in his view, it
is likely another FS crisis will happen but next time UK will be on its own (and
not part of the EU).
It was pointed out that a previous Chair of RBS had
been from the pharmaceutical sector. Today, as a result of increased regulation,
this is unlikely to ever happen again. Chairs are now firmly in the firing line
of the Regulator and consequently these businesses will only have FS experienced
NEDs. It has become extremely difficult to recruit NEDs from out of sector
because of the personal risk of being involved.
The CEO of a utilities
company, recently acquired by a group of infrastructure firms, said that now
most investment money is coming from Asia and this is very different to 10 years
ago. He added that Lehman Bros was a symptom and not the cause of the crash a
decade ago. His anxiety today came from the fact that whilst resulting
regulation post-crash had created much transparency within his sector, in
others, the source of money, especially from outside the UK was not so
transparent. If it is not easy to see how the money flows and from what source,
there is an increased risk of something major happening.
time moves on, memories fade, and younger managers come into the business -
Northern Rock is part of our institutional memory - but who tomorrow will know
what to do if something like that is ever repeated?
savvy shopper wants convenience and customer service.
moved away from FS regulation toward the consumer. All concerned felt that over
the last 10 years there had been a real shift in how consumers behave.
During this decade consumer businesses woke up to the fact that value for
money was key…the “pound shops” were growing sharply and the discounters rapidly
took market share from the established multiples. However more recently the
savvy shopper wants convenience and customer service… whoever can give them that
will probably win out.
A Commercial Director from food manufacturing
added that trust and transparency are fundamental values to all of us. In his
opinion both values have been diminished since 2008. Aldi in particular, have
utilised technology to simplify both transparency and trust and along with Lidl,
have seen great successes since the GFC.
There was agreement around the
table that as M&S Food and Waitrose (until very recently) were also enjoying
success, it should be a lesson to all of us to incorporate these values in long
term strategic planning. An industrial CEO pointed out that this polarisation
seen in the food retail market is also evident in the automotive market.
Picking up on the theme of the younger generations, an HR Director in
the energy sector commented on generations X,Y and Z and their different
approach to life. These generations are more sensitive to the values exhibited
by organisations and therefore will choose an employer rather than a job. There
are challenges in engaging with them to keep them loyal and you have to interact
differently with them versus previous generations.
and transparency are fundamental values to all of us.
agreed and pointed out that they were inclined to avoid costly assets to feed
their consuming lifestyle. For example major purchases such as cars are bought
on contract or simply not even considered, as Uber or Zip cars are more
acceptable. It would seem they don't want the burden of debt and would rather
spend their money on experiences and having fun instead.
it would seem that now is not the time for complacency. Mark Carney and many
others think a financial crisis could happen again.
Mr Carney highlighted
4 main risks, 3 global and 1 national;
- Household debt in the UK is
- Cyber security, what if a bank was knocked out of the system and
- China's economy, whilst praised for its growth he
warned about risks around how it's using debt to support growth
which has effects on Europe as well as the UK
So what are you
doing to guard against complacency? We'd be delighted to hear your thoughts on
the Hoggett Bowers