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Business Comment

Anthony Hilton: They may have passed you by, but these events show how things are changing

The themes and trends just below the surface are often what matter most

The significant events of a week or a year are seldom those which make an impact at the time. News is by its nature ephemeral and only rarely has lasting importance. What matters is often not noticed at all. These are the themes and trends just below the surface and often overlooked in the onward rush of everyday life which do indeed tell us something about the way we live and how it is changing.

This being the last column of the year here are a few of these events which as news may have passed you by but which do say a great deal about the pressures and the problems of today’s business world.

Regulators in the boardroom

The first is was the fact that KPMG partner Oliver Tant did not become finance director of Legal & General, the insurance group. He was by all accounts earmarked for the role, and on paper he looked ideally qualified for it. But the City’s regulator was unconvinced and this prompted the company to think again.

What this tells us is that in the financial world such is the power and influence of the regulators that they are in effect sitting in the boardroom alongside the directors. After the financial crash and the misbehaviour of the banks we might well say thank goodness for that. But is it really such a good thing? Business is about assessing risk and taking it in a controlled way to create wealth. Regulation is about trying to prevent things going wrong. The two make uneasy bedfellows and if our businesses become less creative, less dynamic, grey and mediocre it will be too a high price to pay for safety.

We are in danger of drowning in process. No one seems to care about outcomes anymore, provided the process has been flowed and no one can be blamed.

Taming Narcissus

Tesco’s stumble also tells us a lot about the world in which we live. The company, which accounts for one pound in every  12 spent by British consumers and for years seemed able to sweep all before it, is now on the defensive.

It made a costly mistake trying to crack America; the rest of its international business is not as profitable as it would like; it is losing market share in the UK especially to the discounters like Aldi and Lidl but most of all it has too much space. In effect, if 15 per cent of grocery shopping goes online there is 15 per cent of unused space in the stores.

The other lesson of Tesco is that all businesses come unstuck in the end. Tesco has long been noted for managerial arrogance where a powerful chief executive dominates all around him – including his chairman. Headhunter Anna Mann has just published a paper called Taming Narcissus, which warns of the dangers of successful chief executives getting above themselves, thinking they can walk on water and then over-reaching themselves. It ought to be required reading in every boardroom.

Emotion trumping reason

Another landmark was a report prepared by Sir John Armitt at the behest of the shadow Chancellor, Ed Balls, on how to take the politics out of infrastructure spending.

Sir John devised a system which was elegant in delivering certainty while recognising and retaining the need for Parliamentary accountability, but unfortunately, because it came from the Labour side, the Government refused to engage with it or its suggestions.

The inability of politicians to put the national interest before political interest in decisions such as high-speed rail, airport runways and nuclear-power plants reflects how society in general is losing the ability to discuss and decide upon complex issues, partly because information is now delivered in relatively glib sound bites, and partly because society has lost trust in the experts it used to rely on to guide it through such things. The result is that emotion scores more highly than reason in taking these complex decisions. How you – or the voters – feel becomes more important that what do you or the voters think.

Off balance

Finally we come to Mark Carney. Of the speeches he has made since his appointment as Governor of the Bank of England in the summer none is more significant than the one at a Financial Times anniversary celebration where he painted a picture of the UK economy even more massively dependent on financial services than it is now. “Forget rebalancing and embrace finance” was his message.

Banks, whose combined balance sheets were four times the size of the annual output of the entire UK economy at the time of the crash in 2008, could well be nine times that output by 2050 he said. We should be pleased about this, he went on, provided we successfully crack the “too big to fail problem” so there are no more Government bailouts

So, five years on from the financial crash which brought the economy to its knees, we are embarked on a course to become still more dependent on finance and in truth it will probably happen anyway, whether or not the “too big to fail” issues are resolved.

Whether the rest of the country agrees with Mr Carney that we should welcome such a development is moot. But he deserves our thanks for pointing it out while the politicians continues to stress rebalancing. In reality we are heading in quite the opposite direction.