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Business Development & Marketing General Rescue, Restructuring & Recovery

Machiavellianism – the most toxic of the three threats to a business?

“It is better to be feared than loved, if you cannot be both.”
So said the Italian Renaissance diplomat Niccolò Machiavelli, whose activities have bequeathed us the term Machiavellianism.
Machiavellian puppet master bossIn a business context, this final personality type of the Dark Triad behaviours (with psychopathy and narcissism) is potentially the most dangerous of the three, not least because it is often widely admired and promoted as a recipe for professional and business success.
However, that success is only at the personal level. It can be lethal for the organisation to which the Machiavellian belongs, especially if they are in a leadership position, as they often are.
It is the most difficult to detect and it involves cynicism, deceit and duplicity.

How to recognise Machiavellianism

Characterized by a duplicitous interpersonal style, a cynical disregard for morality, and a focus on self-interest and personal gain the extreme Machiavellian is likely to be an aloof, sarcastic bully, slyly manipulating a given situation to their own advantage.
They will pick their time and the situation carefully to suit their aims, generally to maintain power. While they may show a superficial charm, they operate on the principle that the end justifies the means.
As ever, with the Dark Triad behaviours, however, there is a continuum, where at the moderate end of the scale such behaviour can be positive but taken to extremes its application can damage the people in an organisation and ultimately the organisation itself.
The study and understanding Machiavellianism in business has become a topic of increasing interest.
This may be related to a growing demand for more ethical behaviour in business in the years since the 2008 Financial Crash, but perhaps also in part because of the media focus on the proliferation of employment practices like Zero Hours contracts, greater income inequality and corporate greed.
In the European Journal of Psychology, November 2015, Panagiotis Gkorezis, Eugenia Petridou, and Theodora Krouklidou, shared an article under Creative Commons rules on their study: The Detrimental Effect of Machiavellian Leadership on Employees’ Emotional Exhaustion:
While their results are nuanced and too lengthy to go into here this comment stands out:
“The findings indicated that Machiavellian leaders have a detrimental impact on employees’ organizational cynicism and emotional exhaustion … both outcomes negatively affect core attitudinal and behavioural outcomes such as job satisfaction, organizational commitment, intention to quit and job performance,”
In Why Bad Guys Win at Work, an article in the Harvard Business Review, also in November 2015, Tomas Chamorro-Premuzic, a Professor of Business Psychology at University College London and a faculty member at Columbia University, argues that “Machiavellian tendencies facilitate both the seduction and intimidation tactics that frighten potential competitors and captivate bosses”.
That might sound like a positive for a business but, he says, the individual gains of the Machiavellian perpetrator always come at the expense of the group.
The implications are clear. For businesses that rely on their reputation for ethical and fair behaviour, as most do, or should, the lesson is clear.  In order to survive and prosper as an organisation employ a Machiavellian type at your peril.

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Banks, Lenders & Investors General Insolvency Turnaround

The corporate psychopath poses real dangers to a business

the executive hiding a knife behind his backMichael Douglas’ Gordon Gekko, Leonardo Di Caprio’s Wolf of Wall Street, or the late Mirror Group owner Robert Maxwell – what do these fictional and real characters have in common?
They are all examples of a corporate psychopath, the second category we are exploring in our look at  psychology’s Dark Triad (with narcissism and Machiavellianism) of personalities, and, say researchers, often over-represented at the top levels of the business world.
The US criminal psychologist Robert D. Hare called such people Snakes in Suits while both Oliver James, UK psychologist and author of Affluenza and Office Politics: How to Thrive in a World of Lying, Backstabbing and Dirty Tricks, and Clive Boddy, Professor of Leadership and Organizational Behaviour at Middlesex University, have suggested that the 2008 Global Financial Crisis was the result of a mass outbreak of corporate psychopathy.
So, what is it about such people that makes their behaviour potentially so toxic and ultimately damaging to business?

Corporate psychopaths, the good the bad and the ugly

As with the Dark Triad’s two other elements, narcissism and Machiavellianism, the propensity for damage both to colleagues, employees and to a business by a corporate psychopath is all a question of degree.
Typically, they are charming, intelligent, sincere and have powerful personalities, all of which arguably are needed to propel the individual to the top in their career. Often such people perform well at interview, appearing alert, friendly and easy to talk to. They seem to be able, emotionally well-adjusted and reasonable. All traits of a high functioning psychopath.
However, the negative qualities underlying these apparent positive qualities are callousness and insensitivity even if well hidden behind a smooth façade.
Clues to the corporate psychopath’s real persona emerge over time, however.  They may repeatedly humiliate colleagues or subordinates to get their way, perhaps regularly lose their tempers, take credit for others’ accomplishments and be “economical with the truth”, all forms of bullying and coercion with little or no regard for their victims.
They will typically set unrealistic goals for others to meet or come up with new ideas without properly assessing them or following through and this can be a problem when they are in positions of power, where they can issue directions for others to carry out, or try to, thereby setting their victims up to fail in a way that undermines them.
It is no surprise that the consequent working atmosphere for colleagues and its effects on business productivity can be dire.
Dealing with the toxic behaviour of the corporate psychopath means trying to anticipate their actions, documenting all instances of abuse, somehow not taking their behaviour personally and always having witnesses during confrontations; easier said than done but essential to prevent serious or even fatal damage to a business.
“Psychopaths loot corporations. They gamble with our money and then turn to the public to bail them out,” says Oliver James.

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Business Development & Marketing General Interim Management & Executive Support

Narcissists and their negative behaviours at work

There is a trio of negative behaviours that psychologists call the “Dark Triad”.
They are characterised as psychopathy (being callous and insensitive), Machiavellianism (manipulating others) and narcissism (tendency to seek admiration and special treatment).
Research by Belinda Board and Katarina Fritzon, of Surrey University, has found some evidence that such characteristics of behaviour, often described as psychotic behaviours, are more common in managers and leaders than they are among criminals.
While some would argue that at least a modicum of these behavioural characteristics may be necessary for professional success, there is a level at which they are downright dangerous for a business.
Starting with narcissism, we will be looking at each of the Dark Triad behaviours in our next three blogs.

How to identify narcissistic behaviour

narcissistic businessmanThe fictional David Brent, portrayed by Ricky Gervais in the TV series The Office, is perhaps the best-known example of a narcissistic manager.  In the real world, arguably US President Donald Trump is a classic example.
Narcissists can be described as seeking reputation and status, wanting to be admired, tending to expect special favours and wanting people to pay attention to them. Their behaviour is often referred to by others as being selfish, egotistical or single minded.
However, whether such behaviour is beneficial or toxic is all a matter of degree.  Clearly, at the moderate end of the scale narcissism can be helpful for someone who is ambitious in climbing their professional ladder or successfully starting up and growing a business. It also is characterised by a degree of self-belief and self-confidence which are important drivers of success.

How much narcissism is too much?

According to an article in Fortune.com extreme narcissists may be “know-it-alls” eager to give their opinion on everything and anything but therefore unable to listen, to be self-aware or collaborate.
They can be people with superiority complexes and manipulative in flattering colleagues in order to enhance their own reputation and career.
Or they can be outright bullies or vindictively determined to undermine anyone they see as challenging their status or position.
This more toxic end of the narcissistic spectrum can make life even harder for employees and colleagues dealing with such behaviour in the workplace when they need to focus on challenging jobs, targets and deadlines.
While the general advice for dealing with narcissists tends to be to ignore their behaviour and not to challenge them but this is easier said than done, especially if they are a boss or manager.
In the worst case, a colleague or employee who becomes the focus of relentless manipulation, bullying or efforts to undermine their reputation will be using up considerable mental energy in following this advice, making it more difficult to concentrate on the work they should be doing.
If the problem is more widespread and affecting several people on a board of directors or in a department, it may undermine the ability to co-operate effectively as well as being a distraction affecting their productivity.
It has been said that the acquisition of ABN Amro was down to Fred Goodwin’s ego, but a lack of awareness of how one person’s behaviour can influence a board was the real problem and the reason that led to the wrong collective decision being taken.
Ultimately, the potentially disruptive effects of an extreme narcissistic personality for the business as a whole could have the potential to destroy its ability to survive and grow.

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Business Development & Marketing Cash Flow & Forecasting Factoring, Invoice Discounting & Asset Finance Finance Insolvency Turnaround

The Pitfalls of Overtrading

businessman turning out pocket empty of cashA business that is overtrading is one that is at risk of becoming insolvent.
Overtrading is when a company is growing its sales faster than it can finance them, in other words, spending money it hasn’t got by taking on additional orders when it can’t afford to service or fulfil them.
This relates to a lack of working capital to fund the business and the cash cycle of contracts where creditors are often paid before payments are received from customers.
In this way a company can be profitable and yet run out of cash.
While it is healthy for businesses to pursue growth, a lack of honesty with themselves and their situation and a lack of forward planning can put them in this position. The rate of growth needs to be realistic for several reasons, including resources and capacity, both of which normally require funding ahead of income.
While there may be a strong temptation to say “yes” to new orders, a business needs to be sure those orders can be fulfilled, not only to avoid damaging its reputation but also because ultimately it can lead to insolvency.

How can a business avoid overtrading?

When there are more orders coming in than there is capacity to cope with, one solution is to price work in a way that manages demand. This need not be simply by putting up prices but more by having a pricing strategy. It may be necessary to protect the relationship with long term customers by pricing loyalty and long term commitments. Alternatively, future orders or flexible delivery might be priced at a lower rate than late orders and short notice delivery rather like the airlines. It may be that there is scope for staff to work overtime and share the benefit of increased prices.
Another way of looking at demand is to sell capacity rather than goods and services. A well-organised business ought to schedule work and know when an order can be easily fulfilled albeit on its own terms. By managing customer expectations, such as for a longer delivery timetable, a business can establish a pipeline of future work to keep everyone busy, at a level that works for the resources and capacity.
Ideally, when a business is planning for growth, it should look carefully at its finances before it starts any marketing or sales activity with this goal in mind.
For SMEs, this could include looking at the possibility of accessing regional growth funds and other cash flow and asset finance options, providing they can meet the conditions. If more funds are available then a higher level of growth can be achieved.
Negotiating arrangements with suppliers may be another possibility, especially if the business has a long-standing and good relationship with them. They might value longer term commitments and provide extended credit terms.
Another solution is to manage trading terms with customers, for example by requiring the payment of a deposit up front, stage payments, payment on delivery or reduced payment terms.
Using factoring and invoice discounting as a means of freeing up finance to pay fund orders may also be a solution as this will provide access to cash before an invoice is paid.
Having a product or service for which it is clear there is a substantial demand is not enough.  To grow a business, resources and working capital are needed if it is to avoid the consequence of overtrading: insolvency due to running out of cash.

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Business Development & Marketing Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery

Estate agency business model – High Street or Virtual?

depressed looking estate agentThe UK’s domestic property sales have traditionally relied on the services of an estate agency.
Any consumer-reliant business is susceptible to fluctuations in consumer confidence, consumer buying power and on the health and strength of the economy in which it is operating. This is particularly true for estate agencies.
Some are local branches of national chains, while others are locally owned or region-specific, but most have relied on a High-Street presence, knowledgeable sales agents and marketing for their business model. They make most of their money from the percentage fee, on average 1.5 to 2.5% of the property price, charged on completion of a sale. They also generate fees from services such as valuations, conveyancing, letting and management as well as commissions from introducing insurance and mortgages.
While most of these revenue streams have been under pressure from specialist providers, estate agencies have hung on to their most profitable activity, the sale of property.
This model is coming under increasing pressure now that most search for property is done online via consolidator websites, chiefly Rightmove and Zoopla. Given the change in search behaviour, estate agents are having to list property on these sites.

Will the rise of the virtual, online-only estate agency affect the traditional business model?

Since March, reports from mortgage lenders, surveyors and the Office for National Statistics (ONS) have been indicating that both property price growth and sales have been at best slowing and at worst stagnating.
The causes have been identified as rising food and fuel price inflation due to the fall in the value of £Sterling following the June 2016 EU referendum and now being passed onto consumers, stagnation in wage growth and most recently the June 2017 General Election. The recent tax hikes on property transfers have also played a major factor, in particular at the top end where the stamp duty land tax on the purchase of residential property is as high as 12%.
Despite this, many of the traditional agents to whom we have spoken argue that sales remain buoyant due to a shortage of available properties and to continuing demand from buyers.
But, alongside the change in behaviour that has seen buyers first searching on Rightmove and Zoopla before contacting an agent, there is another factor that could affect the viability of the traditional model and this is the rise of the online-only agency.
These agencies, such as Purplebricks, Yopa and Emoov, do not have the overheads that go with a High-Street presence and therefore can offer much lower fees and charges. However, fees vary substantially with some of these agencies charging vendors a fixed fee payable in advance.
They also offer varying levels of service, with additional charges for add-on extras such as accompanied viewing, providing Energy Performance Certificates, for sale boards and even for floor plans and photographs.
These services all form part of the normal service offered to vendors by the traditional agents, who argue that there is in any case no substitute for their sales teams’ local knowledge, active marketing using their databases of potential buyers and high quality marketing materials and photography. But will vendors want to pay an estate agent £15k to sell their home for £500k?
Given that High-Street estate agents are essentially marketing property on behalf of vendors via consolidator websites, their high cost and thereby their existence suggests the model is no longer viable. Most need to change their business model before they go bust.
 

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Banks, Lenders & Investors Finance Rescue, Restructuring & Recovery

The FCA dilemma over consumer credit

Since April 2014, when it took over regulation of consumer credit, the UK’s Financial Conduct Authority (FCA) has been investigating financial products that it argues pose high risks in the context of its consumer protection remit.
High street payday lender storeBy 2015 it had already imposed a cap on interest rates and fees on short term loans, known as payday lending, and this will be reviewed in the second half of 2017.
However, the ongoing investigation has also been looking at retail bank loans, arranged overdrafts, credit cards and home-collected credit, catalogue credit, some rent-to-own, pawn-broking, guarantor and logbook loans.
This has encompassed not only charges and interest rates but also competition issues in co-operation with the Competition and Markets Authority (CMA).
Whether there will be further regulation on lending businesses remains to be seen.

The potential effects on business

The FCA is concerned about the affordability of credit and about borrowers’ ability to repay in the context of high interest charges.
In March this year it proposed new rules to help credit card customers in persistent debt, defined as those who have paid more in interest and charges than they have repaid of their borrowing over an 18-month period. Proposals include options for repaying the balance more quickly, for example by reducing, waiving or cancelling any interest or charges.
Jonathan Davidson, Director of Supervision – retail and authorisations at the FCA, said in a speech in March: “the use of consumer credit in the UK has become so ubiquitous that 60% of adults now have credit cards and 40% are defined as overdraft users…… borrowing in the UK is simply more common, and more socially acceptable, than in many other large economies.” He added that “use of debt to meet unexpected emergencies is also widespread.”
In his view this was a risk that had to be managed. He argued that in some cases firms were making profits even when customers defaulted on loans and said that fair treatment of customers should be a core part of lenders’ business philosophy.
We would argue that some lenders are lending with the intention of triggering a default and incorporating terms that make a default highly beneficial to the lender.
Despite any moral or ethical issues the FCA is dealing with, its remit is consumer protection in what is essentially a free market consumer-driven economy in which businesses and their success depend on the sale of their goods and services in a highly competitive environment.
This applies particularly, but not only, for those businesses, many of them SMEs, that cater to the retail market.
Often, their sales success will depend upon the consumers’ ability to access credit to make purchases, for example for larger items such as household white goods and vehicles.
Arguably, limiting the supply of credit to consumers would make it more difficult for these businesses to survive.
So, is there a fundamental conflict at the heart of the FCA’s existence between ensuring fair charging for consumer credit and the needs of businesses operating in an economy that relies on credit being available?

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Cash Flow & Forecasting Finance General Rescue, Restructuring & Recovery Turnaround

Could co-opetition be the answer to distressed supply chain business?

competing business people arm wrestlingEarlier this month we reported on significant increases in levels of distress in the consumer supply chain business sector.
This was particularly affecting Industrial Transportation & Logistics businesses, the wholesale sector and the Food & Beverage Manufacturing sector as identified by Begbies Traynor’s Red Flag Alert research for the first three months of 2017.
Among the steps we advised such businesses to take were getting timely restructuring advice, regularly monitoring cashflow to identify opportunities for cutting fixed costs and introducing efficiencies, such as outsourcing transport or automating activities like accounting and invoicing, improving cash flow by introducing more rigorous follow-up on late payments, invoicing as soon as possible and paying close attention to credit control and collaborating with other small suppliers to deal with larger customers in getting them to pay on time.
Another option is to explore opportunities for co-opetition

What is co-opetition and how can it be used?

Co-opetition is when competing businesses are engaged in both competition and co-operation.
They are said to be in co-opetition to gain an advantage by using a careful mixture of co-operation with suppliers, customers and firms producing complementary or related products.
So, in the supply chain example above fruitful areas of co-opetition could be in the areas of cutting fixed costs by outsourcing transport or collaborating with other small suppliers to deal with larger customers in getting them to pay on time.
But there are other benefits to be found in co-opetition as long as businesses are mindful of some simple principles of what could be called moderation in all things, as outlined by V. Frank Asaro, author of A Primal Wisdom: Nature’s Unification of Co-operation and Competition, in an online article for Smart Business.
They include not being too greedy, not burning bridges by being over-competitive, never becoming complacent and keeping the balance between co-operation and competition ethical.
The idea is to use complementary strengths to fashion a situation that allows competitors to benefit from working together which in turn can lead to each party thriving and growing their own business.
An example quoted in an article in the Harvard Business Review illustrates this. LinkedIn relies on recruiters to use its platform but, as it says: “while each group would surely like a greater percentage of the recruitment pie for themselves, the pie as a whole is larger because of the involvement of both”.
Another area is marketing where apparently competing businesses have their own USP or target market that allows for joint funding of promotion and lead generation initiatives.
Examples might be logistics companies offering different solutions or supplying different routes; or food businesses with different product ranges being sold to the same customers.
Co-opetition, used effectively, can identify not only cost savings but also growth opportunities for those taking part.

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Business Development & Marketing Finance General

Observing business etiquette in other countries increases chances of successful deals

offering a business card Japanese styleUK businesses are likely to need to expand their export horizons in the coming years so it makes sense to understand the importance of other cultures’ business etiquette.
Failure to observe the correct protocols can be viewed as a mark of disrespect in more formal and hierarchical societies, particularly where there is a strong culture of deference to older and more senior people, and could have a negative impact on negotiations.
This is a situation where ignorance of cultural norms and taboos is no excuse.

Some examples of business etiquette

The three main areas of potential pitfalls are dress codes, dining and above all business cards.
In many Asian and Arab countries, the left hand is considered unclean and should therefore not be used for offering or receiving business cards and gifts, nor when dining.
In South Africa, too, you should not present gifts with the left hand.   Use either both hands or the right hand when giving and receiving them.
On the other hand (no pun intended), in Brazil you should avoid eating with your hands, even for a sandwich or other finger foods.
Giving and receiving business cards is a very specific ritual in many countries, as is what information is included on them.
In India, which is in many ways a very hierarchical society, titles and educational qualifications are important and should be included on the card. Never use the left hand for offering or receiving cards.
In Japan and China, the custom is to give and receive cards with both hands then give any received due attention and respect by reading them carefully and never, ever writing on them.
Even words like “no” or “please” and “thank you” can be fraught with peril. In the UK we tend to regard please and thank you as polite behaviour, especially in a formal setting, but in India, for example, saying thank you at the end of a meal is considered a form of payment and therefore insulting.  Similarly, saying “no” is considered harsh and it is better to respond with “I’ll try” or “possibly” or another more indirect response.
In Japan, too, an outright “no” is considered rude and it is customary to respond with a “yes” even when you disagree.
Generally, when it comes to dress, it is safer to opt for the formal and smart, which means the business suit for men. In India, women are expected to always cover their upper arms, chest, legs and back.
Physical contact can also be fraught with perils and best avoided. In some countries, a handshake on meeting is acceptable, but not in Japan, where the usual custom is a bow. Although handshakes are used it is best to let the Japanese person initiate it.
These are just some illustrations of why it pays to research the customs and etiquette that is acceptable in countries where a business hopes to arrange deals or partnerships and why getting it wrong can have implications for business success in negotiations.

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Accounting & Bookkeeping Banks, Lenders & Investors Cash Flow & Forecasting Finance Rescue, Restructuring & Recovery Turnaround

The latest insolvency figures reveal a worrying trend for some businesses sectors

Road sign to liquidation or insolvencySMEs in the supply chain sectors that particularly rely on consumer spending should pay heed to the latest insolvency figures, for January to March 2017.
While the figures released by the Insolvency Service at the end of April show a relatively small increase by 4.5% compared with the last quarter of 2016, the trend has been upwards now for three consecutive quarters.
There were 2,693 Creditors’ Voluntary Liquidations, 68% of 3,967 total insolvencies for the first three months of 2017, affecting particularly the construction and the wholesale and retail sectors.

Consumer confidence, inflation and import costs

As higher prices, particularly for food, have started to feed through into the shops, there have been signs of a weakening in consumer confidence and a slowdown in spending.
While the “headline” story since the New Year has been the demise of 28 large retailers including Jaeger, Agent Provocateur, Brantano and Jones Bootmaker, the implications are clear for those businesses involved in the wholesale supply chain, many of them relatively small SMEs.
Both KPMG and Begbies Traynor, have been monitoring the trends for companies in what they call “significant distress”.
Analysis by KPMG of notices in the London Gazette reveals that the numbers of companies entering administration are still relatively low, however Blair Nimmo, head of Restructuring, has identified a “steady creep in numbers that we’ve witnessed over the last 12 months”.
Begbies Traynor’s Red Flag Alert research for the first three months of 2017 has identified an increase in companies in distress, up by 26% on average over the past year in key sectors of the consumer-facing supply chain, with the Industrial Transportation & Logistics businesses up by 46%, the wholesale sector up by 16%, and the Food & Beverage Manufacturing sector up by 15%.

How do SMEs survive the growing insolvency headwinds?

Given the higher costs of raw materials imports due to the devaluation of £Sterling since the EU Referendum result, businesses will not be able to absorb all these costs and will have to pass them on to customers. This in turn is likely to reduce income for UK focused SMEs and lead to greater pressure on those that have high fixed costs.
As ever, it pays businesses to ensure they are as lean and fit as they can be and that means scrutinising their costs and reducing them wherever possible.
Regular monitoring of cashflow may reveal opportunities for cutting fixed costs and introducing efficiencies, for example outsourcing transport or automating activities such as accounting and invoicing. Another critical area for SMEs is to improve cash flow such as introducing more rigorous follow-up on late payments, and invoicing as soon as possible. Close attention to credit control and collaborating with other small suppliers can also help when dealing with larger customers and getting them to pay on time.
Above all, potentially vulnerable SMEs should not wait to get restructuring help and advice. An objective eye sooner rather than later and before a business is in crisis can make all the difference to survival.