Should SMEs consider appointing non-executive directors (NEDs)?

older woman non-executive director It is hard for SME directors to step back and look at the bigger picture when they are so immersed in day-to-day operations. Could they benefit from having experienced and objective non-executive directors (NEDs)?

Research carried out by law firm TLT, University of the West of England and the Association of Chartered Certified Accountants this summer suggested that SMEs did not understand how to recruit or engage with NEDs. The conclusion was that smaller firms with NEDs were not benefiting as much as they could.

What does a non-executive director do?

The NED is an independent director, who sits on a business’ board of directors but does not form part of the executive management team.

NEDs’ primary responsibility is to attend board meetings and crucially to turn up prepared having read the board pack and researched the key matters that require decisions. They should also monitor reports and carry out their own review so they can ask pertinent questions with view to assisting develop systems and strategy and resolving problems. This can involve offering specific and objective advice but does not require them to know the answers, more important to help find ways of finding the answers.

They should have a longer-term perspective and can act as mentors.

The more engaged ones will network, looking for new opportunities and useful contacts and building relationships inside and outside the business.

Obviously, it can be useful for a NED to have experience specific to your business but this is not necessary and can be an impediment since they may be less likely to embrace change.

In a recent description of the role of NED, the IoD (Institute of Directors) said their role was “to provide a creative contribution to the board by providing independent oversight and constructive challenge to the executive directors.”

Referring to the 1992 Cadbury Report it also said, “they should bring an independent judgement to bear on issues of strategy, performance and resources including key appointments and standards of conduct”.

The recent update on corporate governance code introduced by the FRC (Financial Reporting Council) in July specifically referred to the potential role for NEDs as an option for building a wider engagement with stakeholders, particularly the workforce. Having a designated NED for this was one of three options it suggested. The code will become effective from 1 January 2019.

Anyone considering or invited to join a business board as a NED should understand that there is no legal distinction between executive and non-executive directors.  latter have the same legal duties, responsibilities and potential liabilities as their executive counterparts.

It makes sense, therefore, for potential NEDs to carry out proper due diligence and to be properly briefed before being appointed. The ICA has an excellent set of guidelines and advice for NEDs here.

Independent oversight of the strategy and direction, executive remuneration and performance, systems and risk management, and audit of a business is something that surely would benefit their businesses.

While these apply to all businesses, SMEs in particular can benefit from having directors with board and governance experience to introduce best practice and act as a mentor to those SME directors who have had limited exposure to well-run boards.

Will branchless Challenger banks struggle to recruit customers given the concerns about banking technology?

banking technology in the Wild WestThe failure of banking technology has become a wearyingly familiar story with problems this year causing chaos for customers of TSB, Lloyds Bank, Halifax, NatWest and RBS successively and the Visa system in June.

Not only were customers, both individuals and SMEs, unable to access their money, use their debit cards or pay salaries, but in some cases, such as TSB during its system upgrade earlier this year, customers were made vulnerable to fraud.

While this has largely been a problem for the mainstream banks it has affected customer attitudes as a survey by data analysts Consumer Intelligence revealed (as reported by specialistbanking.co.uk).

Stand-out findings included that 25% of online banking customers had experienced banking systems failures in the past year and that 49% of UK adults claimed to have changed their behaviour with regards to online banking due to security concerns. Just over a quarter of respondents said they now carried more cash and 82% said they were more careful about their data, while 43% said they would be put off applying to a bank which had suffered technical issues.

According to Andy Buller, key account director at Consumer Intelligence, bank IT systems are feeling the pressure because of the expansion of digital banking and because “banks are having to work with and update old systems and while they are investing in new technology, there is often a race to be first, which can mean vital testing is not carried out.” He warns that more problems are likely.

Individuals and SMEs are constantly being pressured to use smart phone and internet banking technology as the High Street banks continue to close smaller, less cost-effective branches and even ATMs are disappearing in some locations.

But, leaving aside the preference of many customers to still be able to speak to an actual human being in a local branch, the fact is that internet and mobile phone connectivity in some rural locations is still often patchy or of insufficient strength.

Into this landscape have come the digital Challenger banks most of which do not have branches and are largely based on Fintech banking apps.

The branchless Challengers include Monzo, Starling, Atom, Tandem and Revolut. Their main selling points are that opening an account is quicker and easier, that their fees are lower, that they are able to introduce innovative features more quickly and that they can also be better at security and preventing fraudulent behaviour thanks to their more intelligent analytic capabilities.

Many are relying on the regulatory change introduced early this year introducing Open Banking, which is designed to increase competition and forces banks to share their customers’ data with third parties that can provide financial services if their customers request this.

To be fair the many breakdowns in banking technology also prompted the regulators, The BoE and the FCA (The Bank of England and the Financial Conduct Authority) to impose a deadline of October 5 this year, to detail how they would respond if their systems failed, suggesting that two days is an acceptable limit for disruption to service.

If the contingency plans put forward by banks and other financial institutions are judged to be unsuitable, they could be ordered to make their systems more resilient.

It is early days for the Challengers as they try build their customer base by offering cheaper fees but in many cases have not yet developed business models beyond grabbing market share.

However, they may struggle until customers are convinced that their money is safe and access to it is reliable.

Fine words are not enough to enforce the Prompt Payment Code

Prompt Payment Code: late payment penalty?Last week saw two announcements on the ongoing issue of late payments by large companies to SMEs, both described as measures to end the problem.

The first announced the appointment of Paul Uppal, Small Business Commissioner, to the Prompt Payment Code’s Compliance Board alongside a promise from business secretary Greg Clark to strengthen the voluntary Prompt Payment Code.

The second, by Small Business Minister Kelly Tolhurst, was a call to submit evidence to help the Government to identify “the most effective way possible to tackle this issue once and for all”. The deadline for submissions is November 29 and you can find out more here. Her press release states: “Nearly a quarter of UK businesses report that late payments are a threat to their survival.”

According to the Times, Mr Clark had also promised that 90% of undisputed invoices from SMEs on Government contracts would be paid within five days. He also floated a proposal to make company boards appoint Non-Executive Directors with responsibility for supply chain practice.

In view of the IoD’s (Institute of Directors’) estimate that late payments put 50,000 SMEs a year out of business, I make no apology for revisiting this appalling situation for a fourth time this year, following my previous blogs on April 12, June 28 and a Stop Press on September 25 in which I mentioned a Times report that Mr Uppal had helped just nine SMEs with complaints since his appointment in December last year.

New research from Hitachi Capital, reported in Credit Connect, has also revealed that 17% of business owners say they are forgoing paying themselves a wage so they can pay their staff on time. This rises to 27% of small businesses that say they are already struggling to survive.

The history of action on late payment and the Prompt Payment Code

The Small Business, Enterprise and Employment Act 2015 made it mandatory for larger businesses (those with more than 250 employees or £36 million in annual turnover) to report their payment practices and performance on a half-yearly basis.

Non-compliance is a criminal offence, subject to prosecution. Yet since it came into force in April 2017 only 2,000 of the 15,000 businesses required to comply have submitted reports, and of these, some of the information has been inadequate. Despite the criminal aspects of non-compliance by 13,000 businesses, there have been no reported prosecutions.

In December 2017 Mr Uppal was appointed Small Business Commissioner with a brief, to support (my italics) SMEs in taking action on late payments and on making a complaint.

It was just a month or so later that Carillion, a known late payment offender and a signatory to the voluntary Prompt Payment Code, went bust and three months on from Mr Uppal’s appointment, as I reported, a survey by Close Brothers Invoice Finance found that 84% of those SMEs asked had little confidence that the appointment would have a positive impact on their businesses. It would appear that Boris Johnson’s two-word comment about business was prophetic.

Action that should be taken on late payment and the Prompt Payment Code

Perhaps I am being cynical but the latest Government announcements were made during the Conservative Party conference – no doubt to garner positive headlines in view of the general cynicism about the Government’s understanding of SMEs problems, especially given that businesses are becoming more public about the ongoing Brexit negotiations?  Time will tell.

As one commentator, Greg Carter, founder and chief executive of Growth Street, said in CityAM “At present, the Prompt Payment Code … dictates that invoices should be paid within 60 days, other than in ‘exceptional circumstances’. We’ve all seen now that these voluntary stipulations are worth little more than the paper they’re written on.”

He added “But no matter how energetic and effective the small business commissioner is, he must be supported with a robust, meaningful, and (crucially) enforceable code.”

This, surely, is the point. For SMEs to see any meaningful improvement in payment times, there must be a sufficiently strong set of penalties that are actually imposed to ensure businesses comply. As Mr Carter says in the article action needs to follow rhetoric. Failure to police the Small Business, Enterprise and Employment Act 2015 says it all.

October sector focus – on UK ports

UK ports, Liverpool docksIt is obvious that an island nation with a lengthy coastline is likely to have a large number of ports and the UK is no exception.

The UK has 51 major ports as well as a host of smaller ones.

Its ports industry is the largest in Europe, dealing with approximately 96% of the volume of the UK’s import/export trade. That was 481.8 million tonnes of freight in 2016, according to most recent Government statistics (published in autumn 2017). The sector employs approximately 344,300 people and contributes £19 bn to GDP.

Although overall freight tonnage fell by 3% in 2016, this was largely due to a reduction in demand for coal imports since overall import freight traffic increased by 1-2% depending on the category. According to latest Government quarterly figures total tonnage levels for all UK ports remained level in 2017 compared to 2016 at 481.8 million tonnes handled.

Cargo is segmented into several categories, Roll on Roll off, Dry bulk, liquid bulk, Lift on Lift off, and “other”. Both Roll on Roll off and Lift on Lift off volumes have increased in the period with imports of international goods exceeding exports.

The busiest UK ports are Grimsby and Immingham, Port of London, Liverpool/Merseyside, Tees and Hartlepool and the UK’s busiest container port of Felixstowe, in Suffolk.

Ownership models of UK ports

There are three main ownership models:

Private ownership – This group includes ranges from ports owned by international groups to ports owned by private companies (eg the Bristol Port Company).

Trust ports – These are independent bodies that cannot be owned by other companies or shareholders. They tend to be smaller, but include some major ports such as Aberdeen, Belfast, Dover, Milford Haven and the Port of London.

Local authority owned ports – These include Portsmouth and the oil terminals in Orkney and Shetland

Diversity of UK ports

As well as 120 cargo handling ports there are over 400 non-cargo handling ports and harbours around the UK.

It is often forgotten that ports specialise in many different types of activity, such as fishing, cruise ship terminals, support for marine oil and gas terminals as well as locations for marine industries, such as boat building and marinas for berthing privately-owned yachts.

Arguably the cruise terminals are the second largest income generator, operating from such locations as Edinburgh (Leith), Dover, Southampton, Harwich, London-Tilbury, Portsmouth, Liverpool and Newcastle on Tyne.

Clearly UK ports play a significant part in generating income for the UK economy, even more so if the associated freight haulage is added in.

At the moment, they are facing considerable uncertainty about what will be required of them in the future in the face of the ongoing and now somewhat tedious negotiations over the UK leaving the EU in March 2019 and it is to be hoped that there will be some clarity over such issues as customs checks to enable the ports to plan their businesses for the future.

October key indicator – has global trade peaked?

had global trade peaked?In a report in November 2017 the WEF (World Economic Forum) analysed the future prospects for global trade suggesting that there will be a different kind of globalisation presenting different challenges.

In August this year in an article in the Evening Standard Paul Donovan, global chief economist of UBS Wealth Management, argued that global trade growth had stalled in the last few years and we had hit “peak trade”.

The earlier WEF report had concluded: “International trade of goods based on offshore manufacturing will obviously continue to exist, but it will tend to decline below world GDP growth.”

The most recent OECD (Organisation for Economic Co-operation and Development) analysis painted a similarly bleak picture in September predicting that escalating trade tensions, tightening financial conditions in emerging markets and political risks were contributing to a less positive outlook and “could further undermine strong and sustainable medium-term growth worldwide”.

In all the above the focus was primarily on the trade in goods around the world.

So, what are the key stresses that are leading to such a gloomy picture for global trade? They include trade wars and the imposition of tariffs, a rise in protectionism, the advent of IR 4.0, austerity and its effect on consumer confidence, global debt and concerns about the environment.

Let me take each of these in turn, albeit some can be grouped together.

Tariffs and trade wars: particularly those being introduced by US President Donald Trump on China and the EU as part of his stated purpose to “Make America Great again”. Unfortunately, this escalating tit for tat exchange is essentially a political response following a failure of negotiation. The approach is aimed at addressing the concerns of those parts of US industry that have been hard hit by “offshoring” manufacturing to places with the cheapest labour costs. The consequence is likely to end up with many goods becoming more expensive, not least due to rapidly rising labour costs in US.

This has particularly impacted on the industrial communities of the American Midwest, the mining and metallurgical areas of Liverpool and Manchester, and formerly industrialized, rural areas of France, according to the OECD.

Protectionism: Inevitably, political calculation is intertwined with tariffs and trade wars and it has been noticeable that there has been a rise in the popularity of protectionist, nationalist political parties, not only in the US but across the developed world in the EU, and beyond. The hope is that those communities hardest hit by globalisation and offshoring will be revived as manufacturing returns “home”.

IR 4.0: the advent of IR 4.0 (the fourth Industrial Revolution) is bringing in robotics and AI to replace workers. It will affect many aspects of national economies, reducing costs and making manufacturing closer to the point of sale cheaper. The consequence will be the loss of many low-skilled jobs although it has been argued that these will be replaced by the higher skills necessary to operate such technical equipment.  Paul Donovan argues that the politicians are therefore hopelessly out of date and are “leading cavalry charges across a battlefield of nuclear missiles”.

How we trade and what we trade are both changing, he argues, hence his thesis that as IR 4.0 makes supply chains shorter the world may well have hit peak trade in goods.

Austerity and consumer debt: ten years after the 2008 Great Recession began, many developed world countries, most notably the UK, are still trying to deal with the consequences and rein in public spending to an extent that has had a significant negative impact on both business and consumer confidence. This in turn has impacted on the investment and spending on which their economies depend. Greece, one of the hardest-hit countries, is still struggling, the Italian economy is not in the best of shape and the UK debt burden is reportedly still at 80% of GDP.

Environment:  there is also growing concern about the impact of relentless growth on the environment, focussing on global warming, natural resources, population growth, deforestation and so on. This will have an increasing impact on costs and consumer spending.

Global debt: there are already signs of stress in several developing world economies, most recently in Venezuela and Argentina but it is predicted that Turkey too will soon follow their lead in requesting aid from the IMF (International Monetary Fund).

The Guardian’s Philip Inman in an op-ed piece on September 26 suggested that the world’s poorest countries had “little protection against Trump’s trade wars and the growth slump”. He reports that Unctad (United Nations Conference on Trade and Development) has warned in its annual health check on the global economy that there has been a “dramatic increase” in developing world debts, attributing this largely to the behaviour of private corporations. This has resulted in a tripling of global debt in relation to GDP in the weaker economies since 2008 from 7% to 26%.

It’s not all doom and gloom for global trade

All of this may seem like a bleak picture, but there is some evidence that in fact the global centre of gravity is shifting and we are currently living through a transition period.

According to an analysis of the world economy by HSBC: by 2020 China will become the world’s largest economy and India will overtake Japan, Germany, the UK and France to become number three behind US.

To an extent, argued Hamish McCrae in the Independent last week, this will be driven by two major factors contributing to their growth: catch-up and frontier. Catch-up is where emerging economies such as China start to adopt and apply the technologies from the developed world, while frontier economies will improve the productivity of their predominantly younger work forces through education and innovation and nurturing entrepreneurial talent.

Toothless regulators and unrepentant ‘too-big-to-fail’ banks

"too-big-to-fail" banksIt has to be said that since the 2007/8 Financial Crisis from which several of the “too-big-to-fail” banks had to be rescued by the central banks, SMEs have struggled to obtain loans and funding facilities from them.

There appears also to have been little in the way of retribution for those that caused the banks to collapse, although banks have since been forced to increase their capital reserves in an attempt by the regulators to avoid having to bail them out in the future.

Take RBS (Royal Bank of Scotland), which had to be bailed out and taken into public ownership, where it still partly remains.

There has been the emerging scandal concerning its treatment of SME customers who were transferred to its restructuring arm, GRG (Global Restructuring Group), with approximately 16,000 ending up insolvent and having to close down. No bail out for them!

After intensive lobbying starting in 2013 this situation eventually became the subject of a lengthy inquiry by the FCA (Financial Conduct Authority), which earlier this year published a summary of its findings, and “recommended” that the turnaround units in all banks be reviewed, and also the relationship between banks and insolvency practitioners, who generally act as their advisers when dealing with clients in difficulties.

The FCA only published its full report in February 2018 following pressure from the Treasury Select Committee. And then in July it announced it not taking any action against RBS or its senior managers over GRG’s behaviour “because its powers were very limited” and “there were no reasonable prospects of success”.

It also announced in early September that banks will face no further action over the interest rate swap mis-selling that contributed to the collapse of many SMEs and the financial difficulties experienced by many clients who had been duped by their banks.

More recently, despite assurances to the Treasury Select Committee given by RBS CEO Ross McEwan that he was not aware of any allegations of criminal activity, in late July it was announced in the Times that a former GRG banker was being investigated by Police Scotland over allegations that RBS had demanded “tens of thousands in cash” from SME owners in exchange for forbearance on their debts.

SMEs have also been advised to get on with any claims they wish to make against GRG before a deadline of 22 October 2018. According to business news website Bdaily, so far £10 million has been paid out in compensation out of a £400 million fund and there have been 1,230 complaints from a potential 16,000 SMEs.

It is little wonder that the CMA (Competition and Markets Authority) has found in a survey of business customers that RBS was rated Britain’s worst bank overall.

Yet despite all this, ahead of a briefing to challenger banks this week on a contest for £833 million of funding, provided by RBS to boost banking competition, Ross McEwan has been quoted as saying the challengers will struggle to compete against the Big Six in the face of their recovery from the consequences of 2007/8.

But this is not all about RBS.  Yesterday’s Financial Times reported on the behaviour of Lloyds Banking Group:  “Not only did the bank seek to obstruct Thames Valley Police’s inquiries into the £1 billion HBOS reading fraud, it also prevented access to the key “whistleblower” Sally Masteron, author of the critical Project Lord Turnbull report, and then fired her because of the inconvenience of her report’s message.”

It seems clear that unless regulators like the FCA are given much more robust powers to take action against the banks, not only RBS, but all ‘too-big-to-fail’ big banks will continue to feel they can act with impunity.

How much longer before they precipitate another, albeit different, calamitous financial crisis?

Update on the business rates and appeals fiasco

is anyone listening on business rates?In August it was announced that HMRC had sent in approximately 25 staff to the Valuation Office to fix the business rates appeal portal, which had been repeatedly cited by businesses as being impossible to use.

As the only mechanism now available for appealing non-domestic rate revaluation, the portal has been cited as the chief reason for an almost 90% reduction in appeals since the 2017 revaluation and just before this blog was due to be posted an article in The Times reported that a Government survey has revealed that almost nine out of ten businesses in the first stages of making an appeal using the portal were dissatisfied or very dissatisfied with the new system.

In the meantime, the numbers of business failures, particularly in the retail sector has continued to climb; many attributing the rise in rates as a factor.

Altus Group, a ratings adviser, reported in August that bailiffs had visited 81,000 businesses because of business rates arrears – an average of 222 businesses per day over the previous 12 months.

Last week, as reported in both the Daily Mail and the Daily Mirror, ONS (Office for National Statistics) figures had revealed that more than 51,000 high street stores had closed in the past year.

Yet more pain was added after the 2.7% August inflation rise was revealed with Altus Group predicting that businesses would face an increase of £819 million to business rates if inflation remained at this level.

Is the business rates system fit for the 21st Century?

There have been many calls for a rethink on business rates, from Rohan Silva and the British Retail Consortium which said they were “no longer fit for purpose in the 21st Century”, in the Evening Standard in late August, to Wetherspoon founder Tim Martin calling for a “sensible rebalancing” to create a level playing field for High Street retailers, earlier this month.

Vince Cable, Lib Dem leader, has called repeatedly for business rates to be replaced by a land value tax payable by landowners rather than by tenants while others have called for a reform of VAT into a two-tier system for physical and online retailers.

But there has been a deafening silence from the Government, with the exception of the Chancellor, Philip Hammond, who claimed many high streets had prospered and that high street retailers needed to evolve in order to survive – no surprise given all the many worthy and pressing claims for increased spending that he will have to reconcile in his next budget.

Business rates affect not only the retail sector but all businesses, a point often forgotten in the ongoing focus on retail.

Is the Government living in an alternative universe or has it become so fixated on its own internal squabbles over the “B” word that it is ignoring all the other pressing issues facing SMEs?

Is it listening to business?

STOP PRESS: The Times has also reported that since the appointment of small business commissioner Paul Uppal last December to tackle late payment to small businesses he has helped just nine SMEs to handle complaints, a topic to which I shall return in a forthcoming blog.

Here is a copy of my free guide to getting paid on time:

https://www.onlineturnaroundguru.com/p/getting-paid-on-time

The fourth Industrial Revolution will need a fundamental change in business thinking

the fourth Industrial RevolutionA day after my last blog, on skills shortages and Brexit, the Migration Advisory Committee published its analysis on migrant workers and the future.

The report, commissioned by the Government ahead of Brexit, suggested there should be no special status for EU migrant workers and extending access (called Tier 2 visas) for higher-skilled workers from non-EU countries should be extended to all countries.

It also said it was “not convinced there needs to be a work route for low-skilled workers” from the EU” with the possible exception of seasonal agricultural workers.

Not surprisingly employers and businesses gave the report a mixed reception, generally negative from those who depended heavily on low-skilled migrants for production line, hospitality and farm-related work.

But given that the world is at the start of what is being called IR 4.0, or the fourth Industrial Revolution, is this an example of politicians’ and businesses’ thinking being out of date and, along with trade wars, fighting the wrong battles?

This is the thesis of Paul Donovan global chief economist at UBS Wealth Management who argues that global trade has now hit its peak and, in the future, thanks to IR 4.0 everything, from supply chains to transportation will become much shorter, with locations of production much closer to their customers.

The reason is that with the advent of robotics, AI and automation much of the production of goods could be carried out locally and affordably without the need for the constant worry about sourcing enough low-skilled workers to carry out what are essentially tasks that could easily be automated.

This would reverse the offshoring trend of the past 20 years or so that was driven by the pursuit of lower labour costs. Indeed, the onshoring of manufacturing in US has been gathering pace due to automation, exchange rates, higher transport costs and lower energy costs.

The construction industry is an interesting example, where there have been shortages of skilled tradespeople for some years and it is currently using EU workers to fill the gaps.

In the last few days research published by Altus Group with 400 UK property developers postulated that we could soon see “armies of robot bricklayers” making up for the skill shortage.  Already there are trials taking place on some building sites. Drones, meanwhile, are being used for surveying, inspections and progress monitoring.

Of course, there would be a period of disruption during the transition and the World Economic Forum (WEF) has already predicted around 75 million jobs being displaced globally by robots by 2022, and not only in the most obvious sectors.  However, WEF also predicts that a technological revolution could create around 133 million new jobs. This prediction has also been backed up by PwC.

Professor Klaus Schwab, WEF Founder and Executive Chairman, in his book The Fourth Industrial Revolution, calls this a time of great promise and potential peril.  In his book he says: “decision makers are too often caught in traditional, linear (and non-disruptive) thinking or too absorbed by immediate concerns to think strategically about the forces of disruption and innovation shaping our future.”

This suggests that business leaders will have to begin questioning everything, from their strategies and business models, to making the right investments in equipment, training and disruptive R&D.

Arguably this revolution in thinking applies equally forcefully to governments.

Skills shortages and recruitment problems for SMEs amid ongoing Brexit uncertainty

skills shortages and recruitment problems not just for fruit pickersI try to avoid the dreaded “B” word in my blogs but on this occasion, I can’t avoid it as the chorus of business voices highlighting skills shortages and recruitment problems grows larger and louder.

It is no good for Government to assert that it will all be fine once negotiations on the UK’s leaving the EU are concluded when the situation is no clearer now than it was when all this started almost two years ago.

Somehow, businesses need to carry on in the interim as well as planning for the future.  Some things just cannot wait and high on the list is where and how they are going to source the people they need at all skill levels, whether or not they trade abroad.

Some facts about skills shortages and recruitment problems

Firstly, the most recent complete set of immigration figures, published by the ONS (Office for National Statistics) showed that, in 2017, more EU citizens, 139,000, left the UK than came here to work, 101,000. This was the lowest level for five years.

The independent “think tank” Global Futures calculated that the fall in immigration since the decision to leave the EU was already costing the UK public finances more than £1 billion per year and research by Scott-Moncrieff found that 51% of SMEs put Brexit at the forefront of their worries, with even those not trading abroad linking it to a decline in spending and to skills shortages.

This translates on the ground to data from the West Midlands Chambers of Commerce revealing in their quarterly report that 53% of their members were reporting recruiting difficulties and YouGov figures reporting that 23% could not retain EU nationals.

In East Anglia, the business section of one regional paper highlighted interviews with SMEs, one of them with a small local electrical contractor who had been searching fruitlessly for qualified new recruits for five months.

Equally, there are regular reports of a shortage of nurses, doctors and other health care professionals in the NHS and care homes too are finding it hard to get staff.

I have noted in past blogs the sectors where qualified people have been in short supply for many months, including in construction, the Tech sector and in engineering. The Daily Telegraph has calculated that half of all postgraduates skilled in AI had migrated overseas, 33% to leading US tech firms, 11% to North American universities and 9% to smaller US businesses – a new “brain drain” in the making?

As far back as July the Independent was reporting that six in 10 businesses have had to spend money on extra incentives, pay rises and bonuses ranging in value between £5,000 and £100,000 to persuade skilled EU workers to work for them.

What action has there been to address skills shortages and recruitment problems?

Doubtless the Government, if challenged, would say that it is listening to businesses although the message does not seem to be getting through or is being treated with some scepticism.

Given that the UK has near-full employment, even unskilled workers may be able to command a premium and there have already been warnings from farmers that recruiting enough seasonal fruit and veg pickers is a serious problem.

In late August the Home Office announced that it had developed an online “toolkit” to help UK employers to register EU citizens with a new immigration status following Brexit and to help those citizens to get their new immigration status. This has yet to be tested and given the government’s less than stellar track record on commissioning new IT solutions it remains to be seen whether it will be user friendly.

Then there is the apprenticeship levy and the Government’s target of having 3 million new apprenticeships in place by 2020. This has hardly been a resounding success with the numbers of places having slumped over the nine months of the 2017-18 academic year by 34% compared to the previous nine months. Last week the FSB (Federation of Small Businesses) revealed that there had been a further slump in new apprenticeships in the year to June, down by 28%.

Not surprisingly, the FSB, the CBI (Confederation of British Industry), the IoD (Institute of Directors) and the BCC (British Chambers of Commerce) have all called for the scheme’s urgent reform.

The question is whether the Government will do more than “listen” to business concerns and actually do something practical that works.

Predatory investors behaving like unscrupulous bankers

leopard with prey - a predatory investor?Ten years after the lending culture that resulted in the 2008 Great Depression it seems that the behaviour of some investors is no less predatory and unscrupulous than those of bankers 10 years ago.

Recently FanDuel, a fantasy sports site, was sold by its Private Equity investors to Paddy Power Betfair for $465 million. So far so good. However, despite the sale price the ordinary shareholders got absolutely nothing.

The background to the investment is that the business was regarded a Unicorn company (a privately-held start-up valued at more than $1 billion) with it having more than 6 million daily customers in America.

Two Private Equity investors, KKK and Shamrock Capital, provided funds, based on a valuation of at least $1 billion. However, I am sure that the actual investment was based on a mix of debt and equity with a tight agreement that included a drag-along provision that was binding on all shareholders and allowed them to force through the sale of 100% of the shares at the reduced valuation.

I speculate that despite investing in the equity at the higher valuation, the amount of equity was minimal and in any case the agreements provided for the shares having a preferential status and I am also sure provided for an uplift on the equity that ranked ahead of ordinary shareholders.

I am also sure that much of the investment was debt that will have ranked ahead of shareholders. Given the sophistication of the Private Equity investors I am sure they did well out of their pref. share uplift, fees and interest on the debt, albeit at the expense of the founders and other shareholders who will have created the $465 million value for which the company was sold.

Not surprisingly, the former owners and the ordinary shareholders are considering legal action on the grounds that the sale undervalued the business in the USA and ignored a US Supreme Court decision to relax sports gambling laws there. I don’t however believe they will be successful in pursuing a claim since I am sure that the Private Equity investors will have covered all the bases legally.

In my view this is similar to the ruthless, unethical behaviour that characterised lenders’ attitudes at the height of the lending crisis that led to the 2008 Great Recession.

The defence of such behaviour is that it is legal and one of ‘buyer beware’. Perhaps the ordinary shareholders should pursue their advisers who are culpable for leaving their clients so exposed to ruthless and unscrupulous investors.

Doubtless private equity companies, like banks, would argue that it is their job to maximise returns for themselves and their investors by whatever means, albeit within the law. However, the ethics of their behaviour and their reputation for fair dealing ought to be a concern if they are not to become regarded in the same way as bankers.