Monday, March 28, 2011

Laslappie Accounts.

One of the joys of living in a remote part of the Overberg is that you get to hear again those often quaint and traditional Afrikaans sayings and words that are quite charming. Many of the older folk here speak with a slight “bry”. Not the harsh, guttural sound that is associated with Malmesbury and the West coast, but a soft yet distinct rolling of the “R’s”.

A word that is more part of the Western Cape vocabulary than further North is “hoeka”. I’m not sure what it means, and the “Tweetalige Woordeboek of Bosman, van der Merwe and Hiemstra is not of much help. It says it means “the way it is” or something to that effect. Well, then most are using it in a completely inappropriate context…and often. Perhaps like me, they are so enchanted with the word that they just utter it on every possible occasion, appropriate or not. Say “hoeka” often enough in one sentence and you are bound to end up in a trance and perform some gyrating dance that could match Michael Jackson on stage. It’s weird, but every time I hear the word I want to break out into a karaoke rendition of Johnny Preston’s “Running Bear”, or even more appropriately Carike Keuzenkamp’s “Hoeka Toeka”. Someone should suggest that they get the Springboks to chant the word in a Zulu war dance and intimidate the hell out of the All Blacks and their puny haka. Better still; combine the two into a hypnotic “hoeka-haka” and we could have the whole crowd going.

Equally enchanting, perhaps more so, is the more common “laslappie”. It leaps off the tongue like an impish elf and seldom fails to solicit a giggle from a 2 year old. It’s the perfect tool to mesmerise a rebellious tyke into swallowing some pulverised broccoli.

It means patchwork which, I am told, is an established handicraft with many followers threatened by Jeremy Gordin’s state of gerontophobia – a word that my spell check refused to accept. But laslappie has its roots in prudence and austerity. Most matriarchs of previous generation families were accomplished seamstresses and would make their own clothing, kids’ school uniforms, curtains, pillow cases and the like. The remnants and off cuts would be preserved, re-cut into squares and shapes and then sewn together to form a blanket sized laslappie. Of all of her accomplishments as an Amsterdam baker’s daughter, my mother did not possess the talent of a seamstress. This was obvious to even my pre-teen school peers who could identify me by my clothing as one of the untouchables from the mining camp on the other side of the mine dump. But the endearing quality of the laslappie was that once it was stitched onto a blanket to form a quilt it became one of the household’s most sought after comforters – the attraction being a nostalgic trip into one’s past with the examination of each patch.

I used to think that the individual patches were called “loslappies” and it took a number of loslappies to make a laslappie. But then I learned something from Kurt Darren. His hit single in certain circles told me that a loslappie is a wanton wench that you pick up in certain bars. You clearly can’t use a loslappie on a laslappie. Well…perhaps you can.

By now, anyone who has read more than one of my articles on this site is probably screaming: “Where’s the analogy!” I seem to be addicted to metaphors and analogies – a trait that I have been told is the mark of an unimaginative writer trying to hide deficiencies behind hyperbole.

clip_image002But there is an analogy in my laslappie. It reminds me of the financial and other accounts that companies have to compile these days and stitch together to form a quilt called the Integrated Report. Even the most talented patchwork handcrafter in the form of a high flying public relations spin doctor will have difficulty in taking each lappie or patch and laying it out to form an artistic whole. It will always have the look and feel of conflicting colours and textures because the lappies themselves do not form part of a coherent whole at the outset. In any case, the most dominant message will come from the most seductive loslappie.

You can’t expect a coherent end-product if there is fragmentation and incoherence long before the accounting process begins – at operational level and even earlier at the planning and strategic level. The modern day corporation is rife with vested and often conflicting motives. There are shareholders, labour, executives, government and other social institutions such as environmental lobbies each with their own agenda that pull at the entity, often in separate directions. You cannot have a “shared” motive of getting something if that “getting” means less for another.

The only shared motive that works is about giving, where each is prepared to make a contribution to the whole and where there’s an overriding principle that no one compromises on. The only one that works for a company is service to society through service to the customer. All the rest are consequential.

Saturday, March 19, 2011

When the Planet Shrugs.

and Japan shows that humanity’s vulnerability can also unleash its greatest strength.

Most of us felt it. A distinct emotional tug from within while witnessing the unfolding of a calamity in Japan. Some of us would have been affected more than others. Few would have been immune.

It’s called the mirror neuron. It’s some or other “thingy” in the brain that creates empathy and, as far as scientists can tell, we have the strongest mirror neurons of only a handful of earth’s species that possess them. It is what makes us human and, according to British medical and social Scientist, Robert Winston, it makes us natural born heroes. It is one of our instincts and the key ingredient to our greatest strength – compassion.

clip_image002The miracle of modern technology brought into our homes those awe inspiring scenes of repetitive destruction in Japan. Shock after shock, wave after wave as nature’s sledgehammer dealt ruinous blows to a reeling island. Buildings changed to rubble, possessions into debris…once proudly owned and giving affirmation and definition to the owner – a sense of being, of power, of significance. Because that’s what people do in their search for the good opinion of others. They create monuments and legacies of “stuff” and are defined by it rather than by their inner qualities of integrity, honesty, care and compassion.


Yet when, in a shrug of nature those monuments and legacies become nothing more than rubble and debris, the only thing that lasts are those inner attributes. They can never be taken away, only given away. It is the greatest of these – compassion – that comes to the rescue when we as a species are threatened. It is compassion that ultimately defines who and what we are. It is compassion that is our ultimate strength. It is compassion that drove U.S. President Barack Obama to remark: “...for all our differences in culture or language or religion, ultimately humanity is one."

I often marvel at the extent to which we have allowed the natural instinct of empathy and compassion to be buried by the motive of raw material self interest. We have cultivated self interest as an essential driver of a progressive economy…that prosperity has to be fuelled by an insatiable appetite for acquisition and consumption.

Not even the father of capitalism, Adam Smith argued that. At most he proposed that the concept of free enterprise best accommodated both the higher and lower selves. But as a humanist and moral teacher he would have baulked at championing the pursuit of immediate self gratification and self interest over a much higher social order. This is argued far more clearly in his earlier work: Theory of Moral Sentiments.”

Dwarfed by the human story in Japan, but still part of it, is the economic story. It may still take a while before a more accurate assessment of the economic consequences for the country and the world can be made. At least one outcome will be a global reassessment of nuclear energy. It also makes the economic assessment different from the previous Kobe quake. For Japan the triple blows of quakes, tsunamis and nuclear accidents will likely, according to Reuters, have a deeper impact than many initially thought. First estimates of the insured loss are at about $35bn but only about 15% of the Japanese are thought to be insured. In the medium to longer term some economists point to a growth recovery as the country rebuilds after clearing up.

But again I am struck by the neglect of all of the assessments I have read to take the human response into account. We are given one hint in the fact that Japan has been able to maintain in recent years a public debt of more than double its Gross Domestic product, the highest by far in the developed world. It is because nearly all of its debt is funded from Japan’s sizeable pool of household savings, large and stable institutional investors, and a strong home bias. How it will finance this latest catastrophe remains to be seen.

But how could we have forgotten that it was possible for Japan, one of the vanquished in World War II, and one of the most devastated by the war, to become one of the economic victors within 40 years? By the 80’s Japan was not only one of the world’s biggest economies, it was also the healthiest with huge positive trade balances and reserves, low inflation, continuing rapid growth and full employment.

Japan was hailed as a “miracle of capitalism”. That’s something of a misrepresentation. It had a free market labour driven economy as opposed to a free market profit driven economy. It was the exporter of such labour practices as participative management and techniques of establishing employee loyalty. It was the emphasis on labour that changed the lot of the Japanese worker from being lowly paid after the war to being amongst the highest paid workers in the world a few decades later. It was the Japanese human dynamic that accounts for its rise like a Phoenix from the ashes.

Japan, with Germany, reaped the benefits of being a nation with very low expectations and high aspirations after the war.

There were many other factors that contributed to the Japanese success. The labour driven approach shifted dramatically in the late 1980’s when Japan entered the circus of financial speculation and experienced a huge property bubble. That burst in the 1990’s, was compounded by the Kobe earthquake in 1995, and later developed into the Asian crisis. It was a bubble not unlike the one that burst in the West in 2008.

But the human core of what created the Japanese success story is most likely still there. I was struck that in none of the initial news coverage have we seen reports of looting. Victims line up in orderly queues at stores to get supplies as basic as water. Of course it is still early days and this may change as the situation worsens and people become more desperate. But there has been a very clear difference between Japan and New Orleans after Katrina, where the U.S. National guard quickly had to change their role from being helpers to policing a looting population within hours of the disaster.

It’s a key difference. The Japanese seem to have what can only be described as spontaneous restraint. That oxymoron is a powerful attribute worth emulating in all of our lives.

We certainly need it in South Africa.

Tuesday, March 15, 2011

Another cup of cappuccino?

What is it with human beings? Of all the creatures on the planet we seem to have the greatest propensity to repeat mistakes. Yet, we have the greatest ability to record, review and analyse history to avoid them. Doing the same thing over and over again and expecting a different outcome is the classic definition of insanity.

Knowing that alone should make us more sceptical of the solutions we often implement in the belief that they are novel answers to a seemingly new problem. That’s one of the advantages of having us “oldies” around. We have often lived through the “same old, same old” and know that there really is nothing new in this world except history not uncovered or simply misunderstood.

This week, as I reflected over my weekly cappuccino at the Rolandale roadside restaurant next to the N2 to George, I thought of one of the first articles I wrote for this column and whether the financial froth that was evident at that time had been reduced. Derivatives expert and author Satjayit Das had estimated that only about 30% of world liquidity had tangible value based on the production and supply of goods and services. The remaining 70%, he calculated, was based on speculation in the form of financial instruments such as derivatives. The implication was that you could not solve this problem by simply using tax-payers money to save those financial institutions with too much froth in their coffee. You cannot change a cappuccino into an espresso.

Immediately after the 2007 financial meltdown, prospects of a recovery were dismal and many believed that with the fallout on the real economy there would be a repeat of the great depression, widespread unemployment and deprivation. We arguably have not had that. Indeed while some are still holding on to the belief of a “double dip” down the line, there is a far greater level of comfort that the worst is over and that the world economy is on a path of recovery, albeit slow and fragile. Stock markets have largely recovered and this has always been a classic barometer of future prospects.

We could argue that if the price we had to pay for decades of excess up to 2007 was a few year’s brake on growth with some elevated levels of unemployment, a large increase in public and external debt in the developed countries, and some concerns about recurring inflation as Felicity Duncan reported this week, then we have done pretty well.

Or have we? Have the original band-aids, which became bandages and then plaster casts, not covered a festering wound that is becoming gangrenous? Take the confusing picture that has been emerging from the United States, where the economic woes were both set up and triggered in the first place.

As with most of the developed world, its response to the crunch was to use government money to rescue teetering financial institutions, both in the form of loans and buying equity. It slackened monetary policy and reduced interest rates to near zero. Added to this, it pushed more money into the economy through “quantitative easing”, or buying back its own securities to convert them into cash. Up to October last year, this had released $2trn into the economy. The intended effect was to reduce the value of the dollar and make American exports more competitive, encourage Americans to spend and to boost confidence on Wall Street which in turn would encourage investment, employment and economic growth.

clip_image002Federal Reserve Chairman, Ben Bernanke certainly has his critics who believe the whole package is fraught with danger, not least of which is runaway inflation or even a severe bout of stagflation. Will Bernanke repeat his predecessor Alan Greenspan’s mistake of misjudging the human response thereby unleashing unintended consequences? It’s perhaps early days, but so far there’s been little impact on American unemployment or housing. This makes sense. With the average American citizen carrying a personal debt of $52000 and facing a still uncertain future, they would rather reduce debt than spend money.

More frightening, if not amazing, is a recent report by Mike Whitney who writes that the Fed’s programme has sparked “an orgy of speculation” with the hedge funds again at the forefront. Borrowing very cheap money they invest on Wall Street on the anticipation that the rally will continue and in high risk paper that caused the problem in the first place. But there’s not much from companies to indicate that the stock market recovery is based on anything else but pure speculation. Companies have about $2trn that “they refuse to invest because they don’t see growing demand for their products”, says Whitney. This represents about 11% of the assets of non financial companies and a sixty year high in savings. Asset manager Robert Doll points out that high cash levels generate dividend increases, share buybacks and mergers and acquisitions, which are all shareholder friendly but do not affect the real economy or create jobs.

The only way out for Americans unable to face real austerity, is the unthinkable to many: a substantial increase in the Federal deficit, tax cuts and bigger government spending on job creating ventures. As unpalatable as this may appear (and probably is) it is certainly a better option than merely serving another cup of frothy cappuccino.

America’s woes underscore the contrast with the emerging economies. While the latter have obviously felt the effects of the general slump, they have been largely unaffected by the “froth” that overwhelmed the developed economies. Also there is more room to manoeuvre in government spending on infra-structure and employment creating ventures.

Perhaps the high level of unemployment in a country like South Africa is a blessing in disguise. It has to focus all its efforts and marshal real support from the private sector in tackling the problem. The improvement in business confidence reported by RMB in the past week or so is therefore probably more tangible and sustainable.

Of course, there is much work to be done in terms of making the country employment friendly, reversing the shrinking tax base against an expanding social dependence and ensuring efficient allocation of state expenditure. But these are practical issues thwarted only by stubborn ideologists and politicians.

The American story shows again the folly of making major decisions based on personal assumptions of how human beings will respond. It should tell us all that you cannot create lasting prosperity or base a recovery on monetary manipulations and speculation.

The hair of the dog is never an answer to a hangover – only a postponement of the inevitable.

Sunday, March 6, 2011

Trust after Trauma

Ben was there when the mob murdered a close colleague. They crushed his skull with home fashioned pangas and stabbed him in the chest with a length of sharpened rebar.

Ben, a recent graduate from Stellenbosch University and a member of the HR team, had joined a group of officials that went to the arena of the West Rand mine to appease a few thousand striking workers. As they made their way to the centre of the arena, they were mobbed and attacked by a group of chanting and crazed strikers. Dragging their severely wounded and dying colleague with them, they all sprinted for the car, bundled in and drove through a gauntlet of rocks, stones and panga slashes until they were able to reach the relative safety of the mine offices.

It was 1986 -- one of the most turbulent years in the history of South African mining and labour. Not too far away, two policemen had been “necklaced” coming to a fiery end in the middle of burning tyres. Elsewhere, rival union officials were put on a platform and stabbed with sharpened metal rods and sticks until they lay in a lifeless heap in front of the jeering crowd. Hostels had become “no-go” areas and resembled war zones. Underground, all kinds of material – nails, rebar, metal sheets and tempered steel rock drills – were being fashioned into spiked clubs, spears, knives and swords that could rival Excalibur. It was if all were preparing for settling old scores and a final showdown against rival unions, tribal factions, management, the system and the white government. Of course, there was labour unrest elsewhere as part of the political turbulence in the mid 80’s. But none could rival the intensity and violent nature of the mining industry.

Mining is a tough world. It breeds tough people. I remember the months I spent underground as part of a “gap year” in the 60’s before going to Holland to study. I was appalled and simply not prepared for the conditions we all had to work under, conditions that my father had endured for nearly 50 years before succumbing to miner’s phthisis. Yet I marvelled at their high spirits, the singing and chanting of shoshaloza songs as they made their way to their work areas, sometimes crawling more than 100 meters through 1½ meter high tunnels. More than the paltry pay, camaraderie kept them going. Like soldiers, they hated the war, the system, the circumstances and the higher command.

But they loved and fully trusted their brothers in arms, sometimes even the white miner “boss” and occasionally even the “shift-boss”. They had to. It was dangerous work in a dangerous, unforgiving place. They had to watch each other’s backs and mostly looked up to their immediate supervisor, the miner or shift boss, as being part of that brotherhood. It was a place of tangible, unconditional trust. It was also a place of tangible, uncompromising distrust.

For years I questioned the wisdom of the Wiehahn Commission for granting a general labour franchise in the absence of political franchise. It transferred the “struggle” to the workplace, introducing a political dimension which we are still having to live with today and with which none of the Wits Mining Engineers, M.B.A. graduates and HR yuppies of that time were equipped to cope.

It was the palpable distrust in mining and the need to equip industry leadership with tools to deal with it that led to the Chamber of Mines launching “Industrial Leadership”– a comprehensive research project aimed at diagnosing the causes of distrust and developing methods of enhancing trust. This project was headed by my brother, Etsko and after being “privatised” in the late 80’s it became part of our processes when I founded Schuitema Associates in 1990.

As with all knowledge, many of the key findings of enhancing trust in leadership were known. In the 70’s already, these principles had been thoroughly articulated by Robert Greenleaf’s Servant leadership whose memorable quote: “The great leader is seen as servant first, and that is the key to his greatness” says it all.

The findings of the Industrial leadership project were expanded with many more clients and in many different fields. The criteria for trust remained the same. Trust is given or withheld on one simple principle: whether the person in command has the subordinate’s interest at heart. We found too that this was not necessarily a soft “bleeding heart” quality. It seldom had anything to do with pay (unless pay levels were atrociously low) or working conditions (again, unless they were totally unacceptable by industry standards.)

You can try this for yourself. What would you expect from your immediate boss that would make you trust him or her? The criteria we found could be placed under two categories – care and growth. They are always present in any relationship of power. The “care” category covered things like genuine interest in the person’s welfare, living circumstances, family, birthdays, etc. The “growth” category dealt with perceptions of development, training, empowerment, career opportunities, etc.

But perhaps the most important finding was that these things are not expected from higher up in the command structure, but at first line supervisory level, in other words, the immediate boss. What the findings were telling us is that trust in business leadership is not forged by having some iconic leader at the top, but the treatment received in that crucial supervisor/subordinate relationship. The more this leadership line is unable, or does not have the power to care for or enable and empower the subordinate, the more trust is eroded. Clearly, it is a matter of degree and not all staff decisions can be in the hands of the first line supervisor. The extent to which they are disempowered from doing so, is the extent to which a void is created in trust – a void that is quickly, albeit artificially, filled by the shop-steward.

The model proposes one simple principle, that a vital role of leadership at any level is the care and growth of the immediate subordinate. It has to become the most important part of their job description for which they should be held accountable.

I met Ben as my client contact a few years after the arena incident. He had moved on to become the Human Resource Manager at the mine. His main job was to enhance trust between the workforce and leadership. This would have been a supreme irony if it were not for Ben’s passion and character. It always intrigued me that having been given every reason to distrust the workforce, he ended up promoting trust.

So I called him this week to ask how he did it.

“I have a fundamental belief in the good of most human beings,” he said. “Even at the time, I believed that most on all sides were sincere in trying to resolve our differences.”

A nation of dependents.

With MONEYWEB’S comprehensive coverage of and comment on Pravin Gordhan’s latest budget, I want to focus on the intriguing debate that is gaining momentum – a “welfare state” versus a “developmental state”. The 2011 budget has again placed unemployment and poverty as the key priorities of our time, and in the weeks to come experts, politicians, ideologists, vested interests and the media will feed off the policy meal that the latest budget has placed before us. No doubt the semantics on that menu will include “welfare and development”.

In essence they mean nothing more than “care and growth” – care referring to welfare and growth meaning developmental. This growth or development does not refer to economic or GDP growth. It means the development, empowerment and enablement of people. As our recent economic history has shown, they may be linked in theory but they are not the same. GDP growth is arguably fruitless if does not lead to individual growth.

The attributes of care and growth are present in all relationships of power: between leader and follower, supervisor and subordinate, supplier and customer, teacher and pupil, and parent and child. Parenting is our first exposure to power. It gives us a good insight into what power should do and the appropriate balance between care and growth, or between welfare and development.

A good mother knows exactly what behaviour is appropriate and when the relationship has to switch from care to growth. It is completely inappropriate, for example, for a mother to breast feed an 18 year old offspring. It is just as inappropriate for a mother to force feed solids to a newborn baby.

Good parents do not give in to the whims of childish desires. Discipline and elements of growth or development are always present. We know that parenting mostly goes wrong when there is a lack of appropriate emphasis on either care or growth at the appropriate time. This often happens when parents seek to be “popular” with their offspring and the child ends up being spoilt, with very high expectations and low aspirations: in other words, expecting everything to be done for them and aspiring to do little for themselves. They could take a leaf out of Bill Gates’ or Warren Buffet’s parenting book, in which they have said that their children will inherit very little or nothing from them because they do not want them to be members of the “lucky sperm club”.

In an earlier article, I discussed the critical social flaw of our time of high expectations and low aspirations. The key difference between my father’s generation and my children’s generation has been the switch from an independent, prudent and “self-help” society with low expectations, to an age of dependence, imprudence, immediate self-gratification and high expectations.

The greatest parenting perversion of all is where parents see their children as a means to an end: to be “used” for self gain. This includes crimes such as abuse and child trafficking. It also includes those who deliberately have children “as an investment in the future”, for some or other social grant from which the children themselves seldom benefit, or even sins such as using children as pawns in messy divorces or as emotional crutches. Then parenting loses its legitimacy.

The parenting model is a perfectly appropriate analogy for government. The classic definition of the role of government is to care for those who cannot care for themselves or who have no-one to care for them, and to create the conditions in which the greatest number of citizens have the opportunity to care for themselves. It is as solid a guideline as ever, but over time and probably in line with the shift from high aspirations to high expectations, as well as in response to Enronic behaviour, this ideal has become rather muddied. In the same way as parenting goes wrong when it seeks to be popular, unrealistic expectations in society are inflamed by the political popularity contest which in turn reduces the willingness of even those with means and ability to be fully self reliant. The ideal of minimal government may be gone for all time.

In the same way parents have to establish rules of behaviour for the care and growth of their offspring, so too do governments establish rules, regulations and laws. These have to be subjected to the care and growth test – do they enable and encourage people to be self reliant or to stay breast-fed adults? One set of laws that clearly falls into this category is the proposed labour laws, which many have argued remove choice and opportunities for self reliance.

But the worst perversion of government is the same as that of parenting – where the offspring are seen as a means to material self gain. In principle, there is little difference between people in government seeing their task simply as a means of self enrichment and parents who see their children as a means of self gain.

The budget is the practical expression of intentions. So I decided to examine the 2011 budget to see whether one could align it to a specific category of care or growth: developmental or welfare. Again, this is not GDP growth but individual empowerment. Of course these categories overlap quite a bit, but the publicly stated policy is to have a developmental state rather than a welfare state. I thought it would be a simple matter of calculating the percentage of government spending that can be classified as “care” and the part that could be classified as “growth”. It became an impossible task because the metrics simply don’t clearly define the expenditure and one would have to analyse the detail of each vote to determine not only its form, but also the intention behind it and, most important of all, the likely consequences.

So I gave up and decided to take a hang-glider’s view (which is a bit closer than a bird’s eye view) at the budget in the context of overall fiscal and general economic conditions.

We cannot claim to be a welfare state; although the budget continues to put much emphasis on social security and social grants. The fact is that we do not have adequate social security. There is no national health scheme (yet) and high quality free education for all is still decades away. But more people are relying on social grants than there are taxpayers supporting them. The implication is simply that we are spending like a welfare state without the means to support it, or even the full benefits accruing from it.

With the emphasis on job creation, the specific R150bn measures detailed in the 2011 budget, and against the background of Ebrahim Patel’s NGP we seem to be trying to establish a developmental state. But here there is a critical element missing, and Gordhan alluded to it in his closing remarks. We don’t seem to realise that “growth” requires toughness. We have to be informed, robust, competitive, prudent and dedicated. Unlike care, growth comes with some pain, with determination and a great degree of willingness to help ourselves. While we have to have measures to avoid exploitation, we cannot be pampered in self development. We have to have very low expectations. We have to be focused more on our responsibilities than our rights. We cannot want a job badly enough and then insist that it must meet our own definition of “decency”. We cannot expect inexorable pay increases (whether benchmarked by inflation or not) without having increased our productivity and the tangible value that we have added.

We may be witnessing a conundrum where “care” objectives are in conflict with “growth” objectives.

Perhaps a quote attributed to Abraham Lincoln says it best: “You cannot help men permanently by doing for them what they should be doing for themselves.”

Any good parent knows this.