Hill+Knowlton Strategies

Following this afternoon’s Budget, H&K’s head of Financial & Professional Services, Ben Curson, provides his initial thoughts on what today’s announcements will mean for businesses, big and small.

Ben Curson - Head of Financial & Professional Services

“Making things happen…not making things up”. So said George Osborne in a business friendly budget delivered from Parliament today. Well, we’ll see about that in the fullness of time but it seemed clear to me on first listening that the Chancellor was pitching particularly to small business and entrepreneurs. He proposed a range of tax simplification measures, tax breaks and additional enterprise zones to encourage starting and growing businesses. Should this initiate a surge in enterprise and economic growth, the Chancellor will have every reason to trumpet his success as a man doing everything he can (with very little room for giveaways) to stimulate the economy.

Not everyone will be pleased of course, especially not the banks. One can’t help but feel they will be slightly irritated by the fact the bank levy will be increased despite an understanding that their tax treatment would remain stable in return for  increased lending to small business – 15% according to the Chancellor today and detailed on page 76 of the Budget docs.

George Osborne - "A Budget for making things, not making things up"

The other big business losers in tax terms are the oil companies, who will pay a lot more in tax in order to fund the cut in fuel duty – perhaps the ‘rabbit out of the hat’ moment in today’s announcement, and something that it seems the Opposition weren’t really expecting judging by Ed Milliband’s immediate response.

What else? Personally, I’m very pleased to see an open acknowledgment that Britain has been dropping down the league in terms of competitiveness (4^th to 12^th according to the Chancellor), and that the Government is doing something to address educating and upskilling the workforce. There appear to be specific steps to make Britain a more viable, cost effective place to do business in an increasingly global marketplace to attract business from overseas, which as Britain comes to terms with its place in the new world order is absolutely fundamental.

I do believe simplifying and incentivizing business rather than just cutting spending is the way that Britain will recover from the financial crisis of the last few years. I was enormously reassured therefore, as you would expect in my position, that there was a clear intent for the “City of London to stay a leader in financial services”. For their part, the markets have seemed largely unmoved by the Chancellor’s proposals, though bank shares have dropped slightly as you’d expect from the bank levy announcement

While the devil is always in the detail and many of our clients will be analyzing the budget book in-depth on behalf of their own business and their clients’, it seems the Chancellor made a very pro-business speech. Whether the consumer will feel as positive as they become increasingly squeezed by rising inflation and commodity prices will remain to be seen, especially in the forthcoming elections in May. I suspect not.

Hello Again All. There’s a distinctly political theme to this week’s Financial & Professional Services Friday Five, in part because of world events at present. Thanks this week to Ed, Jonathan, Ross and Linzi:

Guess the budget…Actually don’t, because it’s impossible. But it’s a task we’re frequently asked to do along with most of the lobby. So far the Independent and Evening Standard have led the pack with two of the most intriguing proposals: ‘Osborne’s secret plan to raise tax – and scrap national insurance’ and ‘Airport tax to rise as Osborne looks for funds.’ Both proposals seem plausible and would have a major impact on all businesses.

Come on George, What's in it this year?

Are they in keeping with the ‘Budget for growth’ theme we covered last week though? The Indy argued the effective abolition of National Insurance would inevitably create winners and losers and implementing the changes would be bureaucratic and take time. It’s also thought that changes to the benefits system touted by Iain Duncan Smith have made the changes to NI more likely.

The Indy also points out this could be portrayed as a tax hike, but SMEs have long campaigned for fewer taxes to alleviate administrative costs and will probably welcome this measure with cautious optimism. The increase in airport duty will irritate the aviation industry though and they’ve already indicated this would affect growth. As ever, the devil will be in the detail though.

On a separate note, did anyone see Ed Miliband at PMQs this week? A marked improvement we think. Things may be heating up for Cameron and co.

Collective Action…The terrible events in Japan have seen the international community mobilise to send aid and rescue workers to the worst hit areas of the country. The international response has not been limited solely to the humanitarian crisis though. This week the G7 took collective action to help weaken the Japanese yen. This is the first time that G7 has cooperated in such a way since 2000, highlighting the extent of international sympathy for the country.

The earthquake has caused significant damage and disruption to Japan’s economy. Normally when the economic prospects of a country weaken, so does the currency. However, in anticipation of Japan’s insurance industry and international companies selling their foreign assets and sending funds home for reconstruction the value of the currency has been driven up. As an export driven economy, Japan needs its goods to remain internationally competitive and the G7 nations have agreed to sell yen to help lower the currency value.

The task of recovering from these events is of course huge, however the coordinated response appears to have had an immediate impact with the currency down from above Y79 against the US dollar to below Y81.

Will Hutton’s report make a difference?…Last week we brought you Lord Hutton’s final review of pension reform in the public sector. This week we have more public sector news for you from Will Hutton’s (confusing we know) report on ‘Fair Pay in the public sector’, published on Tuesday. Hutton was charged by the government with finding a way to make public-sector pay fairer by looking at the salaries of so-called “fat-cat” bosses. In an interview with the BBC Hutton stated the report was a view to finding “a new settlement between public sector bosses and the taxpayer”.

Will Hutton published his report on public sector 'fat cats' this week

The main body of the report focuses on the idea of performance linked pay. Essentially what this would mean is that highly paid public sector bosses would be subject to performance targets to ensure a high level of service is met in order to back up the cash the earn in a year. Failure to meet these targets would result in a chunk of their pay being taken away. Additionally, successfully meeting all set targets would mean being rewarded.

Again though, the devil will be in the detail and the challenge lies in its implementation.

The return of the UN?…As the crisis in Libya has unfolded it’s perhaps fair to say the international response has been somewhat slow. However, things are finally moving following the passing of a UN resolution allowing “all necessary measures” except an invasion – but including a no-fly zone. This seems to have halted the move by loyal forces to recapture the east of the country for now.

What else does this tell us though? Arguably, the United Nations has had a few lean years following the fallout from the Iraq war and Resolution 1441. Now though, could today’s announcement signal a re-establishing of its role in world politics? Definitely one to watch

Robert Peston - "No enthusiasm" to write more on bankers' pay

Robert’s bored, but is the public?…Robert Peston blogged yesterday on the disclosure of the pay of high earning workers at RBS. However, it would appear he, along with some others in the media are getting a little bored of this subject. Peston wrote, “It is with no real enthusiasm that I write once again about bankers’ pay. If you feel you’ve read this story before, well I would understand”. Naturally, that provoked a fair few comments at the bottom of his post.

Clearly the issue is still emotive for many (witness Simon Jenkins’ article on Tuesday) but for now the spotlight has by and large moved elsewhere towards the Budget, the AV campaign, and ongoing global events. It looks as though some in the City (or #planetbanker as the Mirror’s Clinton Manning calls it) can grab a little breathing space, at least for now.

The power of Four in traditional business...

Investment bank UBS turned the spotlight onto supermarkets this week with a report claiming food inflation is higher in the UK than anywhere else in the OECD. The report inferred this was the result of the ‘Big Four’ supermarkets (Tesco, Asda, Sainsbury’s & Morrisons) using their market dominance to inflate prices above the actual increases stemming from food inflation.

By contrast, in other European markets where the food market is more segmented, prices haven’t risen as fast – strong stuff, which led to a swift response from trade body the British Retail Consortium, as well as a wealth of media comment.

This issue got me thinking though, for it’s not only in the supermarket sector where four big players hold sway in the UK. Accountancy is dominated by a Big Four (Deloitte, PwC, KPMG & Ernst & Young) and so is mobile telecoms (Vodafone, O2, Orange and T-Mobile, now joined commercially as ‘Everything Everywhere’).

High street banking was similarly controlled by Four (Barclays, HSBC, Lloyd’s and RBS) until Santander went on its recent spending spree. Four then, seems a very powerful number in the business world, even if the positive impact of it on consumers remains up for debate.

But what about the power of Four on the internet?

As my Issues & Crisis colleague Duncan Gallagher pointed out yesterday, the evidence for the power of Four on the internet seems scant to non-existent. Instead, it increasingly seems to be the power of One.

...versus the power of One on the internet

Look at the big internet success stories – Google, Amazon, eBay, Facebook, Twitter. Yes, some of them have competitors but they have much smaller market shares and/or offer a more limited suite of products.

Governments historically tend to get quite nervous about monopolies developing in traditional offline sectors and so do consumers. Curiously though, there doesn’t appear to be a similar feeling about these dominant online brands yet. Nor have there been sustained questions about whether the power of the digital One is good for consumers.

Will this change?

Maybe, although who exactly would initiate a monopoly ruling on a transnational, digital company is unclear. There is one other question though.

Last week we blogged about a possible bubble forming amongst social media and online companies as investors queued up and valuations soared. So here goes – if you were an investor considering a stake in one of these companies, how much risk would you attribute to a potential monopoly investigation and would that affect your decision to take the plunge?

Hello All! Welcome to another edition of the Financial and Professional Services team’s Friday Fiver. Big thanks this week to Linzi Goldthorpe, Karen Butcher, Chris Pratt and Jonathan Henderson.

Joanna gears up again…Monday saw the Bar Council and Law Society launch their campaign against government cuts to legal aid. The lobbyist group Sound off for Justice, which is championed by actress and rights activist Joanna Lumley, aims to put pressure on the government to reconsider the cuts which were unveiled in November of last year.

Guess who's back for round two?

Currently the UK provides free legal advice for those people fighting civil cases that don’t have sufficient funds to cover legal costs. The Ministry of Justice plans to cut the £2.1bn legal aid bill by £350m within four years, reducing the number of people of people able to seek help by up to 500,000.

So far the propositions have been dubbed ‘brutal’ and ‘devasting’ by the legal community who are calling for the plans to be scrapped. Enter Joanna to weave her magic again…

Bribery is still bribery…Some of us attended the British American Business’s Law Forum UK Bribery Act event this week. Given the new date for the guidelines on the Act are yet to be confirmed the seminar focussed on what businesses need to  be thinking about before implementation comes into force.

The focus was very much on laying minds at rest following the confusion around the Act’s implementation. Two messages were clearly played out through the seminar:

1. Facilitation payments always have and always will be a crime. The Bribery Act isn’t changing that.

Care is still needed when choosing a hotel for business guests

2. The reaction to the Act’s hospitality element has been blown well out of proportion. Sensible and proportionate expenditure remains lawful but flying a potential new business partner halfway around the world with their family and putting them in a deluxe hotel is not.

Confusion remains on events such as the Olympics though – the clock is ticking on this one, so watch this space.

Confused about petrol…This week we received an email from price comparison site confused.com about their partnership with The Sun for their new ‘Do Your Duty’ campaign. It seems to have won a lot of support from readers of the paper and has been well shared on Confused.com’s website. This week’s inflation figures can only have heightened support for it as well.

The campaign looks like a no-brainer for Confused.com then doesn’t it? We do wonder though if it doesn’t look somewhat self-serving for organisations if they choose an issue that isn’t well-aligned with their business. We’ve been running a successful campaign for Hymans Robertson on pension reform recently. But then being pension consultants they can lead that debate and offer well-respected opinions – the risk of falling short in the credibility stakes is low.

Well done to confused.com for showing the nerve to embrace an issue though. Not all organisations are willing to do so, but we hope they build on this position and develop their credentials as an organisation that represents consumers interests in keeping prices low, including insurance prices.

Goodbye Western investment returns…Barely a day goes past without reports of the fundamental shift in global wealth and productivity from the developed to the developing world.

This week the London Business School weighed in. Their new report indicated that the equity risk premium (the additional return generated by investing rather than taking a risk-free option such as cash) is set to fall in developed markets. They believe that investors can expect a future return of around 3 to 3.5% from equities in the developed world, the lowest rate in 110 years, down on the historic average of 4.5%.

The report comes as Barclays Capital predicted foreign investors can however expect annual returns of 10.5% from developing economies. The findings are likely to have significant repercussions for where western pension funds invest their money as younger generations search for returns further afield than the western blue chips that have traditionally been a staple of pension portfolios.

Money Saving ‘Expert’…Martin Lewis and his website have been a big success in recent years, by offering a new approach to personal finance. Lewis has binned the jargon and offers simple rules of thumb on saving and investing. Now however, there are questions being asked about his credentials following a slip-up on ITV’s Daybreak show this week.

An expert yes, but a qualified one?

The whole issue of financial advice is under the spotlight at the moment thanks to something called the ‘Retail Distribution Review’. This proposes to change the way financial advisers earn their keep – from taking commission on selling products, to billing clients (people like us) for their time. As the ever excellent Anthony Hilton pointed out recently though, this could put advisers out of the financial reach of most people.

That means the majority will have to turn to Mr Lewis and others like him for their money advice. The first test on the horizon in this brave new world? Explaining to 7m workers why their pay checks are suddenly 4% lighter following the start of auto-enrolment in 2012. Good luck guys…

It’s Friday and it’s been a long, hard week. But in case you missed anything in the world of finance, here’s the second edition of the Financial & Professional Services team’s Friday Fiver. Big thanks to our contributors this week Ed Jones, Karen Butcher and Nick Woods:

One of these is becoming increasingly expensive

1. Inflation is still stubbornly high…Inflation in the economy is a bit like salt in the human body – a bit of it is good for you, but too much and you can quickly run into a lot of trouble.  The latest official figures on inflation (which came out on Wednesday) confirmed that the economy is still oversalted. Inflation rose either 3.7% or 4.8% year-on-year for December depending on which measure you choose to use.

Why does this matter? Well, for one thing consumers are feeling the pinch in their pockets – wages are rising nowhere near as fast so desposable income is falling. From a larger point of view, the Bank of England is supposed to try and keep inflation under 2% – unfortunately, they’ve failed to do this for quite a while now. That failure is leading some in the City to question the Bank’s credibility on tackling inflation. Watch this space on this one… Read the rest of this entry »

It appears that Britain’s financial regulator, the Financial Services Authority, has had enough of bankers discussing merger and acquisition activities with the media. In a paper that they’ve distributed this afternoon they claim that they have:

“identified several articles in the media that contained specific and precise information about corporate transactions before they were formally announced by issuers”

The paper then carries on to say that “media reports were preceded by telephone conversations between insiders on a transaction and journalists”

In other words bankers have been discussing M&A activity with the media, in all probability in an attempt to alter the terms of that activity. Following a year in which we’ve seen high profile deals such as Cadbury/Kraft light the blue touch paper in Whitehall, you can perhaps understand the FSA’s desire to try and get a firmer grip on what it calls “the suspected practice of core insiders strategically leaking inside information”.

Their solution however appears pretty draconian – in a nutshell, firms will now have to route any phonecalls from the media straight to their PR team. Non-PRs meanwhile will have to refuse to talk to media unless a member of their PR team is present (either in person, on the phone or copied into emails).

As the FSA puts it, this directive will relate to handling any “inside information” which they state includes “corporate transactions, trading updates and regular financial information”. In other words, pretty much any financial data that a company holds.

Strong stuff, but the real question is, will it actually work? Already, the announcement has provoked a mixture of sarcasm and derision from journalists on Twitter – witness the Telegraph’s Louise Armitstead and Breakingviews’ Peter Thal Larsen:

As my colleague Jonathan has just pointed out, one thing this likely will  mean though is that City PR agencies increasingly find themselves ‘gatekeeping’ on the FSA’s behalf…

The fund management industry controls assets worth around $90 trillion worldwide. Deciding how to allocate this money is the task of a global industry that employs more than 50,000 people in the UK alone. Asset managers pride themselves on their ability to analyse their universe of potential investments, and for many it is this methodology or sector knowledge that separates them from the competition and secures their clients.

To communicate an investment strategy, fund managers use all manner of graphs and tables to illustrate performance and highlight the potential of their product but as Monday night’s edition of Newsnight (starting at 26 minutes) highlighted, our ability to represent complicated information is changing.

Presenter David Sillito uses examples such as the charismatic Hans Rosling’s lecture on population and life expectancy to illustrate the compelling nature of modern graphics.

The basic premise of the Newsnight feature is that as the quality and beauty of a presentation increases, so too does our likelihood to pay attention and retain the information.

There is clearly an opportunity for asset managers to use these kinds of graphics with clients and prospects, but also potentially with the media. The websites that serve the investment community have become more visually compelling, I’m thinking in particular of the Financial Times site and innovations such as Alphaville’s Tags graphic for example.

As sites like Citywire add new forms of content such as video, the media is working in partnership with fund managers to generate material. It is not hard to imagine a situation whereby fund mangers with graphics that shed new light on an investment trend could collaborate with media outlets to place their information and at the same time highlight their expertise in important media.

A few illustrations

The video graphic below shows the drop off in the number of flights during the peak of the volcanic ash chaos, but it could just as easily represent investment inflows to major financial markets.

Wheredoesmymoneygo.org looks at how the government is spending our taxes. A fixed income manager could produce something similar to highlight their beliefs about government spending policies and the outlook for the government’s bonds. An interactive version of the graphic below can be found on the website here.

For more on the potential of graphics see the wonderful – http://www.informationisbeautiful.net/ – site.

Northern Trust Group, one of the oldest financial institutions in the US has a 120 year history in banking and wealth management. Its recent decision to join the twitter community makes it one of a growing number of US banks and financial service companies using the micro blogging service.  In the UK, the financial media, including publications as diverse as Fund Strategy, Mortgage Solutions and Financial News are making full use of twitter’s ability spread news and content in real-time but the financial service industry which they serve, for the most part, has been slow to join and dip its toes in the twitter pond.

To put this situation in context, according to a recent Chicago Tribune article, as of late 2009, more than 710 financial institutions in 38 countries were using twitter, a tiny fraction of the companies out there. Even in the US where twitter is becoming a relatively mainstream tool for companies to communicate, take-up is limited.

This initial reluctance to experiment raises a number of questions, in particular, is twitter an appropriate medium for financial service companies to engage with their audiences and how could the industry use the tool to best effect?  

One possible explanation for its absence from the twitterverse is the level of regulation faced by financial service companies. It is true that relative to many sectors, financial services companies are more limited in what they can say about their products and it is difficult to explain risk, charges or terms and conditions in a 140 character twitter message. In a recent paper on product promotion the Financial Services Authority urged financial services companies to adopt best practice when communicating through social networks and in particular warned that promotional activity will be subject to scrutiny.

To my mind, this misses the point about how financial service companies can use twitter. It is not a forum for broadcasting promotions or pushing products, instead it is an opportunity to engage with customers and other audiences, listen to what they have to say about a company or product and to help and inform them if possible. The Twittermavern blog offers a number of sensible guidelines for companies thinking about using twitter. They are as follows:

• Don’t push your message
• Focus on conversations by inviting, engaging, cheering and helping the customer
• Listen for the relevant conversations and then try to be helpful
• Employees should speak with their own voice and personality
• Most of all, be responsive

These principles are reflected in the practice of some of the more successful companies using twitter. From the world of retail banking, Bank of America is using twitter to address customer service issues and has appointed a team to proactively search for customers experiencing problems. Tara, Sarabjit and Georgann (the current twitter team) give the bank a face and personality and the account has grown to more than 7,500 followers.

Twitter is also an outlet through which companies can highlight their expertise or interests. Fixed income manager PIMCO for example uses its twitter feed to circulate the views of its fund managers as well as more detailed commentaries to those with an interest in bond markets. Its follower base has grown to over 4,000 people since it started in December 2009. None of the messages are overtly promotional, nor do they seek to sell a specific product but the depth of PIMCO’s knowledge and its willingness to share its views with existing as well as potential clients helps it stand out in a busy market place.

The number of financial services companies on twitter is still relatively small but there are a growing number of examples of companies, each with different products and audiences, using twitter effectively. What is clear from the examples listed is that each of the companies has dedicated a significant resource to the task and has clearly thought out a strategy on how they will use account. I expect that despite the slow start, the number of UK financial service companies using twitter will grow significantly over the next twelve months and it will be interesting to see who emerges as the most innovative voice in the coming months.

Jonathan has an extensive list of UK and international financial service media, journalists and companies using twitter. It can be found via his profile at – http://twitter.com/j_g_henderson

Rivalry. It’s something common amongst all walks of life, be it the animal or human world. What the global financial crisis has taught us is that a newly formed economic landscape (a landscape that is still very much shifting) provides new types of competition. As such, this is a theme that I wanted to run with for my first post this week on the HanK blog. 

To give some background on myself – as an expat, I like to think that I’m blessed to have perhaps more of a global viewpoint than others. I’m extremely lucky to have been brought up in what I consider to be the best country in the world (as an Australian I would say that…) and to have experienced one of the biggest booms our country – and the world – has ever seen. At the same time, making the well-known Aussie pilgrimage and coming to London at the beginning of 2008 has given me a whole other perspective on global markets, as I arrived at a time when the downturn was only a murmur and no one knew then how loud the shouting was going to get. 

From this global standpoint, I’ve therefore been interested in how countries have been competing to ensure they maintain a strong position in the aftermath of one of the worst downturns the world has ever seen. Regulation is a big one and we’re all fully aware of the measures being enforced by the UK, US and other established centre governments to prevent a crisis (or one of the same magnitude) ever occurring again. To the irritation of the markets, Germany recently announced a ban on naked short-selling in a bid to see itself as another White Knight of the global economy. There’s definitely lots going on but the question here of course is how far is far enough? It’s a very valid question when you look at economies like Canada and Australia which have (and rightfully, in my mind) asked questions on why they should have to adhere to new global regulations when they successfully navigated the crisis itself. 

If you move east, China has also been in the news for different reasons, dealing with negative media spotlight on its accused manipulation of the renminbi and a slowing of its economy, some saying that it could even be the next Dubai (which I have to say is ludicrous). The Government has answered criticisms and taken strong steps to show the world that there should be no talk of overheating and that the World’s No. 2 economy is here to stay. The recent Dubai crisis has painted the rest of the Middle East with a tainted brush, leaving stronger performing countries like Qatar, Saudi Arabia and Bahrain with the challenge of allaying investor concern over the stability of their respective economies. This is, however, something they are overcoming through the continued message of strong economic growth powered by oil and gas. 

Competition has always existed between countries and looks set to further increase. The difference now, however, is that they’re playing a game with a new set of rules, in unpredictable weather, on an unfamiliar pitch. Fitting then, that amongst all of this economic competition, the world will unite in just one day’s time to engage in a different kind of contest as the FIFA World Cup kicks off in South Africa.

Below are a few digital musings from events over the past week or so. Specifically, these include an organisation who want you to access their content but can’t entice you; another who wants to access the content of others but can’t; and one company who probably wishes the ability for anyone to create online content wasn’t quite so easy…

Firstly, to News International, who this week launched their new, soon-to-be hidden behind a paywall, Times and Sunday Times websites (and an iPad version of The Times today). The response to the design of these sites has been positive amongst media peers, though as the tweet below shows, some people are already abandoning the paper’s website before the paywall even kicks in:

Someone else also pointed out that compared to other media sources, the cost of buying a hole year of The Times doesn’t necessarily stack up:

There are of course arguments against both these points – James Harding, editor of The Times, made some pretty robust efforts on the Today programme for example. However, a quick (and wholly unrepresentative) straw poll amongst friends outside of the office yesterday quickly confirmed two things:

1. Knowledge of the paywall launch is patchy at best

2. The majority of people aren’t going to pay for it and will simply go to other media sources (a fact confirmed by a survey in the FT on Wednesday)

Point two echoes the view of many in the industry, though the first point might disappoint News International somewhat. Either way, the decision has been made and the clock is ticking.

Secondly, I was at a networking event last week and got talking all things social media with a senior PR from a financial services company. Inevitably, the conservation turned to Twitter at one point and it was then that the PR revealed how he had been trying to convince his employer of the need to have access to Twitter and other social media at work for well over a year without success.

We then discussed how this was effectively preventing him from doing a large chunk of his job on a daily basis. Surely if any sector needs to monitor online conversations then it’s the financial sector given events over the past two years?

Finally, BP, which as well as tackling an ongoing environmental crisis, now have a new problem in for the form of a Twitter doppleganger. A friend first pointed this out to me on Monday lunchtime, at which point @BPGlobalPR had around 7,000 followers. Fast forward to this morning, and that tally has spiralled to over 70,000. The feed is also attracting increasing coverage from traditional media with CNET describing the posts yesterday as “comedy black gold”

So far, BP has appeared fairly relaxed about this development, concentrating solely on stopping the leak instead. Despite this initial stance it’s going to be interesting to see if they change tack at all over the coming days, particularly if the latest containment efforts suffer any further setbacks or the content changes in tone or substance.