Corporate Social Responsibilty doesnt exist.

"Corporate Social Responsibility doesn't exist." A bold statement right? But in all sincerity what exactly are the organisations of the UK and across the world doing to be socially responsible bar the bare minimum legal requirements?


The general theme of my blogs has centred around the lack of responsibility the government and our businesses are taking to overcome the current economic crisis. To grow our economy these companies must be prepared to be reinvest into the UK. Currently none of the big players seem prepared to do this because in business terms, investing money into something that is not going to maximise share holder profit is ludicrous. Investors are looking for short term profit and do not care about the long term impact to society.


Recently Business Link a UK government lead support system set up for all sizes of UK businesses released this statement along with guidance on how firms can engage in CSR,

"Your business doesn't exist in isolation nor is it simply a way of making money. Your employees depend on your business. Customers, suppliers and the local community are all affected by your business and what you do. Your products, and the way you make them, also have an impact on the environment."

Although the government are publicising these concerns, how far are they actively showing interest in encouraging businesses to give back to their communities. 


Last week I attended a local business meeting in my home town of South Shields to discuss the possibility of obtaining a £100,000 grant. The grants have been allocated from the government in response to the Mary Portas review of the high street (look at my first blog for more info, link below).  The grant was by all means  difficult to get hold of as only a few local authoties would qualify dependent on who came up with the best idea. 

First of all its ridiculous to suggest that £100,000 is going to make a great deal of difference to many struggling worn down high streets.  Furthermore rents still remain severely high. £100,000 would barely cover a years rent in South Shields, which by the way is predominately full of empty worn down units and bottom end low cost retailers such as pound land and Gregg's. Low cost brands flourish in a recession.  South Shields high street like many others screams out 'do not invest in a business here'. Are the government out of touch or are they turning a blind eye to the bigger picture? Are these grants just a way of trying to keep local governments happy whilst things inevitably get worse?

I challenged a local councillor on why rents had not been reduced in line with the current conditions, and why landlords weren't prepared to take a cut in order to at least get some sort of income. I was flabbergasted with the response. The majority of these premises are owned by overseas investments companies and pension schemes. These investors have such a vast portfolio that abandoned stores like these are simply dots on their ever expanding maps. One overseas investors didn't even know that they owned one of these properties until they were contacted by the local council. Once again a clear example of how global economy is bad for individual countries who are finding themselves worse off then ever before. 

Fundamentally the drive to extreme profit and shareholder wealth is what has caused the majority of the issues mentioned above. GDP and overseas investment is in my opinion capitalism gone badly wrong. 


I find it difficult to see how companies will ever be socially responsible. Business isn't positive now especially when on a grand scale. Even sourcing ethical produce is often done so as a marketing strategy and practises tend to be not so ethical in real life. I wont even mention the impact that the behaviour of these large corporations is having on the environment, I don't have the line space.

In the video below Micheal Moore a personal favourite of mine compliments this notion beautifully. 

If corporate leaders want to see this country and countries alike flourish again there must be investment within the community. They must stop fighting to be the richest. This is not going to get us out of this crisis and this will not improve the world we live in. Corporate Social responsibility is caring about the world we live in. 






http://www.businesslink.gov.uk/bdotg/action/layer?topicId=1075408468
http://www.guardian.co.uk/environment/2012/feb/16/al-gore-quarterly-reporting
http://www.money.co.uk/article/1002519-the-credit-crunch-menu-how-the-recession-is-changing-what-we-eat.htm
http://www.maryportas.com/news/2011/12/12/the-portas-review/

Merger and aquistions - Why two is not always better then one .....

On paper mergers always sound like a great idea. The joining of two well established companies can surely only mean twice the profit and expertise right? WRONG! In fact theory even tells us that mergers are predominately a bad idea so why do companies continue to do it?

There are many theoretical explanations of why mergers and acquisitions come about, different types of mergers which exist and the benefits and negatives of doing so. The one which I believe underpins all mergers and acquisitions it that of Hubris. Hubris is the notion that management get too sure of themselves through times of good results. The effect of this is that managers think that they can identify why other companies are not doing so well and believe that acquisition will improve the situation.

It is my personal belief that mergers and acquisitions only work when the intention is to increase greater economies of scales. This is particularly applicable to companies within the oil industry who need to merge to gain access to limited exploration and production sites. However even this is not always plain sailing.

The merger of BP and Tyumen Oil Company is a great example of how coming together can have significant benefits in terms of improving the balance sheet and revenues. Profit Margins have increased year on year and only today they have announced another takeover of the Koltsovo airport company.

But despite all of these successes the greatest press releases TNK-BP have received have been about the internal disputes the new partners have undergone over their time together. Collapsed deals and disagreements on strategy finally came to boiling point last year. Russian partners accused BP of foul play resulting in an embarrassing and aggressive statement being made from TNK-BP when bailiffs turned up to the UK offices. Although they have now settled and made public displays of unity - for the most part this has been a very expensive fall out for BP. Subsequently BP  had to sign over assets to TNK-BP as a means of out of court settlement and took the costs of a failed deal with Rosneft.

I would imagine this kind of outcome was not anticipated at the start of the deal. BPs ex chief exec Lord Browne was once quoted as saying "There is a big cultural problem with mergers or equals ... in the end their has to be a controlling strain from the two companies'. Although I cant say that this was 'the' case for the TNK 50/50 deal, it seems obvious that when BP went into partnership with 5 lesser experienced Russian billionaires, this would have been the consensus. Unfortunately for BP the partners weren't willing to stand so silently and be used in the pawn game of oil exploration. The question for BP was - was it worth it? Did the profit outweigh the cost? According to the 2010 end of year report no - but account disclosure is another issue with in itself.......

What this example does teach us is that unless one part of a merger group is willing to step aside and let the other be in charge then it can never work, or can do so only at a cost and hold the potential to damage professional reputation.

http://www.ft.com/cms/s/0/1fa32f2c-03c9-11e1-bbc5-00144feabdc0.html#axzz1oXNTx46G
http://english.pravda.ru/news/russia/18-08-2003/51950-0/
http://blogs.ft.com/beyond-brics/2011/08/31/bp-another-mauling-in-moscow/#axzz1oXZajoQ1
http://www.ft.com/cms/s/0/0fe8475e-67b8-11e1-b4a1-00144feabdc0.html#axzz1oXNTx46G
http://www.infoworld.com/d/the-industry-standard/the-7-worst-tech-mergers-and-acquisitions-168942
http://www.bloomberg.com/quote/TNBP:RU
http://www.4-traders.com/TNK-BP-HOLDING-OAO-6498768/news/TNK-BP-HOLDING-OAO-TNK-BP-Acquires-Fuelling-Company-at-Koltsovo-International-Airport-in-Ekaterinbur-14209101/
http://www.ft.com/cms/s/0/164ea02a-241f-11e1-bbe6-00144feabdc0.html#axzz1oqD6qOAD

Foreign Direct Investment - Doing our part in the global economy? Or Damaging our own trades industry?

For large corporations Foreign Direct Investments (FDI) seems to be the most sensical approach in maximising shareholder wealth. Foreign markets can provide a more skilled trading workforce at a lower cost. Similarly raw materials are more easily accessible abroad therefore again reducing costs. Acquisitions and mergers through foreign direct investments can also help corporations tap into new market places. This is particularly true of the oil industry where mergers can take place to access mining platforms in overseas waters.

Beyond the obvious financial incentives of FDI exists the bigger picture consequences. A general theme of the blogs I write is how the continuous focus on maximising shareholder wealth can have detrimental effects on a countries own economy and industry. To me for the most part FDI is no exception particularly in the industry sector.

For many years now we have seen a huge increase in overseas supply within many industries but particularly in the clothing industry. China and India among other Far East countries have provided developed countries with astronomically low unit prices. This has led to the birth of the 'throw away fashion' phenomenon across our own high street from the likes of Primark and Asda George among others. It’s not just the lower end retailers who are using such a supply chain - middle end retailers such as next and even high end brands such as Hugo Boss and Ralph Lauren are all choosing to manufacture in the Far East as a means of increasing margins. More over the Far East is now able to provide a more skilled workforce than the UK trade industry along with a better portfolio of up to date machinery and technology. The UK can no longer compete with the Far East from all angles - cost, skill and quality.

The major benefiter of this is that the Chinese economy in booming. Whilst this is great for China, but as a result the UK retailers who have invested so heavily into the Far East trade industry are subsequently seeing an increase in costs. Labour costs in particularly are increasing as a result of the boom again impacting the margins of the retailers.

Furthermore India’s recent export ban on cotton has caused further price increases. Whilst high street favourites like M & S and H & M are tolerating decreased margins, price increases are not optional in today’s heavily price lead market place.

As Chinas stability and industrial strength grows and the UKs clothing industry declines FDI in overseas supplies has effectively led retailers to shoot themselves in the foot. Why? Because we are already reliant on overseas manufacturing meaning that price increases are already becoming out of the control of the retailers. Because the UK industry has fallen so far behind through lack of investment, retailers no longer have that industry to fall back on. Furthermore the loss of UK jobs in the clothing manufacturing industry has also impacted the economy. The trend to outsource to developing countries has led to an increasingly problematic employment issue. Unemployment rates of young people leaving school and university are now higher then the wuropean average. This is simply because there are not enough labour intensive jobs or apprenticeships left as the industry sectors continue to diminish. Young people feel that the main route to employment is through professional qualifications meaning that the level of graduating professionals are greater then the professional jobs available.

If Britain is to recover stakeholder investment is crucial. Manufacturing needs to be promoted within the UK and investment needs to be made from both the government and private sectors to encourage growth. Whilst this all sounds very patriotic it’s not a case of being terribly 'British' but more of a desperate bid to bring back a dying economy within the UK. The UK cannot continue to push cash flows into foreign market places when its own market place so desperately needs boosting. Presently UK companies are doing so for the sake of being ethically correct (boosting developing countries) or for the short term expansion of profits (maximising shareholder wealth), putting their home country’s needs aside. Now that is being terribly British!

http://www.peoplemanagement.co.uk/pm/articles/2009/01/uk-youth-unemployment-rises-above-european-average.htm

http://www.ft.com/cms/s/0/08b600fc-66f0-11e1-9d4e-00144feabdc0.html#axzz1oXNTx46G

http://www.ft.com/cms/s/0/e02d1cd0-690e-11e1-9931-00144feabdc0.html#axzz1oXNTx46G

http://www.ft.com/cms/s/0/97f3f5d4-6076-11e0-9fcb-00144feab49a.html#axzz1oXNTx46G

http://www.ft.com/cms/s/0/355229a4-2d17-11dd-88c6-000077b07658.html#axzz1oXNTx46G

A taxing issue

The mention of corporate tax often raises conflicts in opinion. Currently the standard rate of corporation tax stands at 26% and is confirmed to continue to decrease up until 2013 to 24%. Whilst this shows that the current government recognise the issues of having higher then average corporation tax levels this does not address or prevent large corporations so blatently avoiding their tax obligations altogether.

From having direct experience of working with in a small/medium fairly young business I have felt the frustration of the effects of the tax man. Along with the basic tax rate ,companies are obliged to pay further charges such as VAT and national insurance. This all takes it toll on overall profit margin. Moreover once a salary or dividend has been taken from the company by the main shareholders, that will also be taxed through income tax providing a double hit to business owners. The strain of these charges often prevents business start ups and slows or prevents business growth quite drastically. Although tax reliefs are available to small businesses the upper limits mean that the difference between medium and large corporations are few and far between making the present system arguably unfair to smaller businesses. But there always has to be limitations and whilst busniesses are ultimatley there to make profits they too are taxable members of society. But should this be the case?

More increasingly we are seeing businesses be more tactical in a bid to avoid paying tax altogether. Whilst the morality of this is questionable the reality is that done in the correct way this is completely legal.

Sir Philip Green owner of the arcadia empire and the richest man in the UK has succesfully avoided paying his taxes for many years now. However controversial this decision might be Sir Philip has still remained extremely succesful, well respected and in 2009 was even knighted. Dividends are paid out to his wife who resides in monaco and is listed as the companies direct owner. Sir Philip has still made many positive contributions to the british economy. Not only has he provided it with thousands of credible jobs throughout the UK he has also opened his own fashion retail academy. Furthermore he is passionate about providing opportunities to young people who are from less fortunate backgrounds as well as the redevelopment of british trade in the fabric industry.

In the defence of Sir Philip and other companies who avoid the UK tax system why wouldnt they? Comparable to the rest of the world the UK corporate tax rates are higher then average however not the worst. The biggest issue for the corporate tax payer is the support are rather lack of it that is currently provided by the state. The income tax payer when faced with crisis i.e job losses is provided with housing and benefits whilst the corporate tax payer recieve neither. Unless the governement are prepared to help reduce rising rent and rates or provide support in this climate then businesses will continue to move onto other countries or decease to trade on the high street. I believe that corporation tax is actually more damaging to the economy then it is beneficial. The small video below explains this concept. 

http://www.ft.com/cms/s/0/1562f4a4-50de-11e1-939d-00144feabdc0.html#axzz1nWsUhqNy

http://www.ft.com/cms/s/0/0500282c-abc4-11df-9f02-00144feabdc0.html#axzz1nWsUhqNy

However much businesses can be lucrative this

http://www.ft.com/cms/s/0/0eb5cab0-5bb4-11e1-a447-00144feabdc0.html#axzz1nWsUhqNy

http://www.telegraph.co.uk/education/educationnews/8181487/Sir-Philip-Greens-flagship-Topshop-forced-to-close-in-tax-avoidance-protest.html

http://www.guardian.co.uk/world/2010/nov/29/philip-green-protest-alleged-tax-avoidance

Raising Capital whats the best option?

In todays climate raising capital, cost effectively, is a common goal for most if not all companies within the market place. From the small business to the large firm all are looking to invest their cash as efficiently as possible. Often the battle of equity to debt financing can be subjective. Some business types are better suited to higher gearing while others rely on strength through their own equity.

Debt, in most instances, is more cost effective then equity. This is for a multitude of reasons but simply due to the fact that debt has tax saving benefits in that annual interest is reduced from taxable profits. In doing so the weighted average cost of capital (WACC) is likely to be reduced, making the business have greater flexibility in their investments.

In any insatnce though, it is important that a business ensures it is not so highly geared that it becomes unfavourable to investors or that shareholders and investors demand greater returns for the increased risk of liquidisation. In an ideal situation a firm should be financed completely by share capital in an efficient market place. This is because share price value will reflect the risk bared upon the investor otherwise known as the shareholder.

Often companies use flotation as a way of raising finance first, before taking out heavy and more risky forms of debt such as loans and bonds. For example a huge company about to debut on the stock market is Facebook. Co founder Mr Zuckerberg will still own absolute control thanks to his 28.7% stake, making this source of finance even more desirable to the companies current main shareholders.

Another more typical newcomer is pharmaceutical company Pfizer who plan to raise $3bn through a part floatation of its animal health division. Interestingly in the Pfizer case, choosing to float a division, rather then sell it off is proving more and more popular as businesses continue to become more cost savvy. For a business like this, selling off divisions can help to focus on better performing areas and save on costs. In city terms this is known as a partial spin off. More over Pfizer have chosen to list the division rather then sell for the $18bn estimated value, as a tax saving method. In effects the capital is still raised and responsibility is still diluted amongst perspective new shareholders saving two burdens.

This is a great example of how companies can play around with equity and debt to make it more favourable for themselves. Ultimately measures like WACC, gearing and the CAPM are useful to investors and shareholders a like. However each situation is unique and therefore can be ambiguous in outcome. It is crucial therefore, that organisations have the best finance managers and leaders at the top of their businesses in order to survive. Pfizer are showing that they are capable of weighing up the alternative options in todays market place.

http://www.ft.com/cms/s/2/6d26b93a-4d20-11e1-bdd1-00144feabdc0.html#axzz1mrruAZfk

http://www.ft.com/cms/s/0/5be17b12-59a3-11e1-8d36-00144feabdc0.html#axzz1mrruAZfk

Are share prices a fair way to judge a companies worth?

Efficient market hypothesis relies and reacts upon the announcements made by participating companies. In an ideal world this sounds, not only reasonable, but also the most simplist way to judge a companies present share value. More over reactive pricing is the only method the stock market can adopt as it is impossible to predict the future.

Often however companies can find themselves unfairly positioned within the marketplace. This is often as a result of being too transparent or hiding the whole truth from investors. Striking the right balance can prove to be difficult. This can be the known affects of behaviourial finance. More specifically when investors make systematical errors or mis judgements.

A good example of how markets can be manipulated from lack of disclosure in the case of sports direct. Mike Ashley is a known ruthless business man, more so since his controversial presence within Newcastle football club. He has been known to manipulate his companies performance and operations through lack of disclosure. This is likely to be to protect share value. Long term this can be much more detrimental to share value then disclosing a true and fair analysis.

Following the the poor sales performance of Sport Direct in 2007 Mr Ashley did not communicate issues effectively with the shareholders. Prior to profit warnings being released from Sports Direct the company had released information of a 20% sales boost which is inconsistent to the performance later confirmed. When companies fall victim to this kind of dysfunctional behaviour then markets will come down on them harder then ever. In this case share prices plummet further then they would have had the true and fair information been given and later react slower to positive press releases.

This is why in the market place honesty is always the best policy even in instances whereby the share price will temporarily fall. The majority of companies do follow a more honest approach however. By punishing companies in this way the city could be seen to be responding both efficiently and inefficiently at once.

Coming down on companies for not disclosing information fairly means that other listed companies are not likely to do the same promoting better overall efficiency. However being to harsh on companies can mean that the share value will never regain its full potential value. Mike Ashley is known for not holding the best relationship with investors. Following the plummet of Sports Direct share price he crudely labelled city workers as being a bunch of cry babies. 

But in despite of the controversy Mike Ashley has managed to regain strength in the once struggling brand and the increasing share price reflects this, along with his bank balance. Mr Ashley is set to take a 16m bonus in shares for the recent positive results. This supports the notion that despite foul play the share price has recovered suggesting current market efficiency.  

http://media.pearsoncmg.com/intl/ema/ema_uk_he_boakes_portal/podcastsFT/podcasts/podcast_1.mp3

http://www.guardian.co.uk/business/2009/jul/06/jjb-david-jones-mike-ashley-loan?INTCMP=ILCNETTXT3487

http://www.telegraph.co.uk/finance/comment/richardfletcher/9006044/Mike-Ashleys-latest-outburst-fails-to-win-people-over.html

Has the benefits of ecommerce further worsened the economy and should businesses be taking more responsibility rather then prioritising shareholder wealth maximisation

Predominately shareholder wealth maximisation is the common goal for most medium and large corporations in the market place. But as the effects of the economic downturn of 2008 continue to worsen it begs to reason if this is still the right approach.

The ever-increasing egos of todays market leaders demand more and more from their investment returns. The outcome? The new found need for triple line profits. Any less and the fickle market place throws out its companies regardless of their historical or social presence.

We have seen popular even iconic brands like Woolworths, habitat, Jane Norman and La Senza fall victim to the drop and run mentality of the collapsing market place. It seems that markets are just not willing to hold onto respectable long serving brands unless they are seeing the best possible returns. Shareholders prefer to quit when the going gets tough, rather than riding the storm. This is prolonging the current downturn rather than tackling inefficiency. 

The hype behind shareholder value and wealth has become so central that the overall needs of the economy and stakeholders has been side lined. The ruthless closure of some of these brands has further increased unemployment and further broadened the north south divide.  Furthermore experts are witnessing a ‘dying’ high street particularly in smaller out of town areas adding to social problems.

The increasing presence of the online retailer doesn’t help.  Ecommerce offers the marketplace the chance to squeeze even more profit from the benefits of the lower overhead costs websites can provide. The running of websites requires less staff and even fewer need to be professionals.

Popular marketing expert Mary Portas has joined forces with the new government to try and recover some of the failing high streets out there today (http://www.bbc.co.uk/news/business-16156971).


 However ultimately the control still lies within the hands of the shareholder who are less than empathetic of the needs of their employees and the high street.

What the shareholders are failing to recognise is that if there is no high street then potentially, there will be no market place. As unemployment subsequently rises, society will not be able to afford the services or products available. As each market crumbles another will prevail until eventually we are living back to basics. Trends are already pointing towards an increase in a 'do it' yourself mentality with people growing their own produce and making their own clothes.

Mothercare is a great example of how having a strong store portfolio is, these days, a risk to potential shareholders rather than a reward. As we see Mothercare dwindle into uncertainty following pre tax losses of £81.4 million at the last half, it begs the question as to what could have possibly gone wrong for this long serving retailer?

Chairman Alan Parker has pointed towards a 'structural and operational review' of the business suggesting internal issues. Perhaps that of the separation of ownership and control following the departure of Chief Exec Ben Gordon. But Mr Gordon isn't your typical greedy board member. Other than perhaps an unnecessarily extravagant party held in canary warf last year to celebrate Mothercares 50 year anniversary, the long serving directors slate remains clean.

 More likely is that issues at the source of this companys struggles are that of weak competitive strategy not managerialism. In mothercares case the lack of online presence - again returning to the argument I touched on earlier; is it right for mothercare to then ruthlessly shut down stores and focus on the more profit savvy Internet business? Or is this in the long term going to cause more issues?


This issue highlights the limits of value maximisation. Shareholder wealth can be a good score keeping method but ultimately it does not take into account a businesses value or presence. Kiddicare has fast became Mothercares biggest rival despite only being available online. By doing so they can offer greater discounts due to lower overheads.


Already Mothercare have closed 110 stores causing 250 redundancies. Although they have managed to redeploy, how many more stores are we going to see lost before there can be any improvement? As unemployment worsens and high streets continue to be boarded up, how can the economy ever improve with such a reliance on the retail sector for jobs?


This is why I believe that in order for the UK economy to ever recover our business leaders need to be less concerned with shareholder wealth, instead taking on Jensons Enlightened approach. Society relies on the retail sector and we can not afford to lose the presence of the high street both socially and strategically.

If markets want the UK economy to return to its former glory there needs to be more investment across all business sectors. This can only happen if share value is not based on squeezing the most profit out of an already weak situation. Value needs to be greater placed on presence and value to communities.

The government should consider greater investment in small businesses and rent relief for struggling established businesses. But with unemployment continuing to rise government funds are already being stretched by increases in benefit payouts. The cycle continues.  

Responsibility must therefore lie within the business sector who have benefited greatly by consumerism by the tax payer for many years. Its time that organisations gave something back to society and without their investments I fear we can never recover.   

(http://www.guardian.co.uk/business/2012/feb/04/north-south-divide-job-loses)
(http://www.bbc.co.uk/news/business-16881291)
(http://www.thisismoney.co.uk/money/news/article-2083537/The-High-Street-suffers-online-sales-boom.html)
(http://www.bbc.co.uk/news/business-16156971)
(http://www.guardian.co.uk/business/marketforceslive/2012/jan/27/mothercare-competition-fears?INTCMP=SRCH)
(http://www.ft.com/cms/s/0/1996d6ea-2cd4-11e1-b485-00144feabdc0.html#axzz1lYYgQ38q)
(http://www.ft.com/cms/s/0/3e1b263c-10fb-11e1-ad22-00144feabdc0.html#axzz1lb4y33lZ)
(http://www.ft.com/cms/s/0/7db30eae-f418-11e0-8694-00144feab49a.html#axzz1lb4y33lZ)
(http://www.telegraph.co.uk/finance/newsbysector/retailandconsumer/8820299/Profile-Mothercares-Ben-Gordon.html)
(http://www.ft.com/cms/s/2/fb379578-80f0-11dd-82dd-000077b07658.html#axzz1lb4y33lZ)

(http://www.bbc.co.uk/news/uk-politics-13942976)