SOMETIMES, although sadly not very often, a comment from a business leader resonates, like the observation this week from a whisky boss about the importance of building for “future generations”.
Such words of wisdom are a relief because, too often and increasingly these days, we hear merely the empty rhetoric of an executive class which seems to have “evolved” in recent years. If “evolved” is the correct word given what many of these leaders come out with could hardly be viewed as representing progress. The rise of such executives seems to have occurred at a similar rate to the surge in their salaries.
Too often, these leaders can seem detached from the day-to-day workings of their businesses, and frequently also from the customers.
Their focus is all on short-term return. To be fair to them, in the case of stock market-listed companies, this is often what is demanded by investors with minuscule attention spans, but this does not make it an acceptable situation.
And short-term returns are, almost inevitably where there is a lack of imagination, driven by sometimes utterly relentless cost-cutting. The executives in charge of such actions often seem like footballers who are never going to make it because they do not even lift their heads to look for a pass, but just plough ahead into trouble and lose the opportunity.
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Something of a cult seems to have grown up around the whole cost-cutting thing in recent years. Executives bump their gums about “synergies”, “efficiencies”, and KPIs (key performance indicators for anyone who does not yet know and is even vaguely interested in brushing up on their jargon) until it seems as if they are going to run out of saliva.
Their swingeing cuts can produce a short-term increase in share prices, where their companies are stock market-listed. This is because the City is in general no longer-term in its thinking than the business leaders, whose bonuses often seem to be driven by little other than their “success” in cutting costs.
It also seems there are far more “professional managers” in executive ranks these days, who sometimes flit from one industry to another without particular knowledge of any. It is perhaps easier for them to cut costs because they have little understanding of the effects, and, in any case, they may soon be moving on to their next big thing
Maybe there is a degree of looking back with rose-tinted spectacles but, in the old days, many business leaders seemed to be steeped in the industries in which their companies operated. They were in it for the long term, and so were their loyal workers.
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Certainly, in those days, there was no potential to earn millions of pounds a year through having little more than the will to cut costs dramatically. One of the big problems is that many of those affected by modern-day cost-cutting can be more important to the business than those making the cuts. All the while, highly paid consultants dispensing off-the-shelf cost-cutting advice are hanging on the coat-tails of the richly remunerated executives.
Such behaviour is thankfully not universal but it is far too prevalent. We hear way too little about major investments to take advantage of growth opportunities. So it is perhaps not surprising that much of the exciting stuff that is happening in the big corporate world is not occurring in the UK. There too often seems to be a lack of imagination, vision and talent at the top of big UK companies.
Growth in revenues can offer almost unlimited scope to increase profits, if companies choose to invest for the future. It is possible to adapt by expanding, not only by retrenching. On the cost-reduction front, it often does not take long to run out of road, and companies can quickly lose more profit from revenue loss caused by their ill-judged actions than they “gain” from their cutting.
Companies can also very easily irritate customers with cost-cutting – just look at Royal Bank of Scotland’s branch-closure programme.
It was thus most refreshing this week to hear Ewen Mackintosh, managing director of Elgin-based Speymalt Whisky Distributors, highlight an ultra-long-term approach as the fourth-generation family business unveiled plans to build a new Scotch whisky distillery at Craggan near Grantown-on-Spey.
Speymalt, which is owned by the Urquhart family, has enjoyed success over the last 20 years with the revived Benromach Distillery.
Mr Mackintosh, the first non-family member to run the business, said: “Constructing a second distillery will enable us to continue creating a sustainable long-term legacy for future generations.”
It is heartening to hear a business leader talk about future generations, rather than the next quarter.
There is a good case for arguing that those businesses that invest for the future are the ones which will enjoy strong profitability over the long term. After all, such responsible management should go a long way to building customer loyalty and retaining employees who are vital to the business, whatever sector it is in.
Scotch distiller Edrington, which owns The Macallan, has done well with its long-term approach, under The Robertson Trust’s ownership.
In contrast, companies which cut costs every time there is a bump in the road will be jettisoning skilled employees who they may need again before long as conditions change. They will also bleed talent, as the best workers see what is happening and decide to take their talents elsewhere.
It will be interesting to see how long it takes for skills shortages to re-emerge in the North Sea sector.
Companies have, in total, laid off many thousands of skilled North Sea workers. Many of these people have taken jobs onshore, in the likes of the engineering sector. Others have decided to retire early as terms and conditions have been cut drastically.
Given many skilled workers in the likes of the engineering sector are reaching normal retirement age, you get the impression it will not be too long before North Sea players are unable to recruit the staff they need.
Those who have done their best to retain their skilled workforce through the protracted downturn would seem best placed to take advantage of the upturn that is finally emerging with higher oil prices and big development projects. And those who have taken such a long-term view will thoroughly deserve to be in this position.
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