The old adage that Christmas seems to come earlier each year was proved true, writes Joe Downes at BusinessWorld.

Today, Friday, September 3, Brown Thomas on Grafton St opens its Christmas store “complete with Santas, reindeer, twinkling lights and un-seasonal music at its Grafton Street store”. Cork and Limerick stores will be heralding the arrival of baubles and fake snow on Saturday.

But why?

Can it really be true there is customer demand now for Christmas shopping? Of course, Brown Thomas believes there is. They’d better believe it. They have to believe it. After all, doing business is all about banking on your ability to get it right.

Despite the fact it’s still summer (evidenced by shorts, T-shirts, light summer dresses, sun tans etc), Brown Thomas managing director Stephen Sealey believes it.

“From experience we know that this opening date is very popular with our customers, especially those who wish to get first option on the very best Christmas product available,” he said

But he must also spin his sales story too:

“For those of us who each year vow to be super-organised and get the very best and most beautiful decorations when they first arrive to the stores, only to frantically root out the dregs last minute, this is your chance!”

“This is your chance” he says, but between the lines he means is “this is our chance” because for the retail trade here, Christmas may be the last chance for many firms. The statistics don’t look good.

The latest retail figures from the CSO show that the recovery in retail sales evident since the start of this year is stalling, according to Retail Ireland, the IBEC group that represents the Irish retail sector.

The volume of core retail sales, excluding car and bar sales, fell by 0.6pc in May compared with April but increased by 1.9pc when compared with May 2009.

More importantly the value of sales fell in May by 0.7pc compared with April and by 1.7pc when compared with May 2009. This means that the value of sales for the first five months of the year is below  the corresponding 2009 figures due to price reductions.

“It is very troubling that the July figures are so negative. The underlying trend of stabilisation and recovery in retail sales that was emerging earlier this year seems to be stalling. This underlines the fragile state of consumer spending and the retail sector generally,” said Retail Ireland director Torlach Denihan.

“The retail sector is in survival-mode, dealing with a huge decline in sales and a very high cost base. Retailers urgently need sensible behaviour when it comes to pay, rents and service charges,” he added.

After growing for the first three months of 2010, core retail sales experienced a renewed bout of weakness over the following four months.

Dermot O’Leary, an economist with AIB-owned Goodbody Stockbrokers said: “Important too for retail businesses is the fact that the value of retail sales continues to fall as price deflation (-2.5pc annually), albeit at a slowing pace, is widespread. In value terms, core sales are down 4.9pc, but are now close to the low in the downturn, some 18pc below the peak level.”

Only Motor Trades and Fuel showed year-on-year value increases in July 2010. All other sectors showed year-on-year declines in the value of retail sales – these included: Non Specialised Stores, which includes supermarkets, (-1.5pc); Department Stores (-7.3pc); Pharmaceutical Medical and Cosmetics (-10.6pc); Clothing, Footwear and Textiles (-5.7pc); Other Retail (-8.8pc) and Bars (-13.8pc).

As Ian Galvin wrote in the Sunday Tribune: “Not only has the economic recession left us with empty hotels and housing estates, the iconic appearances of some of Dublin’s high streets are also becoming unrecognisable

“The question now is whether something like the Dundrum shopping centre is better positioned to ride out the economic crisis at the expense of Dublin’s traditional high streets?”

“Across Dublin city, the retail locations are losing their appeal, whereas shopping centres such as Dundrum are able to buck the trend by offering their visitors a broad range of tenant mix, providing customers with more choice. The ability of shopping centre landlords to influence the tenant mix to ensure the customer has a balanced and wider choice has enabled them to prosper in comparison to the traditional Dublin shopping destinations,” he said

There is some statistical evidence to back this theory up. Occupancy rates at Ireland’s shopping centres have increased in the past 15 months while rent has reduced by over 4pc on average, according to Retail Excellence Ireland.

However, the report stated that the slight improvement in occupancy levels is a direct result of new tenancy, “somewhatmasking the true closure rate suffered by many scheme owners in the last 15 months”.

“Landlords are compromising existing tenants by letting available units to a weaker tenant mix, resulting in a diluted and confused retail offer to customers,” it said.

The REI Shopping Centre Productivity Review 2010 said this has caused a two tier lease system at most shopping centres throughout the country, with long-term lease holders paying boom-time rent while new leaseholders enjoy current market prices.

Roger Brownlie for Vistage

For a sobering yet schadenfreude-type read try InsolvencyJournal.ie, which has reported that July saw the highest number of firms going into receivership since the beginning of the downturn.

For financial vultures and business opportunists alike, this source of information on distressed assets and upcoming firesales noted that a total of 920 companies went bust between January and July 2010, with construction, services, hospitality and retail accounting for almost three quarters of all insolvencies. The figures marked a 20pc increase on the same period last year. Through July, 280 construction firms went to the wall.

Unfortunately, somebody has to be the messenger of bad news and InsolvencyJournal does a very good job of it. But while we have sympathy for struggling companies, should we do business with them? To help answer that question, knowing the financial stability of your clients would help.

ICC Information, which offers credit checking services, says an analysis of 300 creditors meetings held in the first quarter of 2010 reveals that the companies being wound-up had had outstanding creditors of E500m.

ICC’s Michael Gannon says: “There were early warning signs associated with these companies as they share several common indicators of failure. In 80pc of Q1 failures, ICC advised an abnormal risk of failure and/or advised against extension of credit.

A staggering 40pc had an audit qualification in their accounts while one in six had at least one court judgment against them. It is essential businesses start to assess exactly who they are extending credit to and therefore decrease their chance of incurring bad debt.”

So the information is available (much of it is nearly free on the Companies Registration Office site if you know what to look for) and can be easily checked.

Vision-net.ie, which claims to predict 80pc of business failures before they happen, says 38,000 Irish companies out of 100,000 are in imminent danger of collapse, according to vision-net.ie.

The Dublin-based business intelligence and risk agency said that the 38,000 firms are ‘high-risk’ and showing signs consistent with business failure.

And Creditsafe, which provides company accounts and credit reports, has launched a new feature that allows users to check the creditworthiness of a potential customer so users don’t have to search through a whole report to find relevant information.

Roger Brownlie for Vistage

The pantomime of whether credit is being made available by banks to small firms continues. On the one hand the banks quote various figures of amounts available and being lent. While firms and their representative associations say the banks are “closed for business”. Oh no we’re not. Oh yes they are…

Vistage would be delighted to hear from both members and non-members of their experiences in obtaining credit. Sharing knowledge is what Vistage is all about. Make sure your comments are general and don’t reveal your identity or company.

We covered this issue in a previous blog (Credit watch) when AIB denied credit rationing and spuriously backed up its claims by quoting the Credit Review Office’s first report.

Now the Cork Chamber of Commerce has called on the Credit Review Office to facilitate greater access to credit for small businesses, and to better publicise the services it provides.

Following a meeting with John Trethowan, head of the Credit Review Office, the business group suggested that SMEs have lost faith in banks as a source of credit.

“Eighty percent of respondents to our recent Q2 Economic Trends Survey have indicated that they are not currently seeking bank finance. We feel that this highlights an underlying trend which could indicate that SME’s may not have an appetite to engage with the banks with regards to accessing credit,” said Conor Healy, chief executive of Cork Chamber.

Killian O’ Sullivan, chairman, Cork Regional Chambers, said there is a general unawareness among businesses that the office has the power to look at cases where banks are revisiting terms or delaying decisions, and said there should be greater marketing of the office’s important services.

The chamber also called for greater transparency by the office, and for it to publish its analysis and reported outcomes published monthly rather than quarterly.

Public Meetings

To get to the bottom of these complaints, the Department of Enterprise, Trade & Innovation organised a series of public meetings.

The overriding message from the meetings was that the banks are not to be trusted and that the information being passed to government about lending policies and practices is in large part misleading.

Enterprise minister Conor Lenihan,(with an absurdly long official job title), makes some excellent observations in his column in the September issue of Business Plus magazine:

“Overall, the participants in these sessions expressed the view that the Irish banking sector is not fit for purpose and that managers in the branch network are virtually powerless to make a lending decision.

“There were also complaints of aggressive phone calls from relatively junior bank staff demanding that accounts be put back in order. 

“The grievances of the owner-managers at these meetings could be categorised into four broad themes.

“The first was that the branch manager is no longer a significant person in terms of the decision making process over a loan. The consensus is that the credit decision is made elsewhere and that branch input is minimal. According to some speakers, the absence of discretion for a local manager now means that banks no longer have the confidence of business people.

“The second complaint related to the long delays before a credit decision on a loan application is made.

“Thirdly, the owner managers complained that bank staff lack the analytical and accounting skills to appraise a local business for a loan. There is a perception that lending staff do not have the skill sets to assess cashflow lending as opposed to asset backed lending. Business and farmer representatives alleged that the banks lack lending officers with sectoral expertise.

“Finally, the speakers felt that there is little or no relationship banking going on. 

“There was also concern expressed at the level of security being sought by the banks for lending (personal guarantees, family home etc) and anxiety that such is the turnover of staff at branch level that it is impossible to get to know someone in the bank who would then get to understand their business.

 “There was severe criticism too of the banks’ practise of converting overdrafts into term loans and then apparently presenting this as new lending into business sector.”

In defence of banks

In defence of the banks, the minister points out that both of the major Irish banks have undertaken to make available E12bn worth of lending to small businesses this year and next year.

Also at the height of the boom, lending by non-Irish banks represented 40pc of the credit market in Ireland. Now those non-Irish banks have scaled back their lending activities, he says.

Another factor, he says, affecting the flow of new credit is that many business people are loaded up with debt, either business wise or personally, as a result of property investments, which are now under water.

John Trethowan is hitting the road soon to get his message out there by attending regional meetings with the business organisations. 

According to Conor Lenihan, there is little doubt that the perception of credit rationing is feeding into a general lack of business confidence.

Whether you are Punch or Judy in this pantomime, the number of company closures shows a lack of credit is too often becoming a tragedy.

Roger Brownlie for Vistage

Google has launched Think a platform for sharing industry viewpoints to “help you navigate in the business landscape”.

Thanks to the O2 Ideas Room for finding this resource.

“The channel is basically a library of bite-sized videos of remarkable people speaking about what they think on topics such as marketing, digital, business strategy and consumer behaviour,” according to the O2 blog.

The video consists of CEOs, mostly from the UK and across Europe (not US) responding to specific questions like: “How does innovation affect the practice of management?”

You can search by industry, theme, company or interviewee.

As well as videos, and perhaps more immediately useful, are some practical Google search tools all in one place. They are, according to Google, “a list of free tools, blogs and websites that can help you reveal opportunity and achieve your business goals.”

These include: “Insights for Search, spot useful search trends to help map your next steps; YouTube Insights, receive insight on who is watching what so you can target your ads accordingly and Google Internet Stats, bringing together the latest industry facts and insights – perfect for your pitches and presentations.”

Roger Brownlie for Vistage

Three out of four Dublin County Enterprise Boards have run out of funds to support new start-ups, according to Mr Bruton.

“The future of the economy depends on people having the ingenuity and the courage to set up a new business. The banks won’t touch them and now we see the Government abandoning them also. This makes a nonsense of the Government’s claim that enterprise and jobs are at the heart of their strategy and policy,” Mr Bruton said.

“Existing small businesses can expand, innovate and provide much needed jobs across the country. However, instead of supporting new businesses the Government has cut capital funding available to the County Enterprise Boards by over E7 million this year alone.”

Mr Bruton makes a reasonable point when he says the government strategy of sustaining past failed loans should not take priority over providing future credit.

“For the past twelve months we’ve seen good businesses going to the wall for the want of credit, while a failed banking strategy placed the nursing along of failed loans of the past as a greater priority than providing credit to business that can create a sustainable future.”

But the problem is not just in the capital – it is a national issue.

According to the  Indo’s cub business reporter Peter Flanagan (a past student of mine I might add!), CEBs have reduced their staff by almost 15pc and around one-fifth of them will be without a chief executive by the end of the year, their organisation’s head has predicted.

County Enterprise Board Network chairman Michael Tunney said CEBs could create more than 3,500 jobs a year if they were resourced properly.

“At a time when businesses are in most need of support, 70 grants that were approved in the first half of this year had to be deferred due to a lack of budget.

“As well as creating jobs we can help to sustain a further 100,000 in existing businesses but only if we can get the necessary resources,” he added.

Perhaps inevitably, The Local Government Efficiency Review Group said in a report published July 23, the State could save about €500m by a number of measures, including the merger of some boards with county councils.

Now where for startups and SMEs?

Roger Brownlie, for Vistage

“Irish companies are set to discard the UK accounting rules they have been moored to for decades and adopt an international accounting code – the so called IFRS – for small and medium sized businesses,” says BusinessWorld. Are you one of them?

Quoted companies already use IFRS, but so called “Non public Interest” or unquoted companies will have to adapt IFRS for SME in 2012/2013.

Reported profits will be different under the new rules, for some businesses it will be higher and some lower; it depends on what business the company is undertaking, explained Aidan Clifford, ACCA’s (Association of Chartered Certified Accountants) Advisory Services manager.

For example, a company with a lot of intellectual property will have a different affect on their profits to a property owning company. Assets and liabilities will be measured differently and some new assets and liabilities will appear on an IFRS for SME balance sheet that were not there under UK rules. For example, property may be re-valued to market value under UK rules but must stay at cost under IFRS for SME; some financial instruments such as derivatives were “off balance sheet” under UK rules but will be included at fair value under IFRS for SME. The former example will tend to show lower building valuations and lower depreciation and higher profits under IFRS for SME and the latter example will accelerate profits in the short term and reduce long term profits under IFRS for SME.

A newly published guide (The new Irish GAAP – how would the numbers look? – A report on whether the IFRSfor SMEs will affect the reported profits of Irish companies), produced by ACCA identifies the major accounting and tax differences and the opportunities the change will bring.

“It is important for companies to identify where the change might be an issue for their business at the earliest opportunity. Performance related pay and bank loan covenants being breached could be an issue simply because of the different way of measuring profits and assets and liabilities. ACCA’s publication identifies the accounting and taxation implications of the change and whether profits would be higher or lower under IFRS for SME for different types of businesses,” said Mr Clifford.

Other useful guides to IFRS include:

http://ireland.accaglobal.com/pubs/ireland/members/tech_info/accounting/tech_afb_nig.pdf

http://www.accountancyireland.ie/Archive/2008/December-2008/IFRS-for-Private-Entities-A-Practical-Guide/

http://www.cpaireland.ie/UserFiles/File/Flyer%204%202.pdf

http://www.cpaireland.ie/UserFiles/File/Sep%20Articles/Acc%20Plus%20Aut09_Fiona%20Hackett.pdf

Roger Brownlie, for Vistage

The sight and sound of AIB begging for an extension to the state banking guarantee probably did not engender a great deal of sympathy from SMEs. It certainly did not from this correspondent.

RTE business editor David Murphy says the fact AIB is “calling for it, shows things would be very difficult if the bank guarantee was not there”.

As long as AIB, and other banks in the scheme, are protected under the bank guarantee they are able to borrow money at a decent rate on the wholesale market – and keep lending to customers.

In an RTE interview Friday 7, July, Anglo’s chief exec Mike Aynsley joined in and said the bank guarantee will have to be extended because the financial system has not yet stabilised.

But their public pleas for an extension to the guarantee are too close for comfort with our own requests (and often denials) for more time and credit.

One wonders, based on AIB’s latest and awful results, how viable it and other banks, including Anglo, would be without this comfort blanket guarantee.

With sad irony, in an Irish Independent article by Emmet Oliver defending its lending practices, chief exec Colm Doherty is quoted as saying that certain SMEs were not going to make it through the recession and “there will be companies not viable into the future.”

These would be the firms AIB will not lend to…

However, AIB denies accusations of ‘credit rationing’. In an interview Mr Doherty gave to RTE Morning Ireland, despite what SMEs are saying, AIB claims it is still lending to the sector, quoting numerous figures which RTE’s David Murphy describes as “massaging the figures” on loan approvals.

But in Eoin Burke-Kennedy’s report in the Irish Times he writes that firms are finding it easier to borrow money – according to figures from the Central Bank which show new lending to businesses exceeded loan repayments in May and June for the first time in 10 months.

This follows on from the Credit Review Office’s first report mid-July that found no evidence that AIB and Bank of Ireland are constraining the supply of credit to the SME market.

Minister for Finance, credit reviewer, John Trethowan said there was no evidence the two main banks were engaging in lending policies which inhibited the supply of credit to viable businesses.

However, Irish Times reporter Suzanne Lynch wrote: “His report raised concerns about some practices in the banks, including a lack of experience among some front line bank staff in dealing with SMEs as well as anecdotal reports of banks requesting that borrowers hold the amount of money requested for overdraft facilities on deposit with the bank”.

But the number of cases going to the CRO was lower than expected, with just 12 firms going through the formal process at this stage. For credit reviewer John Trethowan, this may suggest that lending problems were fewer than some figures would suggest.

He told the Sunday Business Post’s Samantha McCaughren: “You hear numbers being bandied around about credit refusals,” said Trethowan, ‘‘and this makes me wonder why we’re not getting more applications.”

However, he pointed out that the office dealt only with AIB and Bank of Ireland and with loans which have been turned down since April. That may have slowed down case review requests.

Whether or not the bank guarantee scheme is extended is not down to the Irish government but to the EC. And according to Niamh Hennessy of the Irish Examiner, there is enough precedent to believe the scheme will be extended.

The commission has already approved the extension of an aid scheme for Austrian credit institutions and a Latvian bank guarantee scheme to the end of the year. It has also extended bank support schemes in Sweden and Germany and a recap scheme in Hungary, she wrote.

Credit rating agency Fitch warns Irish banks that it will be challenging but manageable for them to get credit when the guarantee expires. Fitch expects the EC to allow the guarantee to be extended.

While propping up dysfunctional (or in Colm Doherty’s parlance – “not viable into the future”) banks is bad news for public finances, for the private sector we must hope the scheme is extended, for without it there will be little credit available for SMEs.

This is a subject we will no doubt return to.

What are your experiences of obtaining credit?

Roger Brownlie, for Vistage

Vistage Speaker Chris Hughes came to Dublin recently to explain to Vistage Members how to make every marketing cent count….

Chris Hughes has established a reputation as an expert in brands and marketing.

He has held senior positions at Mars and Pillsbury UK. He later set up Prince Sportsgroup UK, which he later sold on to the Italian group, Benetton.

Chris describes himself as a “classically trained marketing guy” who is now a ‘value proposition specialist.’  His core message is straightforward :

We have been through a long period of expansion, when consumers were splashing the cash, allowing companies without ‘ real points of difference’ to survive, and even thrive.

However, we are now in a completely different situation , in an era of austerity when only the best placed will survive.

“Eighty per cent of the companies I work with do not have a focused value proposition and are essentially commodity producers, driven by price .. This is the last place where you want to be.”

“The work I do through Vistage is in getting people to understand the need for a differentiated proposition.”

But what if the product, or service, is not capable of differentiation ?

“Very few products are in that position.”

‘Volvo do not just sell cars, they sell safety…what are YOU selling?’

The key to the conundrum lies in “that which you deliver beyond the product, or service that you offer. Volvo does not just sell cars, they sell safety. Coca Cola is selling tradition, heritage and authenticity,.”

“The value proposition is usually centered round an emotional intangible.”

There are three questions which one should put top oneself :

” What am I selling ? to whom ? from what emotional platform ?”

In recent years, much has been written about the prospective ‘death of the brand’. Chris’s quick response is : “God, No !.. Absolutely not ! ”

In his view, the real problem starts when people start tampering with well established brands.

“Brands get screwed up by marketing people who come in for a short time..”

“True brands guard their position .. I worked at Mars for seven years. What I was told was the following : ‘Chris, you are temporary .. the brand is permanent !”

Lessons from Guinness..

Guinness has long had a winning proposition, ‘Guinness is Good for You’, a proposition linked to the perceived health benefits of stout.

The product was introduced in an era when products such as gin and whiskey dominated, with often very serious consequences for the health of individuals, families and communities.

Guinness, the product, became associated with communities as a solidifying factor, the Guinness family involved in acts of patronage, gifting parks and establishing housing associations. 

However, Chris believes that during the Sixties, the brand was tampered with by people who developed sophisticated award winning Ads. The problem was that it lost the support of many long established customers in the process. He welcomes the return of Guinness, in his view, to its core values.

He points to other great mistakes such as the switch to New Coke, a switch which had to be reversed. Woolworths in the UK, he argues, made a fundamental mistake when it tried to move up into the middle market, away from its core, value proposition. It might still exist had it not made that mistake.”

Hughes accepts that a message of change, as opposed to continuity, can be equally valuable, depending on the circumstances.

“The contest between Barak Obama and John McCain was a battle of brands, of  ‘change’ ( Obama ) versus ‘experience’ ( McCain ). Obama was able to encapsulate his message in the slogan: ‘Yes, we Can !’, but McCain lost his way : What was his strapline ?”

“Obama understood the new media, raising €150m through the Internet.

We have old style marketing, 1.0, from the Fifties where people are interrupted by Ads, shouted at, told what to do, but now we have new style ‘marketing 2.0′ where you have interaction, and not interruption.”

‘Marketing your brand does not need a large budget if you know what you are selling…’

“If you know exactly what your message is, you do not require a large budget. Using ‘2.0′ you can micro budget – what could previously only be applied to large companies, can now be applied to everyone.”

“There is a strict, hierarchical relationship between the creation of the core message, marketing and selling it .. you should not spend a penny on the latter two ( marketing and selling ) until you have developed a focused value proposition.”

Chris Hughes has a longtime involvement with Vistage UK. He recalls taking a call from a CEO who had attended a presentation. The Chief executive rang him up and said : “I have decided to do the maths and have allocated a €25,000 budget .. My response was: ‘absolutely not !’ .. my advice to him was to go back to the structured approach of defining his value proposition, as a first step. Only when this was done could he start allocating funds..”

He recalls spending a day in a company in the health and safety field. “There were twelve to fifteen people in the room, most of whom resented me. By lunchtime, we were flying. I worked with the sales guys, asking them about what they were pitching. Due to a lack of guidance from the centre, the sales guys had carved out a niche for themselves. They had come up with the slogan : ‘there are no short cuts to safety !’ They were defining the value proposition.”

The slogan was reworked as ‘Safety: Absolute.’ It had been put into the form of a positive statement.

“The CEO went to see a major customer. Afterwards he said to me: ‘Crikey ( not the exact word used )  .. It Works ! ”

The customer’s response was: “I like your values. The only problem is that you are €20,000 more expensive.. ( than the rival supplier ). The CEO said to me : ‘Every fibre in me led me to cut the price.” However, he held his nerve and the customer laughed, and signed up.

Chris believes that the business of promoting a product or service has changed fundamentally.

“The days of massive Ad agencies & heavy research .. are gone.”

He insists on the importance of the subliminal in brand building: “We buy out of the emotional side of our brains..”

And he admits: “I do not like working with Corporates.. I find that the marketing people in corporations are more in the service of their own agendas.. The average length of tenure of a chief marketing officer is very short.. given the sort of characters they are,  they want to make their mark .. they mess up the brand.”

The target market has changed just as fundamentally as the means of communication of the core branding messages. The customer of 2010 is a very different individual to those of say, 1960.

“They are massively more demanding, more critical. They demand a relationship with the brand.. It is very much of a two way dialogue. You now have blogs, fora, clubs. ‘Pampers’ is a classic example. If you look at their promotions, there is not a single word about product .. what they are selling is a partnership in pregnancy and parenting..”

“What they are saying is this: ‘We will share with you our information, our guidance .. and we would like you to buy our products..”

Chris accepts that old fashioned price based selling ( of the Ben Dunne ‘Better Value Beats Them All’ variety ) still has its place. “But you have to be the best to do it.”

He points to the sophisticated approaches adopted by Tesco, with their “Every Little Helps” approach to customer attraction & retention.

“Tesco were the first people to open up new checkouts where they saw that more than three people were queuing at existing checkouts..”

“They ( Tesco) are an integrated part of my life. I use their insurance. They have built a relationship with me. You can argue about their dominance, ( but ) Tesco are brilliant marketeers.”

Chris Hughes on Vistage…

So what about the Chris Hughes brand ?

After years as a senior marketing director with Mars and Pilsbury, Chris went out on his own. He joined Vistage as a chairman, helping to develop a network of contacts.  

“Vistage has helped me enormously by giving me access to some very open minds, to people who hear what I am saying. If I have done anything, it is that I demystify..”

“My value proposition is to make marketing simple. That resonates with Vistage people.. There is a whole industry out there whose agenda is to make it seem incredibly complex.”

“People in Vistage do not buy the bullshit .. they do want to be talked to in non patronising language.”      

“You are already seeing fundamental changes in Advertising spend, a lot more of which is moving online. A huge percentage of marketing spend is wasted. What is the most cost effective way of reaching a customer?  Probably not an Advert anymore.  It is more likely to be positive use of a website which does not cost a huge amount when compared with a €1m Ad campaign.”

There is a reason why we remember good teachers. There are not that many of them around.

Atlanta based Gary Markle has certainly mastered the technique of getting a reasonably complex message across while maintaining an ease of manner, a trick only the better pedagogues manage to master. 

Markle was in Dublin this month to speak to members of Vistage Ireland, along with a number of invited guests. He was here to spread the message that too many organisations are locked into forms of employee performance measurement which simply are not delivering from the point of view of management and workforce alike.

His address was entitled : ‘Catalytic coaching – A Performance System that Works.’

In his view, classic forms of performance evaluation known as performance management systems do not provide what it says on the tin. In essence, they involve a process of annual review which is a source of embarrassment to managers carrying out the review, and a source of resentment for those employees forced to subject themselves to review. Markle traces the origins of PMS to the US giant, Xerox. The spread of PMS has resulted in the generation of documentation and box ticking. He believes that HR departments value such documents as a means of providing their organisation with ‘cover’ in the event of subsequent dismissals of employees. The company lawyer will request HR to show him the performance evaluation.  However, in some cases, such evaluations can be used against the employer as when they suggest that the employee concerned ‘meets expectations.’

 Performance evaluations are also seen as being critical to the business of determining the level of extra reward, or bonus that an employee should command. However, it is Gary Markle’s view that such decisions are best kept away from administrators and communicated on a person to person basis, manager to immediate subordinate. This is particularly the case when -as is so often the case, these days – the cupboard is bare. Employees may well be working harder than ever, yet key business targets are not being achieved, due to events beyond everyone’s control. In such an environment, a system of bonus awards can indeed backfire, particularly if small numbers of staff, typically in sales, are seen to be given the largest slice, by far, of the pie. In Gary’s view, “it is best to separate conversations about pay and salary administration from conversations about performance.” Managers need to motivate those who work for them by letting them know that they are valued and will ( hopefully ) be rewarded, in better times to come. “Never stop talking to people in the difficult times. Let them know that you are aware that they are underpaid.” ( if that is the case ).

It is time to start evaluating one’s evaluation system, by asking the following questions : Does it impact on performance / change peoples’ behaviour? change peoples’ level of discretionary effort? Does it reduce the level of regretted resignations by employees?  “The best employees are those most likely to resign..” The best way to tackle the problem of law suits is by preventing them in the first place. “It is the feeling that one has not been treated fairly that drives lawsuits.”

Markle’s ‘Catalytic Coaching’ theory :

Gary traces his disillusion with conventional performance evaluation to a combination of personal experience and a meeting with Dr W. Edwards Deming, a management consultant who has been described as ‘The Father of the postwar Japanese industrial revival’. Deming lived until the age of 93, working almost to the end. As Gary sees it, the international recognition accorded to Deming was long overdue when it came in the 1980s. In his view, he played a lead role in fathering the modern quality movement. Deming was originally brought over by Japanese industrialists to help overhaul its organisations and shake up the country’s image as a producer of cheap, low quality goods in the 1950s. Based on his experience there, he came up with fourteen points for continuous improvement in organisations.

Among these were :

- more effective two way communication. “driving out fear.”

- institute training on the job.

- encourage education.

- break down the barriers between departments in organisations.

- eliminate arbitrary targets.

- permit pride of workmanship. this implied the abolition of annual merit rating.

- managers’ responsibilities to become more qualitative  with less emphasis on quantity.

As Gary recalls : “Deming highlighted the existence of seven deadly diseases which were spreading from the US to organisations elsewhere, one of which was performance evaluation.” Gary’s own life was shaped by large corporations. His father was a manager with Ford. “We moved constantly – we lived in five different cities when I was growing up. My father was a high level manager. They eventually hung him out to dry – they made his life so msierable that he quit.” Gary completed his education with an MA degree in Communications at Purdoe College in Indiana, the leading US school in its field. He joined the exploration company, Exxon, “the top country in the world, at the time.” He progressed through several senior positions in HR within the Company. “I quit the Company when they failed to talk to me about my career during a downturn. I’d had two promotions when Exxon hit the skids ( during the 1980s energy price slump ). They were not in a position to assure me that I had a future. I asked my boss and he said : “I don’t know what they will do with me..I figured out that these people did not really care about me.”

Gary began to put into effect the principles learned from Deming when he moved to work for Louisiana Energy. He developed a concept known as the Catalytic Coaching Implementation Process involving the use of relative simple colour coded forms.

It constitutes a “personal development plan for the employee” which starts with a full explanation to the staff of what will be involved and what it will do.  It involves every employed and for each individual starts with them setting out their views on one of the forms and which is then used for a meeting with their immediate boss where the key is “to listen, ask questions, take notes,” not to talk at the employee but to understand where they are coming from and respond. It is about training employees to be coachable and developing a realistic and firm action plan which can be monitored quarterly to deliver enhanced performance.  A series of meetings are to be held, all of which need to be carefully prepped

Gary and his colleagues at his consultancy, Energage, sit in and watch managers carrying out coaching sessions. Managers are encouraged to develop the art of coaching.  The HR manager’s role is to act as a “coach of coaches.”

He advises users of his system to avoid the instinct to tailor, by altering the coaching sheets, changing the questions which may change the focus for the employee.  Managers / coaches should avoid what he describes as ‘bullshit questions’ – he instances one such : “how are you living the Company values ? “  By the use of such questions, one is , in effect, “allowing people to tell others what they want to hear.”  it is critical that the information provided is respected and used only in the way it is intended.  “It is the relationship between you and your boss”… This is the employee’s story.”     

Concluding remarks :

Gary is pretty clear in his view that the current prevailing system of performance measurement is one that has been created by those who enjoy process and enjoy assembling and dealing with data. The system generates lots of income for consultancies.

The HR industry is benefiting from the complexity of the current system just as tax accountants benefit from a complex tax system.

“HR people like process. They are followers – 85% of them. They are implementation specialists. It is not their thing to be the Compass. If the boss says : ‘We are going South’, they make it so.”

Gary views himself more as iconoclast rather than as cynic.  His boundless energy is dedicated to delivering substantially improved performance as he has enabled so many companies to do already, on the basis of respecting and developing the people who are employed at whatever level, rather than administering so many forms per year to keep the file right and the lawyers at bay…

He draws an analogy between PMS reviews and those very expensive full body CAT scans.

“Our approach is to let employees talk, to tell their story..”

In spreading his message, Gary finds contact with Vistage members to be of particular use as it allows him to talk with CEOs, bypassing the usual channels.

“If you talk to the Head, the body will follow………..”

Across the corporate and household sector, the impact of a great storm cloud of indebtedness is now being felt. The figures are quite startling.

Last year, the consultancy Amarach Research produced a report entitled: ‘The Debt of the Nation : How we Fell in and out of Love with Debt.”

This study estimated that in Ireland, the ratio of household debt to disposable income had risen from just 48% in 1995 to 176% last year, making us one of the indebted countries in the world, even when public debt is excluded from the equation.

Since the downturn, the number of insolvencies has soared, along with the number of ‘problem’ debts across the banking system. More than 1,400 companies were declared insolvent in 2009 alone, almost five hundred of these being construction firms.

The scale of the crisis is made clear in an in depth report from the Law Reform Commission which proposes a widespread series of reforms in the area of personal debt management and debt enforcement.

The key conclusion is that Irish personal insolvency law is in need of comprehensive reform. The current 1988 Bankruptcy Act is viewed as ineffective, with extraordinarily low numbers of bankruptcies in Ireland compared to other countries, with the result that many are left in effective commercial limbo.

Earlier this year, the Minister for Justice, Dermot Ahern, requested the Commission to come up with practical proposals aimed at addressing what is an urgent situation.

Last Autumn, the Commission produced a consultation paper on debt management.

A key conclusion in the consultation paper was that “Irish personal insolvency law is in need of comprehensive reform and that the Bankruptcy Act 1988 is inappropriate to meet the needs of modern social and economic conditions in a credit society.”"

Patricia Rickard Clarke is the only Full time Commissioner at the Law Reform Commission and has been in this position since 2002. The LRC is chaired by another woman, the former Supreme Court justice and Senator, Catherine McGuinness.

Ms Rickard Clarke is an expert in commercial law, serving for many years as a partner in the Dublin law firm, McCann Fitzgerald, where her husband, David Clarke, remains a senior partner.    

An an Interview with Vistage Ireland, Patricia provides an update on some of the work she has carried out at the Commission and highlights some of the key issues identified in the Interim Report on debt management and enforcement.

“As Commissioner, my focus is on the civil law side. We have achieved quite a bit in terms of the implementation of legislation.”

She identifies the following areas where reforms to the law have been proposed, or are in train:

- Land law.

- trust legislation

- Alternative dispute resolution

- Operation of the courts.

- Mental capacity.

- Regulation of charities

- Regulation of multi unit (duplex/apartment) developments.

Land law:

“The 2009 Act has repealed around one hundred and fifty pre -1922 pieces of legislation as well as some legislation passed after Independence. We did away with feudal tenure and abolished perpetuity periods.” There are now just two forms of ownership, leasehold and freehold – there are no more ‘lives in being.’

As a result of the reforms, those involved in property transactions should come up against fewer problems concerning the title to the land, or other property.

This should simplify the position of trustees who now have ‘absolute power to deal in land.’

Capacity:    

“Mental capacity is a huge priority of mine. The legislation was archaic, with its references to ‘lunatics’ and ‘people of unsound mind.’ Ireland was out of step with other jurisdictions with regard to guarantees of the right of privacy, autonomy, dignity.

In assessing capacity, it was a case of the old ‘all or nothing ‘ model. 

In dealing with people suffering from dementia, for example, the modern approach is different. One assesses people with respect to the (particular) decision they have to make.”

The status quo could no longer be maintained faced with sanctions from the European Court of Human Rights.

The Law Reform Commission proposed the establishment of an independent Guardianship Board, consisting of a three person panel, to assess capacity. The Department of Justice instead opted for a court to be known as a Court of Care & Protection, along English lines.

Charities:

Reforms to the law on the supervision of charities were originally proposed, back in 1976, by the then Attorney General, Declan Costello. Little if anything was done to put those proposals into practice. As a result, the less scrupulous have enjoyed a field day, while the vast majority of charities which are genuine have had no way of distinguishing themselves properly from the small number of rogues.

Last year, legislation was brought in to establish a charities regulator.

“Only small parts of the legislation are in force. There is a hold up due to financial issues around the setting up of the regulator..”

“Charities have been used for money laundering….. there is need for a proper structure.”

Courts Act:

“This is a large piece of work. It involves the total consolidation of all the Courts Acts. We have published a consultation paper and are working on a final report.”

We are repealing 160 to 170 pieces of legislation, making the language more comprehensible to the ordinary citizen. The process of making application to the Court .. we are going to simplify all of that. It is about access to justice – the language is very archaic.”

“We held a number of seminars and the issue of jury membership kept coming up. We have just published a consultation paper in which we talk about the need for a greater spread of people, with fewer exemptions from jury service. Lawyers are automatically exempted from service. Should they be? ”

Access to Justice:

 Since 2006, the Commission has been working on an index to the statutes and it has also been involved in a restatement of legislation since 2007.

Whenever a piece of legislation is amended, the main Act will be automatically altered to reflect this. Under the system as it stands, it is frequently necessary to consult several pieces of statute, – Acts, amending regulations or statutory instruments – in order to determine the true state of the law.

The Commission has already completed a restatement of the Central Bank Acts, the Freedom of Information Act, & the Ethics in Public Office Act.

These restatements have yet to be formally certified.

“We would be behind other jurisdictions when it comes to restatements. Canada and Australia, for example, would be streets ahead of us…We see all of this as a precursor to e-legislation.”

Unfortunately, this very necessary and time consuming process could be halted in its tracks as a result of the public service recruitment embargo.

“We had fifteen researchers in place up until last year. The number has fallen to eight. This will affect our output.”

 Debt management:

The Government has requested the Law Reform Commission to come up with practical proposals aimed at addressing what the Justice Minister, Dermot Ahern, recognises to be a growing problem across society.

The Commission has prepared a consultation paper, which it has followed up with an Interim Report. Both documents are entitled: “Personal Debt Management and Debt Enforcement.”

It is being pressed to come up with practical suggestions to assist in tackling the crisis, in the short term.

A working group has been established drawn from among the following bodies:

the Court Service, the Departments of Finance & Justice, the financial Regulator, the Irish Banking Federation and the Money Advice Bureaux.

Reliance has also been placed on reports prepared by FLAC.

In parallel, a separate Mortgage Arrears & Personal Debt Review Group has been established under the leading insolvency expert, and current Enterprise Ireland Chairman, Hugh Cooney.

Its members include Matthew Elderfield, the Financial Regulator, Pat Farrell, CEO of the Irish Banking Federation and Paul Joyce of FLAC, the Free Legal Aid Advice Centres.

Patricia Rickard Clarke is a also member of this group which has been mandated to present recommendations, on a rolling basis, to the Minister for Finance.

In preparing the Interim Report on debt management, the Law Reform Commission examined the EU recommendations in the area. There, key goals were identified including: responsible borrowing and lending, arrears management & debt counselling, an overhaul of personal insolvency law and a move to more ‘holistic’ court procedures.

Says Patricia:

“We felt that there were gaps in the present structure. Ireland has no (national) database for credit reporting. The Irish Credit Bureau is a private company – the information is volunteered. Not all financial institutions are members of this body.”

While there is the matter of data protection to be considered, financial institutions need to be able to gain reliable information on those approaching them for a loan.

Another key gap is in the regulation of money advisors and debt collectors. 

The Law Reform Commission plans to address the whole issue of debt collection in its final report on the issue of debt management.

Key findings to date :

Says Patricia Rickard Clarke: “In our consultation paper, we concluded that we have to have a non judicial debt settlement system. We are very court intensive.” As a result, the courts receive a huge number of applications for the recovery of debts. In many cases, judgements are handed down in the absence of the debtors in question.

“We felt that it is not good for the judicial system to have judges making futile orders.”

As things stand, judges are being tied up in time wasting procedures at great cost to the taxpayer.

“Our bankruptcy legislation is based on 19th Century thinking (on punishment) . If you owe debts, each creditor can take you to court.”

“There needs to be a proper efficient system.”

Change is already in the air. As a result of a ruling last year in the High Court by Judge Laffoy, the numbers being committed to prison for non payment of debts has fallen from 4,600 in 2008 to just over 2,760, last year, this at a time of financial meltdown.

The Commission has called for the putting in place of a Pre Action Protocol in consumer debt claims. This would tackle the general problem of lack of engagement of debtors.

A recent study by FLAC revealed that none of 38 debtors surveyed attended a consumer debt claim brought against them. Only two out of fourteen attended a debt and imprisonment hearing.

Many debtors cannot afford legal representation.

It is proposed that debt advisors (from MABS, for example) be permitted to represent debtors ar hearings.

The Commission wants the introduction of a parallel non judicial debt settlement system.

Patricia also believes that some form of debt forgiveness system is required, involving an accommodation with the agreement of a majority of creditors. In her view, there has to be a system  allowing for the discharge of debts, bringing Ireland into line with other countries.

Such a system would benefit business people and others, many of whom have fallen into debt often through no fault of their own.

The view is that such a reform would facilitate entrepreneurship and economic growth, as entrepreneurs on their second undertaking would be more effective than on their first, having learned some key lessons from their first failure.

Written by Kyran Fitzgerald