Image by Zink Dawg via Wikipedia

Dear readers,

I would like to wish you all a merry Christmas and a Happy New Year.

It has been a pleasure to engage in discussion with you through this blog and also through some of your blogs in 2010. I look forward to further discussion in 2011.

Cheers,
Andrew

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But this impressive strength masks a serious problem: graft. In spite of efforts to clean up the countries image, two recent scandals illustrate the extent of the challenge the country still faces in this area.

One of the scandals centers around the sale of telecommunications licenses in 2008. A report from the state auditor in November was damming to say the least. It claimed that the licenses were sold at far less than fair value, that the sale ‘lacked transparency and was undertaken in an arbitrary and unfair manner’, and that as many as 122 licenses were given to ineligible applicants - some of whom used falsified application information. Losses to the treasury resulting from this debacle are estimated at $39 billion. Unsurprisingly, Andimuthu Raja, the telecoms minister, was forced to resign (Aljazeera).

The other involves allegations of bribes being paid in order to make loans available from state-run banks; eight people, including five officials from state-run institutions, were arrested in late November (Sky News).

These are not isolated events.  In global rankings, the country ranks 11th worst out of 109 countries in the Graft Index (Encyclopedia of the Nations), which measures the proportion of occasions where gifts or bribes are requested or expected when using public services. Its ranking in Transparency International’s World Corruption Index 2010 (87th out of 178 countries) is average to say the least. And life for the entrepreneurial minded is not exactly easy - India ranks an appalling 165th out of 183 countries in the World Bank’s measure of difficulty in starting a business (The Hindu).

That’s not all. A recent report from Washington-based watchdog Global Financial Integrity says that tax evasion is rife, stashing of illicit cash abroad is common, and the underground economy is almost half as large as the legal one (The Economist).

Yes, it does matter
In spite of all this, the country’s prosperity continues to rise, with the economy growing by 8.9% in the third quarter.

Far from being deterred, foreign investors still clamor for a piece of the action. Overall, the country ranked third out of all countries for foreign direct investment in 2009, according to a United Nations Conference on Trade and Development. In Japan, a 2009 survey of Japanese investors conducted by the Japan Bank of International Cooperation ranked India second after China as a promising country for overseas business operations. And in Canada, the number of Canadian firms interested in investing in India has risen from 8% in 2005 to 13.4% in 2010, says an Asian Investment Intentions Survey issued by the Asia Pacific Foundation in Canada (Indian Brand Equity Foundation).

With this in mind, it would be tempting to fall into the misconception that graft is not really hurting.

Tempting, but wrong. Dirty practices do matter. The impact of graft on India’s economy may be hidden, but it’s there.

For a start, the $40 billion odd in government revenue lost through the telecoms scandal is money which could have been spent in health, education and infrastructure. So too, all that illicit cash which is being hidden overseas is being invested elsewhere – not in job creating expansion within India.

The black economy is problematic as well:  businesses which operate under the radar need to stay small in order to avoid attracting attention and cannot grow into prosperous, job creating enterprises.

Third, any capital from state-owned financial institutions which goes toward the highest bidder, as happened in the bribes-for-loans scandal, is capital which is not necessarily going to worthy borrowers – those with viable enterprises, good business plans and a demonstrated ability to deliver products and services of real value in a cost effective manner.

Finally, whilst it may be true that foreign investment is running hot at the moment, who’s to say that India would not attract even more if the country cleaned up its act?

Graft is hurting India’s economy. Its impact may be masked by a smart workforce and an entrepreneurial culture, but the effect is real nonetheless.

And India would be better off without it.

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But IBM takes this concept to a whole new level.

Rather than work on local projects, participants in Big Blue’s Corporate Service Corps. (CSC) initiative are posted to places like Ghana, Vietnam, Kenya and other emerging economies. And they work with colleagues not from their own office but rather in multi-ethnic teams comprised of eight-fifteen IBMers chosen from different parts of the world.

Bold in nature, CSC represents a groundbreaking initiative in combining corporate social responsibility with global leadership training. It is well worthy of commendation.

Background – about the program
Modeled on the US Peace Corps., IBM’s Corporate Service Corps. initiative represents part of the company’s efforts to develop leaders who can think and act on a global scale.

Chosen from around the world, groups of eight to fifteen high performance IBM staff spend four weeks working on a pro-bono basis with governments and private enterprise in developing nations to design and plan infrastructure projects or generate ideas for process improvements.

(The make-up of each group is specifically chosen to ensure a breath of cultural diversity within each team.)

Kate Robertson, for example, an IT consultant in the UK, helped the provincial government of Bohol in the Philippines to develop practices and structure relating to human relations management. In Romania, engineer Al Shakria and his team reengineered the manufacturing process at a furniture manufacturing plant which doubled productivity by recommending a device which allowed machines to be positioned in such a way that the operator could drill and spray at the same time (refer IBM corporate video). And in Kenya, the team of eleven IBM staff from seven different countries worked alongside the Kenya Information, Communications and Technology Board, the Ministry of Information and Communication and the Digital Opportunity Trust to develop strategies to narrow the digital divide between rural and urban areas and accelerate the growth of communications in technology across the country (Kenyan CIO Magazine, Oct 13). 

The program has been enormously popular with IBM staff. According to The Economist (Oct 28), the company has received more than 10,000 applications since the program’s inception in 2007. Around 500 participants are chosen each year.

Win-win-win thinking
The delivers significant benefits to three key stakeholder groups:

• Recipient communities.

Obviously, individual communities in which the program operates derive immediate benefits as a result of the service provided.

Just as importantly, however, they also benefit through empowerment. IBM provides ideas and a plan, but local communities themselves do the implementation and achieve the outcome – with IBM having enabled them to do so.

• Individual participants.

Individual project participants benefit through experiencing a different country and culture and working alongside people from different parts of the world.

Project participants also benefit through a sense of accomplishment associated with having achieved something meaningful, contacts and friendships with other IBMers beyond their immediate office or location, and an expanded and more globalised outlook and perspective on life.

• The company itself.

Arguably the biggest beneficiary in all this is IBM itself.

From Big Blue’s perspective, the program delivers enormous benefits in terms of profile and corporate image in countries where a large portion of growth prospects lie. And though locals do most of the actual work associated with the individual projects which IBM helps plan, the company does on some occasions receive paid contracts for follow up work in areas of the implementation which are especially pertinent to its areas of expertise. Piotr Uszok, the mayor of Katowice, Poland, for example, who is extremely happy with the smarter-city advice he received this year, hopes that IBM will take part in the tendering process regarding projects which follow on from this (The Economist, October 28).

(IBM stresses its CSC services are offered without any strings attached, and that recipient communities face no obligation whatsoever to reward the company with any follow on contracts which arise out of CSC work.)

More broadly, projects like this go a long way toward retaining top performers, breaking down internal cultural barriers within global operations and maintaining the company’s reputation as a global leader.

But the most important benefit for IBM relates to the development of global leaders. Organisations which aspire to global industry leadership (or, in IBM’s case, maintaining global leadership) need leaders who understand how the world works. And the best way to develop these leaders? Exactly as IBM is doing: send up-and-comers out into the world.

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Cleverly designed on a number of levels, the program delivered real benefits to the company itself as well as local communities.

Background
The Sports for Schools program was a recent initiative of Coles Supermarkets, the second largest supermarket chain in my home country of Australia.

Under the program, which ran from early September until the end of October, shoppers were able to earn vouchers (worth one ‘point’) for every ten dollars which they spent. These vouchers were then able be taken to local schools, who were able to use them to purchase new sporting equipment.

The program was well received. According to the company’s web site, more than 7,400 schools chose to participate

Why the program was so good
Coles’ approach is hardly revolutionary, and I would imagine that programs along similar lines would be reasonably common in retail outlets throughout many parts of the world.

Still, the program was extremely well designed. There were a number of aspects about it which stand out:

 
• Making customers notice by getting them involved.

By involving customers in the process, Coles generated a high level of interest and awareness in what it was doing – far more than would have been the case had the company chosen to simply donate the equipment directly.

 
• Making customers feel empowered.

By having customers ‘earn’ their vouchers (and then by having customers go themselves to their local school to donate the vouchers), Coles made it seem almost as if it was the customers themselves who were achieving something for their schools – with the company merely empowering them to do so. 

This is important. The desire for empowerment is a natural human craving. By empowering shoppers to achieve something worthwhile, the company has strengthened customer relationships far more than would have been possible had customers not been involved in the process.

 
• Direct link to customer purchases.

By awarding one voucher for every ten dollars spent, Coles created a direct incentive for customers to make additional purchases.

A customer whose bill added to say, $78.50, for example, might well have been tempted to buy something extra in order to get the bill up above $80 and thereby earn eight vouchers rather than seven.

 
• Giving an incentive to shop at Coles.

Moreover, the program gave customers an incentive to shop at Coles rather than rival supermarkets.

At Coles, shoppers could earn vouchers for their children’s schools. At rival supermarkets, they could not.

 
• Local benefits for local children.

CSR programs which provide tangible benefits to local children will always have a strong impact on customer relations.

For parents, it is natural to feel particularly strongly about immediate issues affecting their own children. And even for many who do not have their own kids, children within the local community represent something special.

Also, tangible items (like sporting equipment) distributed locally are more easily noticed by consumers than the provision of any benefits which are less tangible or which are provided outside of local areas.

 
• Physical education – an increasing area of importance.

Another area in which Coles have done well relates to their choice of cause to support.

With children spending more and more time on computers and watching television, parents are becoming increasingly anxious about their children getting sufficient levels of exercise and physical activity.

(There may be good reason to worry. A recent study by the World Health Organization, which analysed 72,845 children across North and South America, Asia, Europe and the Middle East, found that only one quarter of boys and 15% of girls were getting ‘sufficient’ levels of exercise – more than one hour per day, five days per week. The study also found that a quarter of boys and 30% of girls were ‘sedentary’ – spending three or more hours per day on the computer, watching television or chatting with friends.) (Reuters, Mar 10, 2010)

For this reason, any efforts supermarkets make to promote or encourage participation in sport or physical education will be increasingly well received by consumers.

More broadly, given the desire on the part of parents to see their children get the best possible start in life possible, efforts to promote education of any kind will always be popular.

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Is greed still good?

On September 23, when the new film, Wall Street 2 – Money Never Sleeps was released, the answer was revealed.

Greed, it appears, is no longer good. But now, Gekko observes, it seems to be legal.

 
Gekko’s new view on greed
It’s been more than two decades since Gordon Gekko (Michael Douglas) make the famous declaration in the original Wall Street movie that, ‘Greed, for lack of a better word, is good’.

Fast forward to 2008, in the midst of the financial crisis. Gekko, released six years earlier after serving eight years for securities fraud, appears to have re-evaluated his world view.  He now has a book, ‘Is Greed Good?’, and whilst he does not provide an explicit answer to that question, he does make clear his disdain for the herd mentality by which some of the practices leading up to the GFC had been followed.

‘Is everybody out there nuts?’, he exclaims during an address in a lecture theatre, an address which inspires Jacob ‘Jake’ Moore (Shia Lebouf) – an up and comer at troubled investment bank Keller Zabel Investments who is set to marry Gekko’s estranged daughter.

Gekko also wryly observes that, in contrast to the type of activity which landed him in prison, few of the practices that led up to the GFC were actually in breach of the law.

‘Someone reminded me, I once said ‘Greed is good’, he says. ‘Now it seems it’s legal.’

Gekko, declared the Weekend Australian Review on 11 September, is a ‘changed man’.

Or is he? Is he simply up to some of his old tricks again?

The new film, in my view, is nowhere near as good as the original. But it is still worth seeing – those involving Michael Douglas usually are.

 
Some issues surrounding the film
Here’s my take on a couple of issues surrounding the film.

 
• Corporate criminals are quickly forgotten.

The first scene shows Gekko walking out of the prison gates after being released from prison in 2002.

Who should be waiting for him?

No-one.

In his hey-day, financial market participants would watch his every move. Up and coming brokers like Bud Fox (Charlie Sheehan) virtually idolised him.

Now, no-one cared. Disgraced and estranged from his family, his release did not register with anybody. Whilst fellow former inmates were picked up – one in a limo that Gekko assumed for a second was his – nobody came for him. He was alone.

I am not saying that this is necessarily right. For anyone to experience this would be awful, no matter what they have done.

But there is a clear lesson. Those who engage in dishonest activity in the pursuit of wealth are soon forgotten.

 
• Gekko is no role model.

After the release of the original Wall Street film, Douglas apparently found himself being approached in restaurants and on the street by finance industry executives, who told him it was Gekko who inspired them to get into the industry (Weekend Australian Review – Sep 11-12).

Curious.

To be sure, there is nothing wrong with the finance industry. It is a good profession which offers excellent prospects for a rewarding career.

But drawing inspiration from someone who ends up disgraced and in jail is unusual, no matter how much of a legendary character they might have been.

Gekko is great for entertainment, but those who wish to succeed in the finance profession would be well served looking elsewhere for a role-model.

 
• Those who over-borrow are asking for trouble.

One aspect I liked about the film was the lack of sympathy given to Moore’s mother (played by Susan Sarandon), who borrows to finance property with little regard for her debt related responsibilities.

Individual borrowers did not cause the GFC – irresponsible banking practices did. Nevertheless, at an individual level, each and every one of us is responsible for what we ourselves choose to borrow. Those who over-commit themselves are not acting responsibly and have no-one but themselves to blame when they get into trouble.

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The result is a sensible outcome. At the expected level (see below), the new minimum wage will not compromise the city’s competitiveness or place an unreasonable burden on employers. Yet it will help address Hong Kong’s persistent problems associated with income inequality and the growing number of ‘working poor’ families.

But it is disappointing that domestic workers have been excluded from the legislation.

 
Background
In July this year, the Hong Kong government passed legislation guaranteeing minimum wages for the vast majority of employees within the city.

(According to The Economist, the idea of minimum wages in Hong Kong has been debated since 1932.)

Under the legislation, members of a task group chosen by the city’s chief executive will propose a minimum wage level, which the legislature will then accept or reject. The new wages, which will come into force next year, are to be reviewed every two years (AFP).

Whilst the precise rate for next year is yet to be confirmed, a level of close to HKD28 per hour (USD3.61) is widely anticipated (The Epoch Times).

The new law does not, however, cover domestic workers employed as live in help for Hong Kong families. These workers, many of whom are Filipino or Indonesian immigrants, are guaranteed a minimum monthly HKD3,580 as well as accommodation under existing law (Sydney Morning Herald).

 
A sensible decision ..
At the expected rate referred to above, those on the minimum wage will earn about HKD1,120 for a forty hour work week. This equates to a monthly income of HKD4,853.

To put this in perspective, the Hong Kong Council of Social Services puts the monthly income required for a single adult to remain above the poverty line at HKD3,300 (Epoch Times). And that’s just for a single: families obviously cost more. A family of say, four, could probably scrape by on HKD4853 per month – but only just.

Given this, a minimum wage at the expected level is hardly excessive. Nor is it overly burdensome on employers. In a rich world economy, wages that only just cover the cost of living are not too much to ask.

And it’s hardly as though the new law will compromise the city’s competitiveness: compared with elsewhere in the rich world (American dollar equivalent hourly minimum rates stand at $9.26 in Britain, $14.06 in Australia and a whopping $56.44 in Japan), Hong Kong workers on a minimum wage of USD3.61 per hour will still be dirt cheap.

(In native currency terms, minimum hourly wage rates in the above-mentioned countries stand at GPB5.93, AUD15, and JPY4,712 respectively.)

Nor will it cause much business to go elsewhere. The main types of workers who are expected to benefit (restaurant workers, security guards and cleaners) are not employed in sectors where operations can be relocated easily.

But it is necessary. Hong Kong ranks last in income equality out of thirty-eight countries and territories, according to the United Nations Development Programs 2009 Human Development Report (Sydney Morning Herald). Worse still, despite an unemployment rate of just 4.2%,  Hong Kong Council of Social Services estimates that 17.9% of the city’s population are poor (The Epoch Times). This means that a significant portion of Hong Kong’s residents live below the poverty line despite being employed.

That shouldn’t happen. Surely in any rich world city, those who work full time should have the right to expect to make enough money to provide basic necessities for their family.

 
.. but pity about the domestic workers
Nevertheless, the exemption of domestic workers from the new law is a great pity.

[As mentioned above, these workers are already granted a minimum wage under existing law (HKD3,580 per month plus accommodation).]

Granted, families who employ the services of these workers may not be enterprises or businesses. But they are still employers nonetheless. Those who work for them are as much employees as workers employed in any other sector of the economy. There is no reason why these workers should be entitled to the same minimum wage as everyone else.

Hong Kong’s new minimum wage law is sensible and should be welcomed. Pity it doesn’t apply to everyone.

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One such event was a forum held last Friday about ethical journalism in the changing world of online media. This forum was followed up by a roundtable discussion on the same topic that afternoon.

As a young writer, the opportunity to hear from and chat with those at the cutting edge of ethical journalistic practice in Australia was a worthwhile and rewarding experience. Today, I would like to share a couple of the main points to come out of the discussion.

[The forum featured: Dr. Dennis Muller (forum chair), a former journalist and now Principal of policy and social media consulting firm Dennis Muller & Associates; Paul Chadwick, Director of Editorial Policies at the Australian Broadcasting Commission; Chris Chapman, Chairman and Chief Executive of the Australian Communications and Media Authority (ACMA); and Julian Disney, Chairman of the Australian Press Council.]

 
Core values still relevant …
One of the most important themes which resonated not only from yesterday but also throughout other journalism related events during the week was that the basic principles of ethical journalism have not changed, but that developments within the media environment present both new opportunities and new challenges in this area.

Journalism has, at its core, a set of basic fundamental principles regarding professional conduct. Ethical journalists must:

• ensure, to the extent possible given resource and time constraints, that information they present is properly researched and factually accurate;
• report in a manner which is fair and free of bias;
• give due regard to matters of privacy and confidentiality, balancing these factors against any public interest considerations associated with disclosure of information; and
• act with courage and integrity, refusing to be influenced by inducements or intimidation.

These principles will never change. They form the basis of ethical journalism now and will continue to do so regardless of how the media landscape might evolve in the future.
 

… but new challenges ahead
Nevertheless, the shift toward new mediums for information delivery presents both challenges and opportunities with regard to ethical journalistic practice.

Some of the areas where changes might occur include:

 
• Breaking stories.

In print media, journalists typically have several hours between the time of significant events occurring and the deadline for submission of their report.

This is not the case in the online world, where increasing pressure for up to the minute online information about breaking stories raises challenges in the area of fact checking and investigative journalism. With these stories, journalists and media organisations face a significantly greater challenge in the online world when compared with print media in balancing considerations relating to speed against those related to quality of reporting.

 
• Comment moderation.

Whilst increased capacity for reader discussion in the online news environment is a positive development overall, the ability of anyone armed with an internet connection to hit ‘post comment’ makes it more difficult to filter out offensive or inappropriate comments.

Media organisations must devise strategies to effectively moderate online forums without unduly inhibiting the natural flow of reader commentary and discussion. 

 
• Error correction.

One of the positive aspects of online news relates to the ease with which online publications can place notes relating to error correction within the original article or report itself – something which is obviously not possible with print media articles once they have gone into circulation.

Correction of archived reports is not only possible in the online world, it’s necessary. As a result of the ease with which archived information can be discovered online, the consequences of inaccurate information are more serious than ever before. This raises the stakes with regard to the duty of care for media organisations to correct any factual mistakes in past reports.

Online publications have the ability to correct erroneous information within source articles. They also have the obligation to do so.

 
• Links to source information.

One of the great benefits about online news is the ability to allow readers to access source information via hyperlinks.

Some degree of reluctance about hyperlinks on the part of journalists and editors is understandable – they do direct visitors away from newspaper sites. Hopefully, however, media organisations will over time become increasingly comfortable with their use as means of enhancing journalistic credibility and accountability.

 
• Regulation.

This was one of the key aspects which Chris Chapman from the ACMA talked about on Friday.

The constant evolution of online media platforms creates ongoing challenges for lawmakers and regulators. For one thing, there is the prospect of existing rules being rendered inadequate or no longer appropriate as a result of new developments (Mr. Chapman points out that terms like ‘street view’ – referring to a technology featured in Google Maps and Google Earth which allows for a street level view of many locations around the world – were not in existence when the legislation creating the ACMA was drafted). Then, there is the issue of online media organisations operating outside the jurisdiction state or country on which they are reporting – a positive in many respects but potentially a negative when it comes to some matters such as protection of privacy. Finally, there’s the issue of regulation across different media platforms. Are different rules required for different platforms? How about regulatory authorities? Should all journalism, regardless of the medium, be supervised by the same regulatory bodies?

These are just some of the areas where the changing media environment may impact ethical journalistic practices within the near-term future.

Your thoughts?

One hot topic: plans of the current Labour government to require cigarettes to be sold in plain packaging from the middle of 2012 onwards.

With reservations, I support this plan. Governments do have a responsibility regarding public health, and this does include undertaking appropriate measures to curb cigarette consumption. 

Nevertheless, the proposal does raise disturbing questions about intellectual property rights and how far governments should go in terms of intervening in standard commercial practices.

 
About the plan:
Announced last April, the plan represents the latest development in efforts on the part of the Australian government to curb cigarette consumption.

Under the plan, which the governing Labour Party claims is a world-first, the following requirements will apply to the packaging of all cigarettes sold in Australia from 01 July 2012 onwards:

 • all cigarettes will be sold in plain packaging (the government will specifically develop and test packaging design that will make cigarettes less attractive – especially to young people);

• tobacco industry logos, brand imagery, colors and promotional text (other than brand names in a standard colour, position, font style and size) will not be allowed on cigarette packaging; and

• graphic health warnings displayed on packaging will be expanded and updated.

 
The positive side – reduced consumption
Contrary to claims by the Alliance for Australian Retailers (ARR), a lobby group for Australian retailers supported by the tobacco industry, the plan is likely to discourage smoking and help reduce overall cigarette consumption.

For one thing, the extent to which retailers and big tobacco have opposed the plan (the AAR was created specifically for the purpose of campaigning against plain packaging) does appear to contradict their claims. Indeed, the fact that they are so opposed to the idea indicates that they fear just how effective it might be.

Moreover, the idea of plain packaging resulting in lower levels of cigarette consumption than would otherwise be the case does make sense. For any given product, cigarettes included, cleverly designed packaging makes buying more attractive – vice versa for merchandise packaged in plain or unattractive colours.

That matters. According to the World Health Organization, smoking kills more than five million people worldwide each year, accounting for one in every ten adult deaths.  And this is not to mention the pain and suffering endured by those who contract smoking related diseases whilst they are alive. Nor does it account for broader economic costs associated with tobacco related illnesses, particularly in terms of health related expenditure and lost productivity.

 
The negative side:
Nevertheless, the proposal does raise two key areas of concern:

 
• Intellectual property rights.

In a submission to a senate enquiry, the Property Rights Alliance (PRA), a global organisation dedicated to the protection of physical and intellectual property rights, asserts that the proposed legislation would violate the intellectual property rights of tobacco manufacturers under two international treaties: the Agreement on Trade Related Aspects of Individual Property Rights (TRIPS) and the Paris Convention.

Without a legal background, I am in no position to make informed comment as to whether or not PRA’s assertion is correct.

What I will say, however, is that this is a serious matter. Without exception, all rights granted under international treaties, including those of cigarette manufacturers, must be respected and upheld. Any violation with regard to these agreements is serious, and before plain packaging is introduced, the government must obtain strong legal advice to ensure that any associated legislation is in full compliance with both of the above agreements.

 
• Unprecedented intervention.

The second area of concern relates to questions about the extent to which governments should intervene in standard commercial practices.

Cigarettes are a consumer product, and governments are right to intervene in some aspects of their packaging – mandatory inclusions about health warnings being a prime example.

But government intervention in packaging design is unprecedented. Labour’s plan to meddle in this area does raise questions about the freedom of companies to package merchandise using the design of their choice and whether or not government prescription of specific packaging design is going too far.

Close call. I support plain packaging, but with reservations.

Your thoughts?

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Cheering or other forms of celebration, they feared, would damage the firm’s reputation beyond what had already occurred since the announcement of the SEC action last April.

(The settlement, under which the bank agreed to a penalty of $US550millon, represented the largest fine ever imposed on a Wall Street firm to-date.)

Good thing too. The settlement has removed a great deal of uncertainly for Goldman. But it was not a cause for celebration, especially given the prospect of further legal action – not to mention the damage which the bank’s reputation has suffered as a result of these events.

About the settlement
Announced on July 15, the settlement relates to charges against the firm brought about by the Securities Exchange Commission (SEC) in April for defrauding investors by misstating and omitting key information about ABACUS 2007-AC1 (ABACUS), a financial product it sold to two institutional investors as the American housing market was faltering in 2007.

Under the terms of the settlement, Goldman has admitted that marketing materials relating to the transaction in question contained incomplete information. The bank has accepted a fine of $550 million and has also agreed to undertake appropriate remedial action with regard to practices in its offering of mortgage securities.
 

Worries not over
To be sure, from Goldman’s point of view, the settlement does remove a great deal of uncertainty. Better yet, they actually got a fairly good deal: the amount paid is well below worst case scenario predictions (some analysts were tipping $1billion or more – refer article) and no departures at senior levels were required. Things could have been worse.

Still, their problems are a long way from over. For one thing, there are obvious concerns about the settlement serving as encouragement for further legal action from investors who lost out on other Goldman products. Already, Australia’s Basis Capital is asking for $US1billion in damages plus recoupment of initial capital relating to the sale of Tiberwolf securities in 2007 (refer article).  Royal Bank of Scotland (RBS), too (whose subsidiary ABN Amro lost $841 million through the provision of credit insurance on the ABACUS transaction), is widely rumored to be considering its options.

And let’s not forget the ongoing criminal investigation into the bank and its employees by US federal prosecutors either.

Credibility damage
Moreover, the settlement does serve as a blow to Goldman’s credibility.

Granted, the settlement did not constitute an admission of guilt. Nevertheless the fact that Goldman were willing to settle for that amount of money does suggest that they had a case to answer. And given how quickly they caved in, the firm’s initial response (where they dismissed the complaint as being ‘unfounded in law and fact’) does now look a little nonsensical.

For Goldman, this matters. Ranked eighth in Fortune’s 50 Most Admired Companies (refer Goldman Media Awards site), the firm’s standout reputation amongst its peers, along with the prestige associated with its name, has long been a crucial source of competitive advantage.

Hold the Celebrations
Throughout its history, Goldman has had many achievements to celebrate.

In the past six months alone, these include awards such as Euromoney’s Best Global Investment Bank (Jul 2010) and Investment Dealer’s Digest’s Bank of the Year (Jan 2010) as well as inclusion in Business Week’s 20 Best Companies for Leadership (Feb 2010) – and these are just to name a few.

These awards are a credit to Goldman (as are the stellar returns the firm delivers to shareholders so consistently). Celebrations relating to achievements like this are more than justified.

Not so for the ‘award’ from the SEC of Wall Street’s largest ever financial penalty. No matter how much of a relief the settlement might have been, its announcement was no cause for celebration. Any cheering would rightfully have caused further damage to the bank’s reputation.

Goldman was right to be relieved. It was also right not to open the champagne.

That should only happen at times worthy of celebration.

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Good manners cost next to nothing. Yet a little courtesy goes a long way.

Last month in my neighborhood there was a perfect example of a situation which was handled poorly but could have easily been handled better with a little effort – much better.

The situation in question concerns the closure of the Croydon Market, a flea market which operates not far from my house in an undercover car park area adjacent to the Centro Croydon shopping centre.

PCL Prattcorp, which bought the shopping centre and the market site in May, closed the market last month, apparently citing concerns relating to insurance and safety (refer article).

 
A badly handled situation
This was never going to be an easy situation. The market opened in 1908 and has been operating in its present location since the end of World War I. Its closure was always going to be met with sadness. Not to mention the impact on stallholders, who depend on this market and other markets for their livelihood.

But what made things worse was PCL’s handling of the situation. Rather than being given advance notice of the closure, stallholders were not told at all. Instead, on Sunday June 28, they loaded up their gear and made the trip to market as normal, hoping for a good day of sales. (Some came from as far away as Horsham, four hours to the west, where markets had been held the previous day.) Alas, they arrived to find the gates closed and security guards turning them away. Their entire effort had been wasted. Worse still, those dealing in perishables were left with unsaleable stock.

Hardly any better was the company’s handling of the media. Enquiries from the Maroondah Leader, a local newspaper, were referred by PCL’s head office to management of the centre itself. Centre management, in turn, handballed those same queries back to head office. No one, it seems, wanted anything to do with this.

 
What should have happened
This situation could easily have been handled better with only a small amount of effort on the part of PCL.

Two simple steps would have gone a long way:

 
• Advance notice.

Giving stallholders advance notice of the closure would have been basic common courtesy.

Even a short period of notice – say, six weeks or even a month – may have enabled stallholders to arrange to set up at different markets in alternative locations, thereby minimising the disruption of the closure to their operations.

Advance notice would also have allowed them to clear unsold stock in the final weeks of trading.

(Even if safety concerns were a factor in the decision, as the company insists, the suddenness of the closure hardly seems necessary. The market has been operating in the same location without incident since World War I, surely it has not suddenly become so unsafe to the point of needing to be closed without advance notice.)

 
• Coordinated media strategy.

Given PCL’s size – it paid $31.5 million Australian dollars [$USD 26.5 million (approx)] for the centre – its absence of a strategy for handling media enquires is staggering.

It would not have been hard, for example, to prepare a short media statement about the closure. Nor would it have been difficult to arrange a designated contact point for media enquires. Yet either of these measures would have gone a long way toward making PCL look more professional.

(The company did make a media statement in the end. But that did not come until July 02 – almost a week after all the drama. Too little, too late.)

 
Simple steps, big impact
None of this would have been hard or costly. But better handling of the situation would have gone a long way toward enhancing PCL’s reputation.

Stallholders are businesspeople, and have a right to expect advance notice of decisions affecting their operations.

Moreover, the poor handling of this situation reflects badly upon PCL as a company, and this has adverse consequences for the company in terms of community reputation and staff morale. Pity. Even a little forethought on its part would have made a world of difference.

Etiquette and manners are essential when dealing with difficult situations.

Thoughtfulness and consideration hardly cost anything. But a few simple steps can go a long way.

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