Kids Company – Reserves of Discomfort

150807_KCReserves

The Financial Times  provides a good understanding of some of the financial woes that beset Kid Company.

As the article shows, Kids Company had only £400k in reserves at the end of 2013 and its Trustees wrote in their audited accounts that this was a major risk.
The Founder says that she argued with Government that they should do more (i.e. give more) to help this situation but Kids Company received over £12 million in 2013 of voluntary unrestricted income. This means that Kids Company management (and the Board of Trustees) decided themselves how to allocate the money between active use and reserves. The Government (at least in this instance) had no burden upon it to allocate money to reserves – Kids Company had adequate funding to do this and should have made this allocation for the benefit of the future of the organisation, its mission and the kids that it supports.

It decided to fund short-term need (always pressing) against long-term viability and got away with that for a long time. Eventually, like a business that overtrades, it goes bust. That is making your organisation unsustainable and for an organisation of this size with this amount of voluntary unrestricted funding (a level that so many well-run charities would welcome) to commit this offence is maddening – it is anger inducing.
For the auditors to simply then sign off the accounts with no comment is appalling. The Trustees knew the situation and commented on it in the accounts in 2013. They were not (yet) insolvent but could read the runes. The auditors should have commented further.
For Government to keep putting money in without understanding the financial problems and not requiring Kids Company to allocate resources to reserves is unsettling. Surely someone in Government could have spoken to a charity finance person and understood the reserves issue (plainly in front of them) and made it a requirement of their funding to have Kids Company allocate more of their voluntary unrestricted income to reserves. Nothing appears to have happened.

This is not unusual in the sector – urgent needs are there to be met and Trustees not strong enough to argue for longer term needs. Trustees have a legal responsibility not just to write sentences in the accounts but to safeguard the organisation from collapse that they could have averted.

Six months’ breathing space at a lower level of operations could have allowed Kids Company to have resurfaced and kids and families still could be getting support in some of the UK’s hardest hit areas. Management and Trustees should look to themselves and no one else for the answers to problems in such a situation; auditors should be more pro-active; Government more discerning.

For the Charity sector as a whole, understanding the need for reserves and the prevention of “over-trading” is a fundamental need. Many Trustees are not up to understanding this requirement; many management staff are unsure how to balance the urgent needs of their beneficiaries in the short-term with those of organisational sustainability. Unfortunately, that is their job. The Charity Sector is not good at this – and every Charity is different. The mission of most charities are worthy enough for Trustees and senior management (and finance people) to try to learn something from this – reserves are not just for show, they have a place in sustaining charities and mitigating risk. It is not enough just to know you have a risk – a charity must take action.

Finally, it is a sad reflection on our times and our country that Kids Company had to undertake its mission in the first place. Its Founder was right in that she saw Government abstaining from its legitimate role in society – a 21st Century society not a 19th Century one. This abstinence then propelled Government (Labour and Conservative) into its Big Society mission – like a wealthy philanthropist giving money to the starving poor. This is Dickensian in the extreme and Kids Company should not have been needed. Many charities do work which are above what we would consider Government to be properly able to do – I suspect that some of the outcome of this will be that in this Dickensian, 19th Century Age of Austerity, we need to reflect more pro-actively on what we ask Charities to do and what we expect from the State.

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So and so’s. How Some Banks Con

What does HSBC stand for? What do we do about it?

“so and so” – an undefined person considered beneath contempt

  • So, HSBC is shown by the BBC to have systematically organized illegal tax benefits for hundreds or thousands of its customers through its Swiss subsidiary. No surprise.
  • So, HMRC (the UK’s tax collection agency) has recovered only £135 million since that time in tax and penalties out of billions that are illegally saved each year. No surprise.
  • So, HMRC and this government agreed with the Swiss authorities (after the leaks about HSBC were found) not to prosecute except where the cases would be virtually guaranteed to succeed. No surprise.
  • So, the then Sir Stephen Green (now Baron Green), then HSBC’s CEO at the time is not talking and the Conservatives (via the chief Secretary to the Treasury – David Gauke) say that there is no evidence that he directly knew of what was going on. No surprise.
  • So, the Conservatives demand to know why Ed Balls, now Shadow Chancellor and then City (of London) Minister did nothing at the time. No surprise.
  • Anyone see the actions that the issues and finger-pointing provoke? Just politicians ranting at each other while the poor taxpayer – those “so and so’s” who have been squeezed mercilessly since the banking industry exploded in 2007/8 – is left with the bill – lower wages and austerity.

Meanwhile, the real “so and so’s” who should have been prosecuted and some doing time in prison are seen as outside the justice system – no longer within the law despite proof of a multi-billion pounds swindle on the UK.

So what?

Well, there has been extreme tax fraud – no-one denies it. Even HSBC accepts that they have had to make major changes in their banking practices – although, according to staff who have left HSBC this did not really make any progress until well into 2011.

Sir Stephen Green may well not have known the specifics. CEO’s of big banks (and most large organisations) are sheltered from the bad things going on but it is no defence to state that they did not know “specifically”. CEO’s are appointed as heads of such organisations and set the tone – the culture – of any organisation. As such, they are culpable for any major misdeeds that occur. In his excellent book on RBS, Shredded, Ian Fraser takes apart any claims that CEO’s can be said to have stood outside the fray. Maybe RBS was even worse than HSBC but senior management set the culture and reap the rewards of profits – Sir Stephen would have benefitted personally from the gains made through tax fraud in the Swiss subsidiary and, if he did not know what was happening (just as Henry II is alleged to have made the claims about Thomas Becket’s murder in 1170), then his lack of pro-activity in finding out would have been a joke. We don’t seem to have learned much in 845 years!

Anyway, if Sir Stephen Green knew nothing and is as innocent as a puppy, then how can Ed Balls (City Minister at the time) be accused of knowing everything by the people who then appointed Sir Stephen Green (now Baron Green of Hurstpierpoint) to Government in 2010?

Is there really a case against Ed Balls when the good Baron knew nothing, apparently? David Gauke sounded ridiculous on BBC Radio 4’s Today programme today because he was being so. Stupid political points were being made when the “so and so’s” who rule the world (the bankers) are freed from the rigours of the law (and any ethical codes) and continuously benefit.

Public Accounting for the “So ands so’s”

So, Margaret Hodge (the Chair of the British Parliament’s Public Accounts Committee – PAC) states that she will bring those responsible before her Committee. She states, quite properly, that the UK is not “aggressive enough” is tackling these issues. Even though the issues occurred during the previous Labour Government’s period in office, Mrs Hodge states very clearly that Stephen Green has a responsibility – he either “knew” of the tax dodges or was “asleep at the wheel” – quite right!

The PAC should now (seven years too late) point to what should be done: not just who is culpable but how the UK will recover the lost tax and how the UK will not stand for repeated situations. The USA fines banks billions of dollars. The UK (with the political establishment too much in hock to the banks and the civil servants and HMRC too timid and weak) does almost nothing but whimpers about no-one being responsible and it being too difficult to prove.

Which “so and so’s” are running the madhouse?

Isn’t it time that those who have suffered so much from the banks’ failures begin to see some recompense? This is not a desire for revenge but failures of this size have not led to a discernible change in this country’s culture or efforts to ensure such failures do not recur.

HSBC seems not to have been penalized for tax avoidance schemes and a culture that would not be tolerated even at Tesco. The UK has a need to change the way it deals with abhorrent schemes and aberrant behaviours. Politicians and those who work in the public sector need to feel the pressure that the public wants them to be under – pressure that needs to result in the defence of public needs. If it does not, then Syriza in Greece was an outcome of such lack of public interest and UKIP in the UK is another (although not quite the anti-aberrant banking behavior that is needed). If this Government does not ensure that the “so-and-so’s” aren’t allowed to run the country, then May’s general election in the UK will see an even more angry electorate ditching them.

ICAI Report on DfID and Corruption

This item was recently shown on Transparency International – UK‘s site under  http://www.transparency.org.uk/news-room/12-blog/1166-icai-report-on-dfid-and-corruption

 

The Independent Commission for Aid Impact (ICAI), an independent body that scrutinizes the UK’s aid spending, recently reported. That report maintains that, while the UK government department responsible for such spending, DfID, understands the importance of preventing corruption, “there is little evidence that the work DFID is doing to combat corruption is successfully addressing the impact of corruption as experienced by the poor.” This is especially true in the area of petty corruption – which hits aid recipients on a day-to-day basis.

 

Transparency International – UK has recently responded to the report and I agree with those comments. However, I do have a few others that I include below that focus on Government inactivity and aid dependency.

 

First, I was involved in developing the Anti-Bribery Principles and Guidance for NGOs in 2010/11 around the Bribery Act – I was then working on behalf of Global Witness but under TI-UK’s overall management of the project. Apart from the areas addressed already in the press release, one of the key problems for those on the ground (those dispensing the aid) was where to go to report corruption – quite apart from how to react to individual events. Those on the ground have (from many reports) little direction about who to contact and aid organisations appear to receive too little help from aid providers (governments) when they report the problems and look for longer-term solutions. Government is not doing enough to react to continuing situations and to tackle the issues with those nations receiving the aid – with national and local governments. This means that the problem continues as aid workers and organisations are usually only able to operate at the practical level – there is not enough action coming from the top down. Governments could do much more in this regard. While some thought was given to this issue after the release of the guidelines, Government does not seem to have addressed this (and the UK is not alone in this).

 

Second, the ICAI report does throw up a serious issue around aid provision. From my own experience in Afghanistan with another charity, the aid culture can itself become a problem as the report argues and aid dependency becomes a particular issue for many countries. The change in culture can be substantial and corruption (at the day-to-day level) becomes almost endemic. It is one reason why women in Afghanistan are now taking such a lead in helping to develop new income generating activities and why they are much more likely to be recipients of micro-financing than men – it is usually the men that are involved in the culture change to aid dependency.

 

As a major aid provider (and I am not advocating reduced aid), DfID could be doing more to understand the impact of aid in the medium-term – in a way that maybe the US has not in Afghanistan where I have seen the aid dependent culture being hard to untangle.

 

To tackle both of the above issues, I suggest that DfID should talk with NGO’s (and I am sure Transparency International – UK would be keen to be involved in this) about how to work together to tackle endemic corruption that inhibits aid being provided to where it is needed most and to work on how we evaluate this and the issue of aid dependency – where the impact of aid provision is clearly being reduced.

Antigonistically Speaking – the Permeability of Governance

In a world too confused by the economic rise of China to question whether democracy will ultimately produce the best results for humankind; in a world where fighting between Sunni and Shia, between secular and religious, between Dinga and Machar dominates the news as much as Catholic and Protestant did in the UK not that long ago; in a world where the after-effects of the Arab Spring result in a literal chaos; in a world where street demonstrations in Turkey, Brazil, Thailand and elsewhere have threatened the rule of “law” – we need to question how our political institutions work and whether they are robust and durable enough to withstand the constant pressure that we put them under. In a “global” environment, in the so-called “west”, we should also question what political systems we are operating under – as we fit perilously into local, national, regional and global systems.

Around 441BC, Sophocles wrote Antigone http://en.wikipedia.org/wiki/Antigone -a Greek tragedy that, as a school kid, I could immediately appreciate – not through the tragic figure of Creon but through Antigone herself. She dared to push against the tyrannical rule of a king at a time when no-one else, let alone a woman, would dare to do so and lost her life as a result. Opposing the law that Creon laid down was, in her view, proper if that law was wrong – if it was tyrannical. I liked that as a pupil in a school where teachers could appear to be on the wrong side of tyranny.

In nearly 2,500 years since Sophocles wrote Antigone, humans have learned and unlearned the story many times. Because we focus on economics so much (i.e. how we generate wealth) we seem no longer sure whether there are other questions that we should be asking. As 2014 gets under way, maybe we should be questioning what the world needs in order to be Antigonistic – being able to prod the rule of law when that law or the implementation of that law is wrong and to understand where it is impossible to do so.

This is not just an argument for democracy but for a system of government and implementation that is permeable – allowing for change. We also should be asking how we fit into the various levels of government – local, national, regional and global.

It is also worth looking at how we understand where the permeability does not exist at all and where gentle prodding is not likely to succeed – for it is there that fractures happen.

Permeability

It is the ability of our human systems to be permeable (in normal times) that enables them to evolve as our needs change. It means that old-fashioned notions can be changed and that structures which are worn-out can be thrown away. When permeability does not exist, then tyranny wins out.

The permeability of authority is applicable to any organization or structure: from corporate to national government and beyond. In the 21st Century, as communication systems and capabilities continue to rise, how such structures take in information and change is a critical factor for our social existence.

The change in governmental structures from strong individuals (appointed by the gods) through the tyrannies of dictators and various forms of democracy can be seen in their permeability to new thoughts and to absorb the thoughts of others.

God-given rights to rule (whether Charles I of England or Louis XIV of France) were thought of as indisputable in the same way that the earth was thought of as flat. Such rights were disposed of in the 20th Century by political “truths” such as communism or fascism. These “truths” swapped god-appointed rulers for political dictators. Elsewhere, the “big man” tradition as shown by Idi Amin in Uganda or dos Santos in Angola is similarly impermeable to change or outside thought.

In China, the story of impermeability is writ large. The civilization state (Martin Jacques) has evolved at the top from god-appointed rule to political dictat but the impermeability remains. Whether the excuse is heavenly authority or communist or legalism, the ability of that nation’s leadership to restrict change through the impermeability of its structures remains.

The Permeability Grid

Any organization can be assessed as somewhere on the grid of permeability. At its worst extreme today, North Korea stands out – completely impermeable to any thought of change or even discussion, it embodies the lunacy of not just tyranny but of the inability to listen to any reason. This is not just about governing but also about the basic rights of its people. North Korea would get 0 on the scale of impermeability.

Of course, moving too far towards complete permeability is towards chaos. The other extreme (100 on the scale) would be where every thought is taken on board and acted on. This represents an organization that has no control – which some would find enjoyable even if chaotic – but often leads to mayhem. An example of this may be Waterworld  or some other dystopian view of the future, but the tendency here is that it leads towards strong group asserting themselves and veering back towards 0.

The balance between tyranny and chaos is commonly held to be democracy and open societies where the key parameters of society allow and enable freedom of thought and opinion with individual and group rights yet within structures that avoid chaos. This is not at the centre politically but may well be at the centre in terms of permeability.

 Slide1

This grid works in a similar way to complexity theory – the way that complex adaptive systems work. The tyrannies occupy the areas of stasis at the opposite end to chaos. In the middle, where real evolution happens, stands the “edge of chaos” – it is reasonable to assume that the best democratic, open societies or organisations exist here or should have ambition to do so. It is at the edge of chaos that real permeability exists – the ability of groups of people to listen, understand and adjust. This is where evolution happens without revolution.

The Common Threads blog has been all about how we are mired in rigid 19th Century establishments – even in democratic nations like the USA and the UK. There are a myriad of examples. Humans have evolved many ways to do itself down and ruling elites, wherever they are, enforce lack of permeability through many devices.  Even in supposedly open societies like the USA and UK, rigidity seems to be the natural default mechanism. This leads to poor voter turnout and reactions to Edward Snowden as we have recently seen.

Of course, these can be considered minor against other nations which vary from terror to corruption. South Africa, for example, has moved decidedly from one extreme – the tyranny of apartheid (terror) – but is in danger of side-stepping back into chaos.

Mandela shined a light into the darkness

The worldwide sadness that accompanies the death of a great man or woman shines some light into the cavernous darkness of those who do not live by the same high principles. This has been the case with the death of Madiba as was witnessed by the South Africa’s President Zuma when he rose to speak in front of his subjects in the memorial event in Johannesburg.

Jacob Zuma has been accused of corruption – millions of Rands of government money allegedly spent on his own property – an excess now termed Nkandlagate after the name of the region. The Guardian reported on this in November.

Yet, both fought the tyranny of apartheid – where a dictatorship of a minority (mainly of whites over blacks) could have been fractured by conflict but was changed by an eventual collapse of belief by the majority (under pressure from the rest of the world and its own black population) and nurtured to a peaceful outcome by Mandela.

Nelson Mandela was not one to overtly criticize those in the ANC that committed corruption. The ANC was his “home” but Mandela’s spirit of understanding and compassion must have been stretched to the limit when seeing his ANC brothers and sisters involved in enriching themselves at the expense of the mass of poor people in his country.

Andrew Feinstein, a former South African MP and ANC member, has written vividly on the post-Mandela corruption in South Africa in his book: “After the Party

Lighting up the shadows

Under Nelson Mandela’s giant shadow, there lies a worldwide web of corruption that is not just within the borders of his home country. As the boos rang out to embarrass Jacob Zuma, the question is whether they sounded loud enough to make a difference. Can the moments of reflection on Nelson Mandela’s life shine a light into the shadow so that those who see the problem act on it?

Throughout the world, corruption exists in many forms. The recent edition of Transparency International’s Corruption Perception Index showed that South Africa ranked 72nd (along with Brazil) out of 177 nations evaluated. Jacob Zuma and his compatriates may have corruption issues but there are (according to the Index) 105 countries in a worse state.

Nigeria – which is 144th on the 2013 list – has just recently seen a letter from the Governor of the Central Bank of Nigeria being sent to the President asserting that $50 billion of oil revenues has gone missing – representing 70% of the value of such revenues since 2012. Mr Sanusi’s letter calls for immediate audits of the oil accounts.

Whether or not the revenues have been misappropriated, the fact that the Governor of the Central Bank believes that they may have, this points to a society that is prone to corruption – and it is known to be on a grand scale.

Corruption can be seen as the brother of tyranny. Instead of terror, it provides a method of keeping the population quiet. Zimbabwe’s use of income from the Marange diamond fields ensures that the political leadership there is relatively secure and that real democracy / open society cannot permeate.

Angola is another example where Sonangol (the State Oil business) serves to ensure that oil revenues find their right place in the hands of the President and his family and retinues.

In both, terror accompanies the corruption of the resource curse and shows the methodology of keeping stasis – maximising the chances of ruling elites clinging to power and power over the resources of a nation.

How Do we Want to Live?

The rise of China and our continued reliance on economic growth / GDP as the only measure of our success as humans should give us pause – where “us” includes the Chinese as much as anyone else. If those of us in the democracies of the world believe that open societies are important, how important are they to us? How do they compare with a bit more GDP (knowing how unreliable GDP is anyway as a measure of wealth) and how unreliable is it to see economics as the foundation for the quality of our lives? How threatened are we by the non-democratic regimes elsewhere? Does China’s economic success of the past thirty years) threaten their internal structures or the rest of the world’s? Should we react to other nations’ lack of permeability – statis enforced by terror or corruption or legalism?

Common Threads has been about the impermeability of our legal, political, economic and social structures and changes needed in nations like the UK and USA. With the global economy upon us and with world-wide challenges such as climate change and resource scarcity; with G8 and G20 providing economic mechanisms for mutual dialogue; with Arab nations struggling to maintain the Arab Spring against the drive to stasis in places like Egypt and chaos as in Syria and Libya – how hard should we be pushing the “edge of chaos” – democracy – as the right answer throughout the world, knowing that this may cause us economic harm if the Chinese government, for example, don’t like what we say?

Is the alternative to motivating others to our ideals the fear that we could fall into the trap of impermeable extremism (as Golden Dawn in Greece would extol) or even the trap of Tea Party / Ayn Rand rigidity? China, Angola and many other states need an Antigone but it has to be more than brave students at Tiananmen Square. Antigonism will only work when our governments are brave enough to extol our open government world-wide.

The Corporate Paradox

 Chimeric Corporations

This week, Danny Alexander has announced that the UK government will not allow companies that have proposed tax schemes that have been found to be unlawful to bid for government contracts.

The G20 announces that governments across the world will work together to ensure that companies pay the proper rate of tax in the countries in which they do business.

Why now, after over 500 years of the joint stock / limited liability company are governments beginning to attack the privileges of the multinational – companies that operate across borders but ask us to believe that what they do is for our good as consumers and for the good of their shareholders?

Paradox: any person, thing, or situation exhibiting an apparently contradictory nature.”

Company: “An entity, usually a business, created by a legislative act or by individuals who have agreed upon and filed articles of incorporation with the state government. Ownership in the corporation is typically represented by shares of stock. Furthermore, a corporation is legally recognized as an artificial person whose existence is separate and distinct from that of its shareholders who are not personally responsible for the corporation’s acts and debts. As an artificial person, a corporation has the power to acquire, own, and convey property, to sue and be sued, and such other powers of a natural person that the law may confer upon it.”

(www.yourdictionary.com)

Worldwide, the campaign to properly tax companies hots up. 500 years after the Dutch East India Company issued shares (and joint stock companies can be said to have been formed well before that date), the part that companies play in society is still not resolved or even understood by most. Many argue that companies should not even be seen as independent entities for tax purposes but, rather, we should see the people behind them (shareholders and staff, mainly) as due for tax on receipts from companies.

That argument treats society as a game – where the simulated rules can be played out on a computer (a bit like econometricians think of economics). It is not credible in reality as businesses make decisions as businesses and act as independent entities as complex adaptive systems within the overall societal environment. Those calling for zero tax for companies ignore the fact that the biggest fund providers to politicians are businesses and business coalitions. Business (through companies) may well be the main instigators of economic progress in a market-oriented world. We now believe that the market (the nearest equivalent in economics to biological evolution) works better than the alternatives. Companies, which are provided with risk limitations through joint-stock ownership, are central to the market.

But….Is the Company Real?

Well, companies can be defined as a collection of people joined together for a business enterprise. Under laws such as the 2006 Companies Act in the UK, companies of various types are given legal definition in their own right. They have privileges and obligations under the law – even though directors of companies may also have individual responsibilities should the company not perform within the law.

The paradox is that companies are (in law) independent and “living” but, in fact, are, of course, artificial. This proves a difficult concept for individuals in society and for lawmakers, but the history of humankind is bound up with people joining together in groups and governments (from dictators to democracies) trying to legislate for them.

Companies are merely an artificial group legislated into being amongst many others that operate directly with individuals and other artificial and legislated groups (such as other companies and trading with governments). They represent a part of our social fabric as a paradox of society – an artificial group which binds together its individuals into group decisions and group impacts on the rest of society.

A company is a complex adaptive system (CAS)

Initially, a company is formed by key individuals that are hard to separate from the company itself – it may be one person who sets up a business. The business is formed to provide a good or service to society and to reap certain rewards in return. John Kay wrote in 1998  about why a company exists and his thoughts on what makes a good company (these days, a sustainable business).

It is estimated that 70% of companies fail within five years of start-up. Those that survive, become in a relatively short period, very different from the individual that started them. As soon as managers are brought in to assist, the company becomes more “complex” and decision-making is more group oriented but not centralized. The company becomes a system unto itself where most decisions are taken by its staff at all levels and continuously.

If a company goes “public” (with its shares traded), then there is also a divorce between the owners and the managers. Owners operate in the stock market casino – with little or no relationship to the company except insofar as it pays dividends or the share value rises or falls. This separation of ownership and management (and the rewards due to each – a special problem in the finance industry where employees at the top level have usurped the risk parameters and receive high returns for no capital risk) is a potential friction and another level of complexity that society still wrestles with (see John Kay’s more recent work for the UK government).

The complexity of a company’s make-up does not hide the fact that a company operates as a distinct entity – a complex adaptive system (CAS) made up of individuals but (like a City) operating without central direction in ways that impact those around it in a multitude of ways. Companies impact through enterprise and innovation, through motivation, through marketing, through involvement with other companies, through its customers and the environment. It does not operate as individual activities of each of its staff individually but as a collective – as a CAS.

Companies and Society

This has been recognized for centuries and most now understand that anything like a company – despite the corporate paradox – has to be treated in law and taxation as if it had a life of its own. Such treatment includes taxation as much as health and safety, labour laws, environmental laws, trade description laws (e.g. not supplying horse meat instead of beef), data protection and customer protection. Society’s interaction with companies means that staff, consumers and suppliers and anyone else affected by companies (such as people those impacted by companies located in their area, those who oppose the lobbying of companies etc) require that companies are treated like the rest of us – society demands that companies face legal requirements and that includes taxation.

The G20 has now committed to proper tax treatment but our governments need to go further. Companies provide innovation and are the mechanism that a market economy uses for prosperity – at least in pure GDP-related terms (another issue).

To make this real, we have to understand that society sees companies as real entities that have a full part to play in the society of the 21st century – not an artificial entity set up but a full system in itself that has legal and moral authority and responsibilities.

To tax is not an issue – of course companies have to be taxed and taxed fairly and properly in the same way that companies should be held to account over natural resource exploitation, health and safety laws and over reputation (no horsemeat in products unless advertised as such). Only in that way will the rest of society (increasingly aware of its rights) enable companies to reap the benefits of their success and be enabled to continue to innovate sustainably.

See-through Society – transparency

Cleaning Up

Chuka Umuna, the Shadow Business Secretary, recently called for companies in the UK to declare their tax payments to Her Majesty’s Revenue and Customs (HMRC). This followed the widely reported, bad publicity surrounding the minimal tax payments made in the UK by Amazon, Google, Starbucks and many others. Whilst not wishing to name and shame, he believes that all companies should glory in the tax they pay. Justin King, head of Sainsbury’s, one of the big four food retailers in the UK, made a similar statement, suggesting that consumers could make change happen through their custom. International Corporations have been cleaning up by transferring their tax liabilities to low tax regimes and tax havens – they can virtually choose where to pay tax.

Nick Clegg, the leader of the Liberal Democrats and Deputy Prime Minister, states in his most recent letter to LibDem members: “The idea of combining a strong economy with a fair and transparent society is something that will also be seen in an international context this year when we host the G8 in Northern Ireland.”

Transparency is becoming the mantra of the well-meaning in society and many would say “about time, too”. While not the answer to all of societies’ ills, it is a precursor to re-directing society towards solving some of the greatest problems we have – because transparency of key information allows people (civil society) to make informed decisions – either on their own (through the marketplace) or through their government.

Sweeping away the leaves

For years, organisations like Transparency International have campaigned for dramatic improvements in the way governments, publicly owned organisations and companies provide important information. The danger with secrecy (and the UK remains a very secretive country) is that beneath the opacity of information lie secrets that those with vested interests wish to keep hidden. Whilst secrecy is always claimed by Governments to benefit all of us where they wish to enforce it, the evidence is usually to the contrary. The benefits of secrecy accrue to vested interests and results in economic mismanagement at best – at worst, in countries which are, for example, resource-rich and economically poor, it leads to mass corruption, impoverishment of the mass of people, illness and suffering.

Economics and economies thrive on the open availability of good information and only monopolies thrive on secrecy. It is only when information is made available that proper judgments can be made by the mass of participants in the marketplace.  In a world population of billions, markets can only work where information is not controlled from the top down. Stockmarkets and financial markets depend on the freest possible flow of information to the widest audience and there has been a progressive move towards freer access to information along with the spread of technology that enables it to be used. The driving force is the same human one that drives freedom and democracy. There is an inherent motor behind individual freedom and the right to self-govern and the same motor drives transparency because it is with transparency that the potential can be seen and with transparency that informed decisions can be made.

Transparency is not closing your eyes when the wind blows

In the UK, a nation that always appears to be governed by a conservative mindset where change is difficult, where the Official Secrets Act dominates, where GCHQ and CCTV appear ubiquitous, where the challenge to maintain a fairness between an open society and a society that bears down on terrorism often seems so far weighed in the latter’s direction, the motor for transparency often seems to be running in neutral. Conservatism (especially in England) means keeping things the same and with direction from the centre. This often means that vested interests operating from the centre or with the centre will disallow the move towards more openness. The Labour government provided a Freedom of Information Act, for example, to the chagrin of its then leader, Tony Blair., who was and remains a centrist. In a sense the provision of the Act was odd, because Labour remains as much a centrist party as the Conservatives. Nevertheless, the human motor for more transparency was stronger than the urge to opacity in this case – even if the Act is not itself allowing the freedoms desired.

Yet, it was a step towards a more open society and towards transparency that many countries would relish. A free press (the subject of so much discussion following and before Leveson) has helped to unearth the secrecy in banking, for example, that has plagued the UK for centuries. Manipulation of LIBOR, money laundering, sub-prime casino banking and support for tax havens may have helped to make London a key banking centre but it did not insulate the UK from the collapse in 2007 – it made it far worse – and “only when the tide goes out do you discover who was swimming naked” (Warren Buffet commenting on naked transparency). Sometimes, opening our eyes hurts.

Nothing to Hide?

One example of eye strain concerns the opacity of the banks and their cozy relationship with Government (not just in the UK). The secrecy allied to the special relationship has hindered the UK to an intolerable degree. Under Nigel Lawson (one of Margaret Thatcher’s Chancellors) the post-manufacturing society was hailed as the future as banks gained more freedoms and we all kept our eyes closed. Yet, we now see Germany as Europe’s economic motor because of its manufacturing prowess and the revitalization of the British motor industry (although hardly any it owned by Brits) is now lauded much louder than our “success” in financial services. The illusion of banking remains, though – as a key driver of the economy rather than what it really is – a provider of services that should assist the real economy. And the illusion has been propped up by a lack of real transparency which enables banking to remain a secret society.

Transparency is the ability to be strong enough to reveal information because there is nothing to hide. The true strength of transparency is the confidence that it portrays. So, the opportunity for companies and Governments to be open, to be transparent, only exists where there is not much to hide. Clearly, international companies that are paying virtually no corporation tax on sizeable UK earnings have something to hide; clearly, those (companies and individuals) who put money into offshore tax havens or to secrecy jurisdictions may have something to hide.

If banks and individuals had nothing to hide, Wegelin, the oldest Swiss bank, which is closing as a result of its plan to take on all the clients of Swiss banks that had decided to be more transparent with the US authorities over tax evasion would still be open for business. Their clients, who wished anonymity, made their way to Wegelin – which had been founded in 1741. They knew they were doing wrong and Wegelin knew the same – and the bank is closing after a hefty fine from US regulators and after 271 years. Secrecy was in the bank’s DNA – it could not evolve to the realities just beginning to dawn in the 21st Century. It became extinct.

So, lack of transparency in a world with eyes opening can be also hurt and be expensive and the US executive is now proving to be vigilant on  behalf of transparency on a world-wide basis – as is the US Congress which passed legislation in 2010 called Dodd-Frank. Part of this related to section 1504 which requires extractive industry companies registered with the SEC (Security and Exchange Commission) to disclose their revenues and taxes paid on a country by country basis worldwide. This includes all companies registered on the NYSE no matter where they are based. The EU looks to be following this example so that the people of resource-rich, economically poor countries will know how much money their precious natural resources raise in annual income and then can follow through what their Governments do with that money.

However, the American Petroleum Institute and the US Chambers of Commerce (vested interests if ever there were) are trying to fight back and have initiated a law suit in the US to nullify section 1504

How curious that libertarians fight on behalf of secrecy – the proponents of a free market arguing against a main tenet of economics – free information.

Battle lines are being drawn – the light and the dark.

21st Century Schizoid Man, King Crimson’s take on Spiro Agnew, was written in 1969 but the 21st Century does even now witness such schizoid tendencies characterized by corporate and governmental secretiveness, emotional coldness and apathy that typifies the illness. The lack of openness is world-wide and exhibited by the Chinese authorities’ suppression of its Southern Weekly newspaper when an editorial criticizing Chinese leadership was thrown out and one supporting the leadership was superimposed. Anyone reading Martin Jacques book “When China Rules the World” would not be surprised at the suppression. It characterizes the central leadership of this “civilization state” but Jacques argues that we see it too much with western eyes. But, what if we in the West are right and democratic freedom and openness are the motors that drive our human endeavours? What if the Chinese have, for 2,000 years, actually got it wrong. As China grows stronger, the move away from freedom for information will intensify and Chambers of Commerce will battle against laws for transparency that they will argue provides Chinese firms with advantages. This is a battle that has to be fought world-wide.

Our pursuit of progressively greater freedom (whether press freedom, open markets, democracies, freedom of speech) and equality (of race, religion (or non-religion, sex, sexual orientation and more) appears to be the real motor rather than the schizoid tendencies of the centrist control of monopolies, dictators, and vested interests. Transparency is a hugely important base upon which this basic human drive can persist. In a post-2007 world where the risk is that wealth is being driven to the top 1%, the drive for transparency is fundamental.

Governance – From Osborne to Diamond – where is it?

If we wanted to see bad governance issues at their most raw – in all sectors of society – then maybe this was the week.

First – Corporate governance was shown to be completely awry at Barclays, where Bob Diamond’s testimony showed so clearly that non-execs that should have been applying governance strictures were so out of the picture.

Second – the public sector and education, where Michael Gove in a strange speech at FASNA (Freedom and Autonomy for Schools) said he knew what “good governance” looked like (fascinating to hear a politician talk about good governance!) and criticized many existing school boards as:

A sprawling committee and proliferating sub-committees. Local worthies who see being a governor as a badge of status not a job of work. Discussions that ramble on about peripheral issues, influenced by fads and anecdote, not facts and analysis. A failure to be rigorous about performance. A failure to challenge heads forensically and also, when heads are doing a good job, support them authoritatively.

Third – charities, where governance was held up at an ACEVO (Association of Chief Executives in Voluntary Organisations) conference to be a critical problem and the split between Chief Execs and Trustees very problematical (nearly 30 are seeking urgent advice from ACEVO on this issue).

Fourth – Government via the astonishing spat between Messrs. Osborne (our Chancellor of the Exchequer) and Ed Balls (his shadow) over banking and LIBOR – or worse, their obvious hatred for each other.

Across the nation – Governance in doubt

We clearly have a crisis of governance across the nation and in all sectors. Government, public sector, corporates and Third Sector all exhibit problems where real strains are showing and proper governance is often missing.

Gove’s comments (which show political mannerisms at their worst) can be spread across all areas if we want to.

The role of non-executive directors, trustees, governors or similar is crucial in organisations. Their importance is completely under-estimated in the same way that the importance of backbenchers in Parliament is. This showed so clearly in the Osborne / Balls playground fight this week and showed how dangerous it is when the Executive is a major part of the Legislature (as we have it in the UK) and back-benchers are unable to confront the over-weaning egos of the front-benchers.

The example shown here – of a senior government minister and his shadow in opposition – was appalling but, unfortunately, does shine a light on society. When recession strikes, the worst examples of society come to light.

What’s going wrong?

Much is actually right in sectors of society that organize themselves into such oganisations such as companies, public sector bodies and Third Sector organisations. But, there is a crucial link that is not sufficiently understood and where traditional rules don’t really work anymore – and, where they do work, are rubbished by politicians pursuing a political agenda.

The link is the one between senior operational staff and Boards. It is the crucial link in any organization.

Corporates

The danger here is the risk that Chief Executive Officers who have got where they are because they are good at what they do but also because they act like steamrollers, often force Boards to concede issues with too little scrutiny. Time is of the essence and information hard to take in when you are a Non-Executive Director (NED) maybe at many corporations and spend a few days a year on each.

The law now lays a heavy burden on NED’s but there remain many who want to bring their skills and knowledge and experience to companies. Most are acceptable to the CEO if they have good connections /networks. Beyond this, they are begrudgingly provided with data and fill remuneration and audit committees and the like, fulfilling a role but often not really involved with the central and driving forces behind the business. Government tinkering with the laws has prescribed the areas of involvement that the law requires and where NED’s have to focus. Areas that are fundamental, like strategy, culture, and ethics, are more likely to be left outside.

The danger becomes real in companies like Enron – which imploded under a Ponzi scheme that should have been obvious to all on the Board. It is endangering one of our best-known banks as it did with RBS and Lloyds-TSB.

Name the major scandals in corporates and then describe the efforts of NED’s to make things right – whether in newspapers and phone hacking, oil industry and health and safety, mining and corruption.

Public Sector

I use the example of schools / academies to show the reverse. Michael Gove, in seeking to set up an array of different schools so that the good ones can “emerge”, is in danger of wrecking education and the potential for good that exists in those schools / academies.

Of course, he was speaking at the FASNA – so, was amongst friends. But, his injudicious language threatens to throw out the good with the bad. I am a Chair of Directors / Governors at an excellent Academy and Gove runs the risk (as all “leaders” do) of demoralizing just the people he should be motivating.

In pursuing his political agenda, he shows he is full of ideas but not allied to the skills of a leader. Schools boards / or governing bodies are full of people who (unlike in corporates) are unpaid and fill positions out of a desire to help kids and the staff that run the schools. Gove is at least ten years out of date with his picture of local worthies – it is not just an insult but shows Gove to be stuck in the 1970’s at best.

At schools, the link between Head and Governors / directors can be bad (as it can in any situation) but is often very good. The role of the board as “critical friend” is enshrined in all that is done and the Head (and some of his / her staff) are on the Board as well. This creates a team that motivates each other to work together and develop a school for its students. Where it works (and it usually does to some extent), it provides enthusiasm as well as governance, skills as well as motivation – on both sides, operational and governance.

Of course, Gove has some insights as schools in difficult areas will have trouble finding the skills needed to fill a board. But, this is down to the location and the need to ensure that they are supported within a structure that works. This is a key area and where successful schools can certainly help.

But, Gove should not ridicule the governance structure in schools – it may be the one area that does work!

Third Sector

Now, I work in this sector as a CEO. I have a good Board but having been in the sector for five years or so (my previous 30 were in the corporate one), it is clear that there is a crisis and it is between CEO’s and the Board.

There is a divide that is unnecessary and needs to be fixed. My concern is that it won’t be because the mind-set of third sector participants is that the charity sector is precious and that there needs to be a separation between boards and operations.

The separation is, I am repeatedly told, because of conflicts of interest. These conflicts, if a CEO becomes a Trustee, means, for example, that the roles are somehow confused and that the Chief Exec can no longer properly comment on staff salary issues because of conflicts of interest (see NCVO website).

The Charities Commission is completely confused. Two requests for information on this yielded completely different responses in the last couple of weeks – both suggested a board would need to ensure no conflicts of interest but while one said they would need to approve the appointment and one did not, neither could attest to the specific conflicts that would be in evidence.

What this means is that the separation (which does not happen in Education – and a school is no less precious) is maintained for little reason and the huge benefits – teamwork, joint motivation, openness for example – are lost in the preciousness.

It needs to change and fast.

Governance and Government

Our government shows itself adrift in its response to good governance by the way it shows itself in parliament. Having the Executive commanding the legislature is bad enough but requires a more magisterial quality. Osborne and Balls would not know that if it hit them between the eyes.

It is important that organisations are properly run. They have an enormous impact on society and are a key part of it. It can be argued that civil society has lost its control over organisations as government (our supposed defenders) has clearly shown no tendency to take itself seriously. Osborne and Gove are poor exemplars.

There may be no excuse for the rioters of last summer in England, but the tendency of organisations to show lack of leadership is troublesome and leadership is needed.

The future of Governance

Sectors of society like the three (or maybe four) mentioned above work in silos and come up against each other from time to time. There is much in common and governance issues affect each and all of them.

Governance is the method of governing – it applies to us nationally, internally and within organisations to which most of us belong. Good governance is crucial to the way society works but it is under threat.

The future of society depends on good governance and we now need to unravel the workings of a hundred years of legal doctrine to develop improvements throughout all the sectors of our society.

We need structures that combine strategy and operations, directors / trustees / governors and business / organizational leaders, but where the non-executives are provided with the skills and time to address the concerns that society has.

At the same time, Chief Execs need to be able to explain the key drivers that make (in their view) the organization work and non-execs should be able to investigate for themselves.

Gove wants Ofsted to rigorously assess governors in the way they monitor Heads. Fine (if they had any understanding of what that means and the ability to do it) but who is doing this in corporates – maybe the auditors or some other independent body for any publicly listed company?

Finally, different sectors should not be isolated from each other. NEDs, trustees, governors have a lot in common but all operate to completely separate rules and guidelines. It is time for some common dialogue as civil society (which includes everyone) is getting pretty sick and tired of the mess that organisations are in.

“Everyone should be allowed to bribe”

I had an interesting discussion the other day at a Fundraising event. Sitting opposite me was a businessman who also does a tremendous amount of work for charity. We got into a discussion on corruption – specifically, bribery. The discussion centred on how “the Bribery Act was causing business a lot of trouble” and that the UK “as always” was taking it seriously whereas other countries would not. We would therefore be undermined and lose business.

I argued differently. Working for Global Witness since 2007 (I left in late 2011), I had played a small part in working to get the Bill into law, then to ensure the guidelines made sense and have since worked with organizations like the Chartered Institute of Management Accountants (CIMA) to provide guidance (I wrote their guidance on the Act) and chaired their Bribery Act conference at St Paul’s Cathedral in 2011.

The businessman, actually a very interesting, successful and intelligent individual, suggested that, to make it fair, “everyone should be allowed to bribe” as much as they liked.

It was a Fundraising event, so not the time for a row – nevertheless, it reminded me sharply about how the world works and how it is split between those who understand the chaos that endemic bribery causes and those that see only the micro-economy (through the eyes of individual businesses) rather than the macro-economic chaos and individual misery that bribery causes.

We live in a disjointed world

I have recently been involved in the filming of a documentary on corruption that will go out later this year. So, although I have left Global Witness (which campaigns against natural resource-related corruption and conflict), I have stayed in touch with the issue.

It is easy when involved within an NGO to forget how business folk (as I counted myself for many years) can disassociate themselves from wider issues. I spent most of my career in business and those who are very successful are completely focused – like an athlete focused on winning a gold medal at the Olympics. The best are relentlessly single-minded in the pursuit of gold – the best business people are similar. This means that they are completely focused on what benefits their business.

This is why the US Chambers of Commerce have been waging a war on the Foreign Corrupt Practices Act (FCPA) for some time. The USA has, since the FCPA was brought into being in 1977, been way ahead of the field in anti-bribery law. This has heated up recently as the US authorities have piled into those who are believed to have breached the Act and, mainly through out of court settlements, have gained hundreds of millions of $ in fines and caused real change in US companies and how they operate outside the US especially.

But, the Chambers of Commerce believe that this puts the US at a disadvantage as other countries don’t have similar laws, they believe, or flout them.

Of course, this is no longer the case in many parts of the world. The OECD Anti-Bribery Convention was signed up to by 39 countries and the Convention is a tough one. As a result, the UK was eventually shamed into all-party support for anti-bribery legislation and the Bribery Act was the outcome – which came into law in July, 2011. It is actually a tougher law than the FCPA – making facilitation payments illegal, for example, and making the bribery of anyone (including government officials) a criminal act if it affects a decision. However, if a company has good processes and trains its staff well (Adequate Procedures), Directors of the company are unlikely to be prosecuted. Let’s face it, the funding of prosecutions is also likely to mitigate against major cases being developed.

However, the Act has led to a large industry being developed in training and in new processes. I was on the working group in the UK that brought in guidance for the not-for-profits (charities and NGO’s) in the UK (under the auspices of Transparency International and Mango) so saw very clearly how every organization (business or not-for-profit) could be affected by the Act.

This new anti-bribery industry has seen a number of lawyers move from the Serious Fraud Office (SFO) to private industry – confirmation if needed for business people that the whole thing is a cash generator for law firms and those in them and nothing more.

The equivalent of the “revolving door” that has been denigrated for years when politicians or civil servants enact laws or make project decisions and then move to senior positions in companies, is now taken as a serious concern by business people who see the same situation used against them! There is an irony there somewhere.

Corruption hurts

Business people see anti-bribery legislation as a problem. It makes business (in their opinion) more difficult in the same way that early 20th Century business people saw health and safety legislation as a problem. I am sure that many business people in the 19th Century saw government money being used to build the sewer system in London as a huge drain on their wealth and a public use of funds that proved that their wealth creation was being used against them – even if for the public good.

So, it must be galling to see anti-bribery legislation (which is international in concept and which is aimed at benefitting the poor in the poorest countries) put into force. In the USA, business is working to erode the law that has been in place successfully for 35 years – a law that has led the world. In the UK, there is irritation (maybe mounting anger) at the Bribery Act. And its implementation costs.

Business folk (and I was one for many years) see the short term and their bottom line. They find it hard to associate themselves with the wider questions about how corruption transfers wealth from the mass of people to a few – as, say, in Angola; how it ensures that money is spent on items that are not needed – very expensive air traffic control systems  in Tanzania, for example; how it adds to the price that poor nations pay; how nations like Nigeria are completely beholden to corruption as was England in the 18th Century – a nation where every job, every hospital appointment, every legal decision is likely to be subject to payment / bribes. Look at Greece and its current malaise – not paying tax is a symptom of a society corrupted – so much of the economy is bribery-induced – the black market is a corrupt market and leads to short-term benefits and long-term disaster.

Values are not for sale

The Bribery Act is now in place in the UK; the FCPA has been tried and tested in the USA for 35 years; 39 countries have signed up to the OECD convention. Yet, we probably face a bigger problem. The growth of nations such as China, India and Russia face us with enormous challenges as each nation is, in its own way, a centre of corruption.

China has adopted a Confucian posture – hit hard at home to rid itself of the endemic corruption that is at the centre of its totalitarian heart while allowing corruption to exist where it trades – such as in Africa. The Confucian spirit allows it to leave alone the nations with which it does business at the same time as Western nations attempt to apply governance to aid budgets. This is a time of real challenge and western countries should be working more than ever to instill values not just trying to compete for short-term gains. It used to be “if we don’t bribe, the French will”;  now the same phrase is directed at China, Russia and India (the home of www.Ipaidabribe.com).

We should not allow our values to be for sale for short-term benefits even in times of economic stress.

Is Bribery good for Business?

There are examples of businesses that have high values and most do not engage in bribery. Usually, those with the highest values are large businesses that know their CSR will be shaken by reputational problems. It makes business sense not to take the risk – bribery is bad for business.

Medium to small businesses, where the main opportunity for employment growth exists in most countries, are less concerned with CSR – which most think of as meaningless nonsense. Societal issues are way down the list of priorities – international issues are nowhere.

Hemmed in (in their view) by unjust legislation on all sides that seeks to choke off the spirit of enterprise, small businesses fight to survive daily. To them, bribery may be a necessary part of life. So what if people overseas suffer as a result – jobs are created for British firms and if we don’t do it, someone else (like the Chinese) will.

Globalisation in this context means nothing but cheap supply chains, cheap overseas labour and opportunities for exports. Globalisation does not mean we should take account of international problems.

Like 19th mill owners who fought sanitation bills as bad for business, who (in the main) were not interested in the health of their workers, who were only constrained by legal changes, many business people will only react to changes in the law because they are focused on their business and anything that adversely affects that business is bad – by its very nature. Bribery may allow business to take place – if a British company is not allowed to do it, business may well be lost.

Is bribery good for business? Of course not – just like the death of a worker because of shoddy safety systems, just like the gradual reduction in bullying at work because most acknowledge it is not needed – we inherently know that bribery (the corruption of people to make decisions go our way) is abhorrent. The impact is grotesque and cannot be justified even for a few extra short-term jobs.

Relentlessly focused business leaders know that bribery is wrong (at least most do) and, apart from the most extreme libertarians, understand that globalization means that the rules of business engagement are going to be made international. We cannot for long assume that developing countries will, for long, expect to be treated as the working class of 19th Century England. The class structure of international business will, over time, lessen just as we have made changes to our own class structure in Europe and North America and elsewhere.

Good business cannot “allow everyone to be bribed”. It is not just an ethical position, but a business one. Business should be undertaken on a level playing field where no-one bribes – we should be striving to ensure that bribery is minimized not allowed everywhere. Rules or norms are basic for societies to function. In a global society, the norms need to be widely applied. Bribery is bad – we all know it. Business leaders, here and in the USA, should be leading the fight – not over-reacting and running in the opposite direction.

Brave New World of Education II – Aspiration, aspiration, aspiration

A couple of days ago, Dr Mary Bousted, The Association of Teachers and Lecturers head, voiced the view that schools were segregated along class lines. Back in January, I wrote in:

https://jeffkaye.wordpress.com/2012/01/22/the-complexity-of-education-politics-and-economics-brave-new-world/

how education, like politics and economics, is mired in the 19th Century. The picture is of a three-tier system of private education (independent schools), middle tiers (mainly converter academies in the secondary sector) and the rest. From my blog of 22 January, 2012:

Three sectors – remnants of 19th Century decision-making and 19th Century thinking.

Yet, we operate in the 21st Century. Education has to achieve many things yet does something different in each of the three areas.

In the first (the alpha sector), it provides a broad education and the ability to move into society at the highest-level possible. This is through networks (with universities, companies, politics) and through the provision of relevant education – through learning that equips pupils to reach for higher standards to learning that enables pupils to attain the next step (e.g. university).

In the second (the beta sector), network management is usually missing entirely and virtually dispensed with because it is deemed wrong. But, we live with 19th Century norms and this required networking. Education is primarily Government dictated through the curriculum, which is all about exams. The three aspects of learning above are ill considered by most schools even in this sector. However, some break through and many achieve better exam results – although most result in the attainment of tertiary education into the beta sector of universities.

In the Third (Epsilon), many schools (not all, this can be changed) keep kids off the streets (to greater or lesser effect) and provide an entry path into the wider world or working. Networks and networking are non-existent except in the local area. Chances of reaching out and attaining higher levels are poor even though funding is substantial (and higher per head than in the Beta sector).

I am fortunate enough to be Chair of Governors of a converter academy with aspirations to be alpha and pretty close to that aspiration. It is now quite likely that pupils educated at the school will be able to step into the right universities (Russell Group or other top level) and move through society’s obstacles. It is a school where parents have high aspirations for their kids and where the school reflects that and leads that aspiration. Motivation is high and there is now a virtuous circle of expectation. This is the Big Society in practice – we all (staff, students, governors, families, local community) share in the benefits and successes of the school.

But, the stratification of society is cemented into position by the school structure. This is not quite what it used to be – there is now an aspirational middle tier that is forcing the pace of education and aspiration. It is a constant problem, though, that schools get placed in locations that they have to serve. Schools can’t (in the main) relocate to improve their intake. They are literally stuck and location means that a school has to accept its intake (whether at primary or secondary level) and do its best.

Aspirations, aspirations, aspirations

What Government is doing is to shake the education bottle – so-called competition for schools, a variety of types of school, new Ofsted leadership and criteria, an end to modular exams at GCSE, more focus on English and maths and the baccalaureate subjects.

Some of this is good, some neutral, and some harmful – but it is all focused on the schools. It is the education, education, education mantra allied with the change, change, change reality that schools are hit with by every government of every complexion.

What is it apart from this that will change the whole nature of education and also deal with the issues that Dr Bousted raises (as I raised three months ago)?

It is all about aspiration.

The aspirations of the kids are directly the result of the aspirations for them of their parents / guardians. In areas where low aspiration parents can send their kids to a high aspiration  school, then the kids can (possibly) raise their targets to compete.

But, where the whole school is in an area of low aspiration (mainly those in inner cities and low income areas), then low aspirations of the parents will transfer to low aspirations of their kids. Staff may fight this but they are limited by the level of life expectation of their “raw material”.

Attempts to change this through investment in the earlier type of Academies have been well meant, expensive and occasionally successful. Education groups (companies and organisations taking over failing schools) can bring some sort of attainment to their students and raise the bar. These are too few to be meaningful and the high funding levels have been curtailed as we enter a prolonged period of austerity. If this is not to be a pervasive system (and it won’t be), are free schools or equivalent an answer?

The contract between state, education and families

No education system will produce 100% scientists, doctors, mathematicians or similar and nor should they. We are all different and society needs a mixture. What we don’t need is the mixture that Huxley’s Brave New World’s dystopian future predicted. We need to evolve our education to meet the needs of society and individuals now – no three tier society from birth but an aspirational society where success is based on capability and merit.

Continued development of the education of our children is crucial to this but it is not sufficient. Dr Bousted’s fears are justified unless we can provide an aspiration amongst our kids and their parents / wider families.

It is no longer sufficient to take pupils into a system and try to modify their minds when, for most of their time they are facing outside pressures from families and peer groups that ridicule the aspirational notions that a good school may try to employ.

It is no longer enough for schools to be expected on their own to persuade parents that they have to inspire as much as the schools try; that kids should, from whatever their background, raise their aspirations to maximize their opportunities – just as wave after wave of immigrant families have done in the UK for generation after generation.

There is a contract signed between parents / guardians and their schools. The contract fails in a key respect (apart of its complete lack of enforceability, of course) – it fails because the focus is only on the pupil. The contract needs to be one where the family provides the environment in which a child can use the opportunities that a good school can provide. The contract needs to be able to ensure that the wider community (which is mainly the family but may be the local community especially in areas of intense peer pressure and gang cultures) ensures that the child is provided with a culture of aspiration.

Changing family aspirations – alpha-oriented

Vast numbers of changes to our education system (to our schools especially) happen every year. At the same time, society seems to be going backwards. Movement between class structures has been stymied and income differences in the UK are growing as the economy shudders to a halt (factory production is still 9% below the all-time high from 5 years ago).

Schools have to continuously improve but it is not enough. The need for every school to be a very good one, offering the best for our children is crucial but an unreal expectation as the reality of society impedes it. Dr Bousted is right in that class infects schools through their location. However, bussing kids around will not work – what may work is a focus of the local community aided by government on the families.

Changing aspirations within family groups is the key to improving education within the toughest and most deprived areas. Kids can change on their own, but only in isolated pockets – where some incredible teacher exists, for example. Anecdotes that show that it can happen are not enough. We should not see the exceptions as the rule. The rule should be extended to where families and local communities demand and work hard for aspirations to be extended; where maybe a middle class tenacity to succeed and take advantage of the opportunities presented exist everywhere.

To do this, pilot schemes should be started alongside the school programmes in areas of greatest challenge. Here funds should be provided and contracts entered into to maximise parental involvement (and local community groups, too, where this is needed) and where research should be carried out where it works so success can be shared. Where needed, this should encourage education opportunities for parents and families so that education is seen as the norm – not something to be shunned as soon as possible. Local government and local companies should be more than one week a lifetime work studies – there should be a continuous involvement.

Where it works already, this must be copied and studied again and again.

Local communities often see the school as the community hub. But, this has been in the absence of anything else and the community uses the school as a place to hold events. Now, we should see the school as a real community hub – the focus of families and our children to address themselves to the real contract – raising the aspirational levels of all our kids so that families are educated together. Education should be seen as the huge opportunity is really is.

We talk about “joined-up thinking” but society needs to be joined up, too, in the way it works. The 21st Century has provided the opportunity for us to join on-line and it is a benefit. The real benefit would be a localism that is based on the school (nursery, primary and secondary) and links those schools with the families for joint education. Schooling should genuinely be life-long so that birth should not dictate your future and a real availability of opportunity should be our aspiration.

Government, Society and Business – People Organisations

Dominic Lawson, writing in today’s Sunday Times, has a good go at attacking Corporate Social Responsibility – CSR. His claim is that business (to paraphrase Milton Friedman) is there to make profits and reward shareholders and it is to Government (through the taking and use of taxation) that goes the rigors of social responsibility.

Lawson’s simplistic assessment of business in society (the article is a reaction to David Cameron’s speech at the Business in the Community awards last week) fails to understand the complexity of the economy and society and the role of the three main parties involved in making the economy and society work.

From his article, anyone would think that there are only two parties in charge – Government (hopefully, elected) and business. Underneath, there appears the mass of the population – deriving their income from either one or the other and buying the means to life and living from one or the other.

What is forgotten in this simplistic overview (and a short article is all Lawson has to work with, so some excuse there, I guess) is that society is not just made up of the two leaders and the proletariat underneath. Society is a complex mix of individuals, groups, associations, lobby groups, small businesses, medium-size businesses, large / multinational businesses, local government, regional government, national government, export markets, importers, international governments – the list goes on.

Lawson’s simple simulation of reality misunderstands society in the same way that economics misunderstands economics. Macro and micro-economics stand uneasily in the same story (for economics is more a story that a science) and have never coalesced.

Business in itself is complex. Recent arguments over bonuses have shown how managers (in a business world where ownership and management are widely separate) have managed so often to take the profits out of the business before shareholders (now operating primarily through a secondary marketplace or via agents such as pension plans – themselves run by managers, themselves divorced from ownership and direct responsibilities) can obtain what Milton Friedman may have believed was rightfully theirs.

This complexity is expanded hugely in relation to business’s relationship with the society that provides them with their reason to exist. Market economics (and I am pro the market economy – any centrally driven economy is doomed) required businesses to be within a complex national and international environment and for governments (operating on behalf of the people) to ensure that they act properly.

This means that government have to ensure that pressures on business allow them to be competitive nationally and internationally BUT that society’s needs are properly considered as part of the trade-off for all the other protections and benefits offered. The latter includes education, infrastructure (roads, railways and the like), banking system, laws that work.

So, while outside the City of London businesses don’t get a vote (the fact that they still do in the City is not just a 19th Century throwback but one much older) they get a huge lobby through trade associations like the CBI. This influences governments of all types and makes the Dominic Lawsons of this world lose sight of the complex, adaptive world in which we live.

The fact that certain companies or their leaders cozy up to the CSR community is rather a cheap, anecdotal simplification in a complex world where businesses, like all “living” things, have to continuously adapt to meet the changing environment and conditions they find themselves in. Society is highly complex and the over-simplification (which we all love to do because we can then mislead ourselves into thinking we understand the issue as a result) too often leads to decisions that are completely wrong.

We live in a complex society where we have to make changes that reflect the complex mix of the various parties involved. There is no such thing as “business” – it is made up of many strands and people and interactions. Governments set the laws and implementation, only people can work within them. Businesses are mere technical constructions that people form – people then have to live with other people. They have to make the decisions not some artificial construct called a business – no matter how we construct its form in law.

Lawson seems to believe that people don’t exist – or, if they do, that major organisations have a precedence. For so many reasons, he misses the complexity. CSR may not be the answer, but it is an attempt to develop relationships between organisations of people (businesses) with others (local communities, consumers or whatever). People and people – not some simulation of them.