Friday, 24 November 2006

Fixing Labour`s Leaks

24th November 2006

The Malta Independent - Friday Wisdom

The best cure for corporate information leaks is transparency. Contrary to common wisdom, transparency does not give unfair advantage to opponents in getting wind of corporate plans. On the contrary, transparency is indispensable to get everybody on board and fire up everyone in the organisation with enthusiasm for achievement of the set mission.

Most of the time in corporate affairs what matters is not what you do but the way that you do it. While what you do could be easily copied, the way that you do it is much more difficult to copy.

Getting everybody pulling in the same direction, imbued with the enthusiasm of a mission worth toiling for, demands inspirational leadership which cannot be copied. When all resources of the organisation are brought working smoothly together, re-enforcing each other, and covering each other’s weaknesses, leakages do not happen.

If they do they are harmless and best ignored as normal human weaknesses. Because leakages, if they happen under inspirational leadership, would concern what we do, which through transparency is generally already in public domain and hardly worth leaking out. The more important how-we-do-it is simply not capable of being leaked out. It is intrinsically copyrighted and protected from piracy.

So the very existence of leakages is proof that not all is well within Labour and that the leader has not succeeded in injecting everyone with the enthusiasm of the supposedly coming victory as he had done in the period 1992 to 1996. There were no leakages then. There was hard work, dedication, and enthusiasm focused on the ultimate objective. It seems different now. Labour’s energy is now dispersed in internal factions who seem more concerned in protecting their turf rather than in getting the PN off their pedestal.

So the first obvious conclusion Labour ought to reach is that the leakages are proof that the leader is failing in performing up to scratch. This is hardly surprising given the way that the leader achieved his re-election following the 2003 electoral defeat. At the time I was a delegate of the general conference tasked with electing the leader from among three candidates, the incumbent and two challengers.

In being forced to vote to choose a leader for the next five years before conducting a deep and objective analysis of the causes of the 2003 failure was putting the cart before the horse and giving an unfair advantage to the incumbent. I did not accept it, tried to use internal persuasion to avoid it, and finally after exhausting all internal avenues and got nowhere I wrote officially about it and was warned that my absolute truth was harming the party. I quit as I can only work in organisations where things are done right down the middle.

Wherever I lead in business the boardroom is generally an open door and I insist that the more people know what we are deciding and why, the more likely it is that we find cooperation rather than obstacles in the execution of such decisions on which ultimate success depends.

On the crucial things I could not afford leakages, and these are generally tactical, not strategic. I just keep them to myself and try even not to look at the mirror lest it also suffers from the human weakness of enjoying breaking the news as a show of more importance and superior knowledge.

So there is no doubt in my mind that the indirect cause of Labour’s leakages is its lack of inspirational leadership. As to who is the immediate source of the leakages, for as long as the information was known to two persons, you can never be sure about it.

What is strange however in this whole affair is that the leakages are weakening the position of both deputy leaders. Charles Mangion is in the eye of the storm, accused of taking business friends in an official delegation to
Dubai. Frankly as long as they paid their bill I fail to understand what’s wrong in having trusted friends to advise on technical matters. Their inclusion in an official delegation was no doubt blessed by the leader. I would be more suspicious if they were in a separate unofficial delegation. Do the PN expect to decide whom Labour should take advice from?

Why Alfred Sant is making very little effort to do the work of a true leader amuses me. A true leader would take full responsibility for the
Dubai visit and send the PN packing, telling them to take care of glaring conflict of interest within their ranks, rather than get scandalised with eventual potential conflict of interest of a future Labour government. Alfred Sant’s standoffish behaviour must have a meaning.

But even more meaningful is his public outbursts on having cornered the “snake” within Labour who was supposedly making these leakages directly to the PN headquarters and pointing to a key assistant to the other deputy leader, Michael Falzon. Unless the objective is weakening Falzon’s public image a true leader would first admit to himself that he is failing in inspiring all and sundry with his mission, and then treat such matters with internal persuasion and if necessary internal discipline. Public outbursts harm the organisation and throw us back to the times of Robespierre in the French revolution.

Unless of course Sant means to stay as Opposition Leader even in his pension age and leakages serve a purpose in providing an excuse for lack of electoral success when it really matters.

Friday, 17 November 2006

Barbarians at Kirkop Gate

 17th November 2006
The Malta Independent - Friday Wisdom

Kirkop’s relevance here is that it hosts Malta’s primary manufacturing industry, ST Microelectronics, by far our largest exporter and certainly one of our major success stories in manufacturing, wherein a small industry that started here in the early 1980s grew and developed itself at the cutting edge

of the semiconductor technology.

We owe much for this to Sicilian born Pasquale Pistorio, a former Motorola executive, who managed to turn the French and Italian chronically loss-making semiconductor companies into a profitable Franco-Italian combination. Even better, it has grown to become the world’s fourth largest supplier of microchips after Intel who command 15 per cent of the world market, Samsung with seven per cent, Texas Instruments with five per cent. It holds the fourth ranking jointly with Toshiba at four per cent each.

Pistorio was the person responsible for locating the plant in
Malta in 1980, no doubt motivated by the possibility of quality production at a low cost. Since then the plant found many other reasons beyond the cost factor to flourish at Kirkop. It is with good reason that Malta recently bestowed upon Pistorio a state decoration. We owe him much more.

Pistorio is now retired but his privately expressed views are still sought within the industry. Recently during a conference in
Paris he reiterated his long held view that the semiconductor market will ultimately be concentrated around a handful of giants with a myriad of smaller niche satellite players alongside.

This basically means that the market is ripe for a period of consolidation through mergers and acquisitions to combine operating units, thus streamlining production and saving on exorbitant research costs.

The process has already started. Recently Philips, the Dutch conglomerate, sold its microchip production divisions to Kohlberg Kravis Roberts (KKR), a giant in the world of private equity investments.

KKR are the original barbarians. In financial terminology barbarians is a term used to define hedge funds and private equity funds who are attracting huge billions of dollars from private investors giving them unimaginable financial strength in order to make friendly acquisitions. In some cases they use these funds to position themselves, even in a hostile manner, commanding significant stakes in large companies where they perceive the management is not doing a good enough job and that value can be extracted by using shareholders’ rights to push for changes that management, in their opinion, is not strong enough to execute on its own.

A typical example this week is Deutsche Telekom (DT). Their CEO was forced to resign during the fourth year of his five-year contract.
US private equity giant Blackstone through their five per cent equity stake in DT, thought he was not delivering shareholder value. Blackstone were termed locusts by the former SPD government who had resisted such approach but the Merkel government saw the validity of the argument and through its sizeable shareholding blessed the change at the helm of DT, which is still a German flag carrier on the international scene.

The term “Barbarians at the Gate” knows its origin to a book (and subsequently a film) dealing with the leveraged acquisition in 1988 of RJR Nabisco, the American food giant, for a record of USD 31.4 billion, most of which was financed by debt. It remained the largest acquisition till 2006 when we are starting to see bigger figures in acquisitions due to the plentiful supply of private equity liquidity.

Barbarians refer to the heartless way in which such private equity investors move once they acquire control of a company in order to cut down its costs and recover their leveraged investments as quickly as possible.

On the assumption that once KKR made a sizeable investment in acquiring Philips microchips division they will be on the lookout to acquire similar sizeable outfits which could be merged for extraction of better value added, and considering that once this process starts four per cent market share companies will either have to downsize to satellite status or grow into a mega force through mergers and acquisitions, it is highly likely that the barbarians are already at the gate of companies like ST Microelectronics.

The French and Italian government through their shareholding are likely to resist the barbarians at the gate for some time, certainly until the French presidential elections are out of the way. But once the elections are over, it will become hard to resist the logic of consolidation for survival and thus to keep the barbarians outside the gate.

Whether this will be good or bad for the Kirkop outfit depends on the level of competitiveness and innovation housed within the plant. If, as I have the impression, the Kirkop outfit is one of the most successful and avant-garde plants of ST with considerable cost advantages, the Barbarians’ arrival at ST’s gate could well prove to be a blessing for

Friday, 10 November 2006

Cut to Size

10th November 2006
The Malta Independent - Friday Wisdom

This week US President George W Bush was cut to size by the electorate who gave a very hard drumming to his Republican Party in the mid-term elections, causing a very significant switch of power outside the White House. The Democratic Party now controls both the House and the Senate on Capitol Hill.

This is a belated wake-up call by the American public who in fact never elected Mr Bush in 2000 and by all evidence he had snatched victory from Democratic Presidential candidate Al Gore only because the US Supreme Court did not allow sufficient time for a detailed recount of the Florida vote. On a national basis President Bush had in fact obtained less votes than Mr Gore. On both moral and legal grounds based on facts that subsequently emerged, Gore rather than Bush, should have become the 43rd President of the US.

One could ask whether the re-election of Mr Bush in 2004 legitimised his original dubious election. Given the facts of this week my view is that it has not. In 2004 Bush was re-elected on the platform of his being a war President. He postured himself as being against national interest to change the Commander in Chief when the country was at War in Iraq and elsewhere in the famous cliché of War against Terror.

The deep sense of US patriotism worked in Bush’s favour and the American public continued to endorse their Commander in Chief. They were impressed that changing him would be interpreted as admitting defeat in the War against Terror.

But this week the same platform that re-elected the President in 2004 brought his Party’s downfall in a major shift of US political fortunes. The American people clearly have had enough with the deception that is going on Iraq and they sent a clear message that they want an honourable and programmed exit out of that theatre of war.

The US electorate voted in much higher turnout than is the norm for mid-term elections re-enforcing the clarity of the message for change. The electorate’s nervousness over the situation in Iraq can be appreciated better if examined in the context of a very strong performance of the US economy since Mr Bush re-election in 2004.

Normally domestic economic issues, which are the main contributor to general feel good factor, over-ride any considerations related to international relations. In fact President Clinton for his election in 1992 had coined the term ‘ it’s the economy, stupid’ meaning that the electorate is more concerned about economic issues that effect their standard of living rather than to celebrate President Bush Sr. ( the 41st President) success in the first Gulf war.

This time the ‘it’s the economy, stupid’ syndrome has not worked. The feel good factor generated by above average economic growth was largely eclipsed by concern about the heavy casualties being suffered in Iraq against a background of lack of progress in moving the country towards anything resembling a working democracy.

More US military personnel have now died in Iraq than the number of casualties suffered by the Twin Tower terrorist attack of 2001. Yet Iraq remains a jungle of sectarian interests where each section imposes its views through the use of unlawful militia or underground terrorists. Every day tens and hundreds of Iraqis are killed in such sectarian warfare with the weak central government unable to take effective control of the country in spite of the support of coalition forces.

The electorate felt that the fight for peace in Iraq has become unwinnable and the expectation that a truly democratic Iraq could become a beacon for the spread of democracy in the whole middle east was an unrealisable pipedream. The US situation in Iraq has become a sure loss whatever they do. They lose if they stay and they lose if the leave, given that the country could easily fall into civil war breeding a new wave of international terrorists and increasing the influence of Iran in the region sufficiently to bring into question the stability of oil exports even from nearby Saudi Arabia.

The electorate finally realised that it has been deceived into electing a War President who waged war on false pretext and who celebrated mission accomplished when the real war of bringing order in an occupied Iraq had not even started and as it turned out was either very badly planned or not planned at all.

President Bush seems to have heeded the message enough to engineer the resignation of Defence Secretary Rumsfeld within a few hours of the election result. Rumsfeld was untouchable just a few days before. This is a good start for achieving bi-partisan support for adopting new perspectives regarding Iraq. It is not enough. If Bush means to work with a Democratic Congress he needs to do more. If Vice-President Cheney, the prime promoter of the Iraq adventure, cannot be made to go, he must be sidelined.

Sunday, 5 November 2006


5th November 2006
The Malta Independent on Sunday

I don’t think it is very smart to announce the project when negotiations with the investors are still proceeding. Clearly, the minister felt comfortable enough to present it as a fait accomplit, when in fact it is still not so. Is this not exposing us to the risk of other locations making more advantageous offers to attract the investment to their shores? And it is obvious that by going public rather prematurely, the minister has weakened his position in negotiating the outstanding issues, as the investors know that the minister would lose political capital if he does not accommodate their additional demands.

This is a verbatim quote from my contribution of
3 March 2006 entitled Smart and not so smart published in my Friday column in the daily sister to this newspaper.

The inevitable has happened. The minister responsible had to admit in parliament that negotiations with the investors are not proceeding as smoothly as he expected and he basically gave the investors a warning that unless agreement is reached soon, the government will have to pull out of the negotiations.

Clearly this is a case where political self-serving interests over-rode national interest and to obtain short term political mileage the Minister weakened his negotiating position and had to make a volte-face in parliament in order to regain negotiating leverage. Hopefully, this will be enough to help conclude the deal on reasonable terms, but nothing is in the bag before it is in the bag, commitments are signed for, the ink has dried and the financial security has been provided.

It will be just as well to learn from this experience and remove narrow political interest from the equation when this starts conflicting with the national objective. This applies particularly to the euro project.

The Leader of the Opposition in his budget reply in parliament on 25 October announced that if Labour is elected to power before the materialisation of the euro project, basically if Labour wins an election held in 2007, despite past misgivings it will not abort the process and will, for the sake of stability, proceed with euro entry on 1st January 2008.

National interest would have demanded that the rare newly-found consensus be cultivated to make the euro project a really national affair. Such national unity would help to make the changeover smooth and help avoid inflationary impulses. An absence of such national unity could well harbour inflationary expectations, which are an assured source of real inflation.

Yet rather than grasp this quite unique opportunity, the reaction from the government side was purely self-serving for its narrow political interest. It retorted that the opposition was making another U-turn and in so doing was confirming that government policies were succeeding and delivering a strong bill of health.

The logic of these arguments escape me. Euro adoption is no certificate of economic clean bill of health. Good husbandry in public finance is not necessarily synonymous with overall economic health. The measures of overall economic health go far beyond the
Maastricht criteria for adoption of the euro. It involves the size and sustainability of economic growth, the level of unemployment and overall labour participation, the stability of our balance of payments and the control of inflation to be consistent with that of our major competitors.

On all these wider economic criteria our performance leaves much to be desired. The general idea is that euro adoption can hopefully serve as a catalyst to stimulate economic growth by attracting more foreign direct investment, the achievement of higher levels of efficiency and an increase in exports, so addressing the chronic shortfall in our balance of payments.

So rather than castigate the opposition for making an effort to achieve consensus that could lead to higher indirect rewards – as we have experienced through the success of the consensus in the financial services sector – the government should have celebrated the consensus. It should have encouraged the participation of the opposition in the broad spectrum of initiatives that should lead to the adoption of the euro and the few months thereafter until we are all settled into the new reality.

We are simply not smart enough to take opportunities as they come and build on them to achieve the success that is being enjoyed by the east European countries that joined the EU with us. These countries are registering growth rates far higher than ours, even if they have put back their euro ambitions far behind us in the calendar. Maybe their priorities are more logical than ours. But what is important is not whether we join the euro now or later, but that once we achieve consensus on something, we celebrate it and build on it, rather than fight over who had to sacrifice his principles on the way to achieving the consensus.

Friday, 3 November 2006

Under-Rated Events

3rd November 2006
The Malta Independent - Friday Wisdom

A string of four events in these last few days have been under-rated by the media. They are worth dwelling upon.

Let me start with the two local events. In his replica for the budget speech, the leader of the opposition made a very important declaration which practically was eclipsed by his other pledge to remove half of the energy surcharge on acceding to office.

He pledged that if elected to power before
Malta joins the euro, ie. should elections be held during the course of 2007, he would not abort the process for Malta’s entry into the euro.

The leader of the opposition was not specific enough about the rate of conversion, given opinions he had expressed in the past that we should only join at a more competitive rate. However the evident assumption is that the process of joining the euro could only be accomplished if the chosen rate at the ERM stage will not be changed on the eve of accession. The leader of the opposition would do himself and his party a hell of a lot of good if he clarifies this point beyond doubt in the course of the budget debate in parliament.

The implications of this novelty for the outcome of the next general elections should not be underestimated. But endorsing this policy of continuity for the euro project, the leader of the opposition has removed an unfair advantage he had given to the PN who were clearly planning of making the euro entry as a key point of distinction for the next election.

With the MLP now aligning itself to the rest of the country regarding the euro, the election will be fought on real bread and butter issues which is not what the government would have preferred.

Another local event which merits further attention is the clarifications which the Parliamentary Secretary for Finance gave in this newspaper last Monday to technical queries I raised in my contribution of last week. Thankfully he clarified most of my misgivings by pointing out where in the maze of figures I could find the answer to my doubts about revenue neutrality of certain measures, without which the whole issue of budget sustainability could be brought into question.

But one important issue which was only clarified in a negative way was that the true sustainable budget deficit for 2006 is in reality well above three per cent if the extraordinary revenue from sale of land is treated substantially rather than superficially.

The point made was that the budget deficit for 2007 is planned well below three per cent without the help of such extraordinary measures, but frankly the weight of the current numbers is much heavier than that of projected ones.

On the international front, one should give much more weight to the report published by the British government on the economic cost of neglecting the problem of global warming resulting from uncontrolled carbon emissions.

A report by Sir Nicholas Stern, former economist of the World Bank, endorsed by former
US vice-president Al Gore, suggests with convincing empirical research that the cost of taking preventive measures now will be surpassed by five to 20 times over the next 50 years if the problem is neglected. An increase in the average world temperatures of a mere four degrees would bring economic havoc on an international scale which Stern suggests could easily compare to the great depression of the thirties.

By framing the problem in economic terms, it is hoped that politicians who were against the Kyoto agreement, which indeed is by itself a very insufficient first step compared to the measures which Stern considers absolutely necessary, will surrender in the face of stark economic reality and accept the introduction of marketdriven measures which can sustain a global effort for a step reduction in carbon emissions.

But what takes the cake for the under-rated event of the week is the statement made by George Bush during a press conference, meant to address the damage being done to the Republican’s party prospects for retaining control of the House of Representatives and Senate in next week’s election, by the bloody events in Iraq which rendered October 2006 as one of the most casualty heavy month for US forces there.

President Bush said that over these last three and a half years since US forces have been on the ground in Iraq there has been a mixed bag of good and bad news and identified amongst the bad news the inability to find weapons of mass destruction.

This is turning history on its head and I wonder how the President was not torn to pieces about it by the journalists present.

The absence of weapons of mass destruction is not bad news. By itself really it is good news. The bad news is that the
US had entered into war on false pretext and faulty intelligence which is why it is desperately trying to find new reasons to justify their staying there.

In fact one of the most raving arguments in the
US campaign is whether America’s interest, now that the Iraq omelette cannot be switched back to wholesome eggs, would be best served by staying in Iraq or by withdrawing.

The Republicans justify
US presence in Iraq as a success by linking it to the absence of new terrorist attacks on US soil. The cause and effect in this argument is very subjective and I would rather think that the absence of new attacks is more related to military activity in Afghanistan and the strengthening of intelligence services. If anything Iraq has been turned into a breeding ground for new terrorists that may haunt the western world for many years to come.

The argument whether US forces should stay or get out of
Iraq should rest only on what is in the best interest of Iraq. Would Iraq tear itself apart if US forces leave or would the country unite to rebuild itself as Vietnam did?