What we think

You are the best thing that’s ever been ours: Why history will be kinder to Theresa May than the present has been

The news yesterday that Theresa May has postponed the ‘meaningful vote’ on her Brexit deal has been hailed as yet another “humiliation” for the Prime Minister, the latest in a long string of disasters.  Her authority is in question, her very survival in No10 under threat.  So this might seem like an odd time to write a blog praising Mrs May.  But that’s what I find myself doing.

Well, kind of.  Theresa May will not go down in history as a great Prime Minister.  In fact the students of 2050 will be told that she should never have reached the top.  Lecturers will talk about how it happened: how Cameron and Hilton muffed the 2010 election; how Cameron didn’t stand up to his Eurosceptic loony fringe; and how Cameron failed to campaign properly for Remain.  How even after the Referendum it was not certain that the Queen would call for Mrs May, but with rivals self-destructing only May and Leadsom were left standing.  And so, they will say, she stumbled into Downing Street, fell into a job she was ill-prepared for.

They will be right about that.  It was obvious years ago, when her name first was linked with the top job, that she wasn’t cut out for No10.  She has little or no constituency of support in the Parliamentary or wider Conservative Party.  She is wooden and awkward in public and on television.  For the most part she simply doesn’t listen to advice, and when she does it all too often comes from people like Nick Timothy who she listened to far too much.  She ticks few of the boxes of a successful modern politician.

And her time as PM has only proved the point.  She has presided over a spectacularly bad election campaign, in 2017.  Cabinet Ministers have left with monotonous regularity.  She has weakly oscillated between the rock of the EU and the hard place of the Conservative right wing.  Windrush, Universal Credit and homelessness have all shamed her regime, even if they are not directly or not exclusively her fault.  And the biggest mistake of all, drawing red lines very early on that painted us into a corner.  There is little impressive about her track record.

And yet there is so much that is impressive about the Prime Minister herself.  Even her enemies have a grudging respect for the way she has stoically kept going.  No humiliation has been too great to overcome her resilience, and no trial a match for her stamina.  She has kept going and going and going, doggedly, calmly and unflappably.  How is it possible not to admire that?

And look at the hand of cards she was dealt by her predecessor.  History will not judge Cameron, the lazy dilettante, kindly; he was, and is, with his bizarre belief he could be Foreign Secretary one day, the living embodiment of the great curse of establishment politics, complacency.  He created this Brexit mess and he abandoned it to Mrs May.  Although she has made mistakes in dealing with it, principally the red lines, she has at least never complained.  And who, seriously, would have handled it better?

So what will history say about Mrs May?  It will probably say that her track record was terrible, unless she performs a Houdini-like escape and gets her Brexit deal through.  But it will hail her heroism, the fact that she appears to believe in public service and real patriotism, in selflessness and sacrifice.  It will note the monumental egos that preceded her, their need to be loved, or impose their will, or fill a hole in their emotional lives.  It will say she believed in duty and not in self-aggrandisement.  And in the end, although her time in power may be presented as a tragedy, she will be judged kindly for that.

We, in the present, should attempt to do the same.  Of course Theresa May is flawed but at this time of national chaos it is at least a little bit reassuring to have a leader who is honest and trying to do her very best in an impossible situation.  Could anyone way the same about just about every one of the alternatives.  As MPs contemplate replacing Mrs May they should give due weight to her strengths as well as her weaknesses.

Try to fix it, could you just try to listen? PR agencies and their fatal flaws

Last week I had the joy of attending the PRCA public affairs awards.  Looking around the  room (weirdly bathed in ultraviolet light, as though we were all desperate to shoot up; in fairness, when we got to the award for Best Party Conference Stand I wondered if I was on hallucinogens) it was impossible not to be struck by the plethora of newish agencies present.  Morbidly I began to contemplate their demise: how rapidly would each one of them lurch from boom to bust in the way that seems to be happening to more and more communications agencies these days.

In my decade-and-a-half in the industry I’ve run an agency owned by private equity, then one which was part of a (tiny) listed group, and now Park Street Partners, where I am my own shareholder.  I am enjoying most the current experience, when I don’t really have to answer to anyone other than clients.  And it has led me increasingly to the view that for most (not all) PR agencies being owned by external shareholders is a Very Bad Idea.

The life story of all too many agencies is this.  They launch in a blaze of glory, maybe with an all-star cast, or a new way of doing things, or just with youthful vigour and a whole lot of momentum.  They win a few things quickly because they are on a promise from an old client or because they are bright new things genuinely shaking things up, and it all seems quite easy.  Revenue grows strongly in percentage terms for a few years, because not much on top of not much translates to double digit growth.  And they begin to think that expanding by 15 to 20 percent is sustainable and realistic for the medium-term at least.

At that point they make bad choices.  Perhaps they invest in a swanky office, or in a lot of people; after all, they need it with that sort of expansion going on.  But that means the principals find themselves managing buildings and staff rather than clients.  Quality suffers but that doesn’t matter so much for now because there is work pouring in the front door; who cares about losing that boring old client out the back?  The seeds of self-destruction have been sown but nothing is visible above ground yet.

Then, all too often, they make a really bad choice, and go looking for investment.  Maybe all that giddying growth has made them think that yes, they can be the ones to create the new Edelman, with an office in every nation.  Or they want to take some value off the table to pay the school fees or for that oh-so-reasonably-priced house in Salcombe.  Or the agency is owned now by someone else but an MBO looks super appealing.  Either way they open the doors and bring someone else in.

At this point everyone gets carried away.  Investors should know better, but this shiny new agency looks so compelling (who knew PR folk could convincingly bullshit?) and they persuade themselves that double-digit revenue growth at a 25 percent margin is going to be what this new business can do ad infinitum.  The agency principals get greedy as big cheques are waved about.  So everyone conspires to agree a valuation that is ambitious at best, fantasy at worst.  As agency principals transition to become mere management the valuation is locked into a business plan, everyone crossing their fingers that the money will continue to roll in and the worth of their venture will go up and up.

But reality eventually bites – at least it does for most firms, since only very special firms can outpace the market for a long time.  Inevitably, a big client will leave or a senior person will depart, and the agency will stumble.  Revenues will dip a bit, and that nagging feeling shareholders have had for a while that maybe they overpaid starts to crystallise into proper anxiety.  To sooth their worries they start to exert pressure: they may graciously concede that income can be lower going forward but gently insist that management sticks to the agreed EBITDA targets.  And that means that unless revenues can pick up quickly costs have to go down; what else can they do?

Now one of two things happens.  Shareholders may ‘generously’ allow or even encourage management to try to shore up revenue.  “Hire a rainmaker!” they cry.  Let’s just pause a second and consider that word “rainmaker”.  It is pretty much interchangeable with “unicorn” when it comes to recruitment.  If someone can make it rain new business you can be pretty sure they are already safely stashed in a better agency than yours, on a fat salary.  Or they are doing their own thing.  What they are not doing is sitting on the books of a recruitment consultancy waiting to join your mid-table, stumbling, agency.

So unless management get very lucky it is cost-cutting all the way.  So here comes some good news: the shareholders have a Very Clever Spreadsheet which tells them there is fat to be cut, there are people who can be fired without losing any clients or revenue.  Unfortunately the Very Clever Spreadsheet can’t tell exactly who the idlers are.  But no worries, because if the agency is especially fortunate the shareholder used to run a sales business and knows the agency should just junk the bottom 10 percent of new business winners, even if these people are great at keeping clients (the famous ‘hunter’ vs ‘farmer’ debate).  Or the shareholder really understands advertising and so tells management to junk the ‘long tail’ of small clients and the people who work on them (often the most profitable of all PR clients) to concentrate on the big names (often the most over-serviced).  And so it is revealed that cutting costs painlessly is as much of a myth as finding a unicorn or a new business rainmaker.

What actually happens is management cuts easy things.  First to go?  The bonus scheme, because after all, shareholders say more in sorrow than in anger, no-one can think they still deserve a slap on the back, right?  No-one except the shareholders themselves, who continue to take that profit out and continue to congratulate themselves all the way to the bank while the people who actually generate the money feel resentful and angry.  Next up?  Training, and development, maybe the free breakfast: anything soft that makes people who work at the agency feel good about being there.

And then it is people.  Some folk look easy to fire, but management discovers only afterwards that this client or that really liked Jonny and will be taking their business elsewhere, or maybe they didn’t like Jonny but they really hate churn on their agency team.  Then it turns out Jonny was really popular internally, the glue that holds the team together, and his departure pisses other people off.  Or he wasn’t popular, but the fact the agency is now firing staff breeds more anxiety, and makes everyone else that bit less committed than they were when the agency was smaller, friendlier and faster-growing.

The upshot?  People go, clients follow, revenues slip further.  Shareholders continue to maintain the EBITDA target, so more costs have to be chopped.  And so it goes, on and on, a cycle of anxiety and resentment on all sides, a downward spiral.  This might take years, and there may be brighter moments along the way.  But it leads inexorably to doom.

So how to avoid this fate?  There is no simple answer, but I have some suggestions.  First, management and shareholders should invest heavily and repeatedly in the agency’s brand.  Too many firms think that their most important asset is their people, because after all it is senior staff who hold client relationships.  Keep them happy and all will be fine, right?  No, if you are trying to build asset value (NB: a big  ‘if’, see below) it is crazy to put all of your eggs in a basket that walks out the door every day.  Successful, larger, companies have strong brands that have some meaning in the market: think Portland, Blue Rubicon, Brunswick et al.  This allows them to weather senior departures and attract new staff and clients in a way not open to more insipid names.

Second, by the same token, investors should seriously discount the value of agencies that have no brand strength.  All too often money has been plowed into minor companies, presumably in the hope that they will become world-beaters (clue: they won’t).  If an agency is unknown or unappealing then it is just a collection of practitioners and clients who can leave anytime.  What multiple would you put on that?

Third, and the flipside to investors being careful about the valuation of agencies is that agency managers should be too.  It may feel good to receive a slightly bigger cheque (or help your previous owner to do so), but if you have done so on the basis of puffed up profits or projections of heroic future growth, you will rue the day when down the track you are trying to deliver the undeliverable.  You may even believe your business is worth what you are paid for it.  Trust me, it isn’t.

Fourth, if they get the valuation right agency owners should be far more picky about who invests in them.  Find someone who really understands PR and how it works.  This won’t be most advertising and marketing groups, and nor will it be the average private equity firm (albeit there are now some specialist companies out there).  Apart from anything else, endlessly fighting the fight for the ‘long tail’ and for keeping a few Steady Eddy farmers amongst the prima donna hunters is tiring.

Fifth, if revenues dip a little bit shareholders should fight their instincts and relax planned targets, at least in the short-term.  Give management a margin break, and encourage them to take time to shore up clients and rebuild teams.  Have some faith in the people you were lauding only a few months ago, and help them get things back on track.  By the way, if your financial model doesn’t allow you to do this you overpaid in the first place.

Sixth, if there are any profits at all, maintain the bonus, at least for members of the team who are making a big contribution.  There is nothing more likely to stoke discontent than the sense that shareholders are maintaining their slice of the pie by stealing crumbs from the workers.  It is simply not fair, but more to the point it is self-destructive and daft.  Eliminating bonuses or imposing pay freezes may not drive folk to leave, but all too often it discourages them from going the extra mile.  Should I go to that networking event after work when any extra fee I bring in just makes some Yankee money guy richer?  Nah, I’ll go home and watch Narcos instead.

Seventh, the best idea of all: avoid all of this pain and anxiety by not making or accepting the investment in the first place.  Hopefully everything I have said so far has convinced you that, in 9 cases out 10, PR companies are really bad investments.  Just in case, let me say it again: PR companies are really bad investments.  My guess is that spending money on another professional services firm is just as bad an idea, although I wonder whether the problem of having low (by which I mean zero) barriers to entry to the PR market thus allowing good people to walk anytime makes it an extreme case.  Whatever, it is certainly hard to think of a situation recently when an investment in a PR agency in the UK has gone brilliantly for all concerned.

When I set up Park Street Partners I was given a sage piece of advice: work out at the start whether you are trying to build an agency to sell or one to make a living from.  It is certainly the case that too many people do the first, and should do the second, given everything I’ve said about valuations.  But actually it is the wrong question.  Instead ask whether you are setting up a company to serve clients or to serve shareholders.  As you look at what you are doing now, what answer would you give?  Unless it is “serve clients” you are doing it wrong.

Strangeways, Here We (All) Come

The news yesterday that Channel 4 would move its headquarters to Leeds is being trumpeted by some as another example of the economy rebalancing away from London and the South East.  It follows the successful relocation of much of the BBC to Salford, and the establishment of a financial services hub in Birmingham, driven by HSBC moving its UK headquarters to the city, and the growth of companies like KPMG who were already there.

Yet despite some fine words to the contrary, it is pretty clear that the Conservatives have been significantly less keen under Theresa May to talk about re-orientating the economy towards the North than they were under David Cameron and George Osborne.  This is not completely surprising, given that Brexit has sucked the life out of political debate.  It may also reflect the fact that the Cabinet’s ‘Big Beasts’ are almost exclusively MPs for Home Counties seats, whereas Mr Osborne’s roots in Cheshire obliged him to think about areas north of Watford.  But it is still a huge mistake.

The UK faces a number of big challenges once Brexit is finally, finally, over with.  Perhaps the biggest is housing.  Notwithstanding some recent small falls, house prices are out of control in London and the South East, usually far out of reach of anyone not already on the ladder, not earning astronomical wages and not able to access the Bank of Mum and Dad.  Finding a way to give a huge swathe of younger voters and taxpayers the stake in the economy that comes with property ownership is a necessity.  This isn’t just a ‘young voter’ issue; older voters increasingly worry too as their children cannot get onto the property ladder.  For the Conservatives, with Labour promising the earth in this as in so many areas, it is a particular challenge.

The Tories need to find an answer (and the usual promises of trivial bits and bobs won’t do anymore).  But as seems to be becoming typical of the Party lately (pace anything to do with Brexit), it has boxed itself in with a number of implicit and explicit red lines.  Implicitly it has done a deal with its base, promising them that their property prices will remain high, even if they are currently unnaturally puffed up.  Explicitly it has said it will severely limit building on the Green Belt.  A programme of construction in volume in the South East is therefore impossible.  And it would make little sense anyway when the region’s infrastructure is groaning.

So how to let the air out of the balloon gently and bring property ownership into reach?  Rebalancing, moving jobs and people to where there is often under-occupied existing residential property and space to build more, is the answer.

Let’s imagine you want a career in financial services: thanks to the agglomeration benefits being seen now there is a critical mass of companies in the city Birmingham is now a very real option for you – and could be even more so if the Bank of England moves some of its functions too.  Media more your thing?  Manchester (and Leeds?) beckon.  Encourage this and take some of the pressure out of the market and prices will settle back a bit (you could also, by the way, remove some more of the froth and maybe even clean up the stain on our national reputation by stopping dodgy money from Russia and elsewhere snapping up London flats en bloc as soon as they are built).

Of course, doing this will require the sort of boldness, taking the kind of leaps of faith, Government is bad at.  Specifically, the Treasury, whose focus on return on investment will always favour sticking money and infrastructure where productivity is already high, ie. London.  More on that subject another time.  For now, suffice to say the Conservatives need to be brave, visionary, and ambitious.  They need to want to change the country, and to see the balance of power shift, even a little bit, from South to North.

There is a potentially huge payoff for the Tories.  At the moment their electoral strategy (such as it is) is focused on adding seats in the Midlands to what it has already in the South and in the rural North.  This is unambitious; it is also dangerous for a party that still says it wants to be a truly national party.  So Conservatives, learn again to worry about every part of the country.  Be bold, and embrace rebalancing.  It will pay off in every way – other than in an abstract Treasury model.

Silence and Patience, Pining and Desperately Waiting: Ten years and more of political paralysis in the UK

Lost in the headlines yesterday about climate change, Brexit, Russian spies, and various accidents and tragedies was a deeply depressing and profoundly important story.  The Institute for Fiscal Studies out out a report saying that only 60 percent of young adults in England can afford to buy the cheapest homes in their area, even if they have a decent deposit.  In London the proportion was much smaller.  In 1996, in the Capital and elsewhere, the figure was 90 percent.

The IFS looked at what was affordable for young adults aged 25 to 34, willing to take out a mortgage for four-and-a-half times their income and with a 10 percent deposit.  It noted that average house prices have risen by 173 percent in England since 1997, whilst real incomes for this group have gone up by only 19 percent.  The result is that over the past 20 years home ownership in this age group has gone down from 55 percent to 35 percent.  In short, young adults, often young families, are being completely priced out of home ownership, with all the consequences that brings.  It is a huge societal change.

This is not new news, although it has rarely been pointed out so starkly.  Even politicians are aware that housing is a huge issue for the electorate – witness the promises made by Sadiq Khan when he ran for Mayor, Labour’s repeated pledges and, most recently, Theresa May agreeing to let councils borrow more to build social housing.  But these fine words have yet to make a real difference.  Like so many big issues they remain stuck on the ‘to do’ list.

That list is growing longer and longer – and longer.  Beyond setting a long range target for decarbonisation and the adoption of electric vehicles, do we have a comprehensive policy for addressing climate change?  What about dealing with our social care crisis in the context of an ageing population and severe shortages of competent and willing staff?  How about pivoting our defence strategy to respond to the age of asymmetric warfare and cyber as a weapon?  And what about our issues with productivity, our failure to invest properly in infrastructure, education and lifelong training, all the while with the AI juggernaut bearing down upon us?

The truth is, all of these are on the backburner because we are paralysed, unable to think, let alone to act, and all because of Brexit.  How many political decisions have been put off over the past two-and-a-half years whilst we go through this period of navel-gazing and introspection?  And what about businesses – how often have we heard about investment choices being put off until we know what a deal looks like?  The result is that in reality nothing much has happened at all.  By the time this exotic spresm is done we will have wasted 3, 4, 5 or more years and have done nothing to what really matters.

Paralysis because of Brexit is bad enough.  But it is just the latest reason to kick the can down the road.  The truth is we have been stuck for a decade.  When the banking system fell over so, apparently, did the ability of politicians to be bold and to lead, to develop a philosophy, confront the big issues, and do something about them.  David Cameron briefly looked like he might have some good ideas, but he was hobbled by coalition government and in the end by his lack of courage in the face of the Brexit headbangers.  Today there is no-one sensible putting forward any genuinely big ideas.  It says a lot for the paucity of thinking elsewhere that the Marxist ravings of the cabal running the Labour Party are setting the agenda these days.

So the question is this: can our political classes put aside the gradualist, managerialist, instincts they have learned over the past decade, and rediscover the joys of thinking big thoughts, setting the agenda and leading the country towards it?  In ten more years will we look back on this lost decade as a weird aberration rather than the new normal?  We have to hope so, because the alternative is unpalatable, leaving us all unprepared and anxious about the future and unsatisfied and angry about the present.  Time for our politicians to stop jockeying for position and angsting about the minor details of Brexit, and start instead to dream impossible things.

From Boutique to Bargain: How choices about party conference hotels say everything about the last ten years

Ten years ago, just about to the day, I was checking in to the Great John Street Hotel in Manchester.  I was all ready for the Labour Party Conference; Gordon Brown was the Prime Minister and this was a big event.  And not only was I arriving at Great John Street – so were platoons of my then-agency’s clients.  We had block-booked the whole of one of the city’s very best boutique hotels, we were taking over the rooftop bar for our party, and we were charging clients around £1500 for a four-day bed-and-breakfast package.

It was a bit of an odd atmosphere in Manchester that year.  Northern Rock had gone to the wall a year before; Lehman Brothers had collapsed only a few days before we all arrived at the hotel.  What had seemed like it would be an enjoyable extravagance when we booked Great John Street in the Spring now felt like a reckless moment of over-indulgence.  We enjoyed the luxury for a few days but with a sense that this was the fin de siecle, that we would never see the like again.

That is, of course, what has happened.  After the Great Recession and years of austerity memories of the excesses of the Mid-Noughties are fading away.  Where once frontline teams had budgets to spend as they wished, and often had money to spare, now the roost is ruled by procurement departments, challenging every bill (even ones that are far more justifiable than four days at a boutique hotel).  The idea of splashing the cash is now anathema, and probably rightly so.

This trend towards frugality has been followed by the choice of conference hotel.  After 2008 we stayed for years in a Hilton DoubleTree in Manchester and Birmingham, and we gave up on trying to sell four night packages: clients would come in for a couple of days, staying for one night, and get away quickly to return to the day job.  In recent years even a DoubleTree has felt a bit much, and Travelodges, Best Westerns and Airbnb have hoved into view.  For Tory conference this year I’m in a Premier Inn a good walk from the ICC, and I’ve questioned whether even £120 a night for two nights is worth it.

In part all of this is part of a tale about political party conferences.  Are they worth attending even if you spend as little as you can?  I would argue yes, but you have to decide which event you are going to: is it to do politicking in the hall, the bar and the donors’ parties; to try actually to lobby people at fringe events or in one-to-ones; or to go to the main public affairs trade show, showing your face and promoting your new firm?  If you’re clear about what you’re there for – and what you’re not – then yes, they can be valuable events.

But even if party conferences continue to be worthwhile will we ever return to the happy days of boutique hotels?  Probably not, and that’s not a bad thing – other than in one respect.  No one wants to go back to the irresponsibility and carelessness of pre-2008, but one thing block-booking Great John Street represented was a sense of optimism.  The economy was growing and changing, and it felt like we were all growing and changing with it.  By contrast, the last ten years have felt stagnant, and people have pretty much forgotten what it feels like to have the wind at their backs.  When I’m traipsing through Birmingham to my Premier Inn next week I’ll be thinking that the real shame of the last decade is the demise of self-confidence.