Back In The Saddle

Back now from my unannounced hiatus. Sorry. Its been an exciting time. Dan Farber invited me to blog on sustainability over at ZDNET and so I have been busy getting up to speed with that. Its a real kick to have the opportunity to blog on ZDNET – its tier one for the tech sector and maybe the best opportunity I’ll have to keep the sustainability debate fueled up at industry level.

This blog is not a standy though – still lots to talk about here and plenty of room to differentiate Stay tuned. Thanks for reading – lots more to come.

 

Transparency – too much of a good thing?

An interesting debate on transparency seems to have spontaneously broken out around the blogosphere. Frank Buytendijk wrote a thoughtful piece on the topic and although he sees significant upside for technology enabled transparency:

Transparency is a competitive weapon to differentiate from the competition in attracting capital, informing customers about the value proposition (not only price) and in cost efficiencies by driving down the transaction costs in the value chain. Empowering the knowledge workers leads to more organizational collaboration, everyone being on the same page (focus and alignment) and as a result more ambitious targets.

but he also worries that perfect information leading to perfect competition will destroy margins:

The conclusion is simple. Part of your profitability exist because of intransparency. Transparency can lead to margin erosion. Is that what you are looking for?

Nick Carr plied the same path and ended up concluding:

You have to wonder whether, as what was once opaque is made transparent, the bolder among us will lose the incentive to strike out for undiscovered territory. What’s the point when every secret becomes, in a real-time instant, common knowledge?

These ponderings I classify similarly to the famous quote in 1899 from the then Commissioner of the US Office of Patents who said:

Everything that can be invented has been invented. 

From the consumer perspective (and indeed for that matter from the pov of all stakeholders)such transparency can be only a good thing. With still 4 out of 6 billion on the planet excluded from meaningful participation in markets we have a long way to go and plenty of competitive space left before we reach this economic utopia of perfect competition, perfect information and no barriers to entry. But supposing we did reach it, I still think competition would thrive though the playing field of differentiation might focus more on dimensions of quality, trust, responsiveness and stakeholder assurance. Maybe then we will see the functioning of the perfect market place, a pure manifestation of economic theory.

 

Davos Takeaways

A few snippits.

It was good to see such a determined reinforcement of the Millennium Development Goals. The thing about sustainability is its multi dimensional nature. You scratch a technical issue like climate change hard enough and a governance issue emerges. Al Gore and Bono therefore tried to reconcile the MDGs and climate change crisis. Soon, I suspect we will see the green tech euphoria begin to run up against the hard edge politics of trade policy. Al Gore made this point:

In an IT empowered outsourcing world it is unimaginable that the wealthy industrialised developed nations would enter into an agreement, that has no provisions to anticipate the moving of production facilities, that might, at the margins, face a brand new set of economics because of carbon constraints, into countries that do not have any carbon constraints.    

Maybe heresy to say but Bill Gate’s Creative Capitalism speech left me somewhat cold. There is nothing new here and great work has been underway for sometime to try to innovate new business models for the base of pyramid. Check out this report from the Harvard JFK School of Government CSR Initiative detailing some of the efforts in this area from across the ICT sector. These are all serious initiatives where companies are trying hard to kick start a real market for real profits rather than ‘recognition’ as a substitute.

Moving on, my favourite Davos question YouTube videos were from Jeff Jarvis of BuzzMachine.com and Bruce Sewell of Intel.

 

Though I enjoyed very much his prolific coverage, one Davos curiousity for me was Robert Scoble. Recently he wrote:

I don’t usually write about stuff that I don’t have first-hand knowledge of. I’m not in Kenya. The Kenya story, as awful as it is, really doesn’t impact the tech world that much……….

For me its kind of an inside out way of looking at things. It’s as if the world exists to serve technology and not vice versa. Surely all these gadgets, communications and software we hold court on can offer something to help in terms of improved communications, institutional development, education and economic development for countries like Kenya. Something

But Robert did say:

I’m hoping to expand my personal connections next week at the World Economic Forum where we’ll talk more about this, and other issues that don’t seem to — on the surface — affect the tech industry.

Well?

 

G-100 Most Sustainable Unveiled at Davos

Davos really is the best place on earth to hold a beauty contest and what is more beautiful than sustainability? Every year for the past four, Corporate Knights and Innovest announce the global 100 most sustainable companies in the world at Davos and for the 2008 list tonight is the night. You can find the press release and the full list here.

The ratings agency Innovest carry out the research for this list and the methodology is clearly rigorous. The list represents category leaders in terms of Environment, Social and Governance (ESG) risk and opportunity management relative to peers out of universe of 1800 securities of MSCI World-listed companies.  What’s even more hair raising about it is the tremendous rate of churn each year and this year is no different with a churn of 30%. You can view the turnover lists here.

Interesting to see so many big names in the banking industry dropped including HSBC, Goldman Sachs, JP Morgan, ABN Amro. Out too is Henkel who produce one of the finest CSR reports in Germany if not Europe in terms of methodology. A notable deletion from the tech sector is Google.

Notable additions to the list include Honda, Nestle, Royal Bank of Scotland, Deutsche Post, L’Oreal, Rio Tinto, State Street and Societe Generale.

The IT & Telco sector breakout is as follows:

Nokia Corporation
Finland
Information Technology

Tietoenator OYJ
Finland
Information Technology

SAP AG
Germany
Information Technology

Ricoh Company Limited
Japan
Information Technology

Electrocomponents PLC
United Kingdom
Information Technology

Advanced Micro Devices
United States
Information Technology

Agilent Technologies Inc
United States
Information Technology

Hewlett-Packard Company
United States
Information Technology

Intel Corp.
United States
Information Technology

NTT Docomo Inc
Japan
Telecommunication Services

BT Group PLC
United Kingdom
Telecommunication Services

Cable & Wireless PLC
United Kingdom
Telecommunication Services

Of course, I’m really pleased to see SAP again in this list but know we will have to again work hard to stay within the G100 in 2009.

 

The Face of Integrity

Face of Integrity

 

Meet Le Hien Duc, she is seventy seven years young and a retired school teacher and community activist living in Hanoi, Vietnam. Last night she was honoured in Berlin by Transparency International as one of two recipients of the annual Integrity Awards. Le Hien Duc is a grass roots organiser who, over her twenty five years of activism, has never been afraid to represent the interests of her community against the petty demands of public officials even in the face of numerous death threats. She has become something of a celebrity in her native Vietnam and today the local media regularly seek out her opinion and follow her doings in her work to resist corruption.

Also honoured last night was Mark Pieth, Chair of the OECD Working Group on Bribery in International Business Transactions and member of the Independent Inquiry Committee into the Iraq Oil-for-Food Programme scandal. Mark has been a tireless campaigner who has spoken out eloquenty and forcefully out when national government agencies have fallen short in their duty to fight corruption. 

The awards were presided over by TI’s Chair, Hugette Labelle at a GTZ hosted reception. In honouring these two individuals, TI have highlighted the necessary dual approach taken separately by these individuals, grass roots and top down reform, towards fighting corruption. I was invited to this event on account of SAP’s long time support of and participation in Transparency International private sector engagement programmes. It was great pleasure to be present as these individuals were hnoured by TI. The cause of transparency can all to quickly get policy wonkish and technical and so we need to hear the stories of people such as Le Hien Duc and Marke Pieth to understand the day to day reality of the problem and to gain inspiration to do something about it.

Incidentally, Mark Pieth and Hugette Labelle will share a panel session entitled ‘The Challenge of Endemic Corruption’ this week at Davos with SAP Deputy CEO, Leo Apotheker.  

 

Nigeria on the rise?

This week I had the distinct honour to visit Nigeria and share a panel with the Minister for Finance, Shamsuddeen Usman at the Economist Roundtable with the Government of Nigeria. It was also a real pleasure to meet the SAP West Africa team who are running a thriving business led by Olayemi Keri out of the Abuja office.

These are exciting times for Nigeria and not only because of current high oil prices but because the rest of the economy at last seems to be on the move. This is critical if Nigeria is to escape the problems associated with the so called resource curse. Though there are significant constraints in the economy – namely security in the Delta region, infrastructure & education – still, Goldman Sachs estimates that Nigeria is currently on target to be within the global top 25 economies by 2020. Further, Goldman Sachs has identified Nigeria as the only sub sub Saharan Africa in its N11 list, the next eleven countries of high economic potential after BRIC markets. With this prediction Nigeria has the potential to quickly eclipse South Africa as the continents major economic force.

It surprises me that yet many of the experts don’t seem to get the structural changes that are taking place under our feet in the global economy. Jason Busch for example created quite a lively discussion with this blog post where he essentially writes off all prospects of economic development in Africa. BRIC and developing markets are not just a source of cheap supply of goods and services for western markets. I think the changes we are seeing with the rapid development in BRIC and N11 countries is more fundamental and we have to look beyond on our own western bias to understand them.  

Proctor & Gamble seem to have no such difficulty spotting the opportunities in Africa. Last month P&G announced a $3bn investment in manufacturing facilities in Nigeria to supply the West Africa region. Coca Cola has invested Naira 10bn in Nigeria between 2000 and 2007. Beyond consumer products, financial services and telecommunications sectors are also really taking off.

The stock market grew year on year by over 50% measured as of Q3 2007. Deregulation in the telco sector has also led to rapid development here. Teledensity increased from just 0.73% of the population connected in 2001 to 28% connected in 2007 with more than 1 million subscribers being added to the network each month. Nigeria’s total population is 140 million people. In 2006 Nigeria achieved it’s first sovereign credit rating from S&P & Fitch and foreign direct investment increased by 60% between 2004 and 2006.

China is flooding the place with development dollars and cheap goods. Interestingly as communists they don’t seem to have a political agenda, just hungry for markets. The Nigerians seem ambivalent, the local industrial sector has a hard time competing but the government does enjoy the political power having a more diverse and balanced portfolio of foreign investment.

GDP grew 6.5% in 2007 and per capita income is steadily rising to create the emergence of a middle class. Corruption is still pervasive but the anti corruption drive led by the Economic & Financial Crimes Commission has been politically popular and so the focus on this issue will remain. (I recommend a visit to the EFCC web site). On thiss issue and others the press is lively and open.

But I don’t want to be too effusive, there are real issues for investors in Nigeria. The government seems distracted by legal challenges to the recent general election results, crude oil production fell by 4.9% in 2007 due to the security situation in the Delta region, electricity production is woefully inadequate to demand. Worryingly, the EFCC chief was recently sent on ‘study leave’ but this seems to be more of a local political issue than any serious signal that the government has gone soft on corruption. Poverty alleviation is a major challenge, with life expectancy of about 50 years, life remains tough. The domination of oil on the economy is a problem, it can lead to run away inflation, a temptation for fiscal indiscipine. For citizens, many of whom remain outside the tax net, the role of government becomes one of an ‘allocator’ and this leads to a stilted view of participatory democracy and government accountability.

On the panel I shared with the Finance Minister, he outlined his seven point plan including:

  1. Power & Energy – development of the national infrastructure
  2. Food Security and Agriculture – getting Nigeria production to commercial scale (Nigeria imports a lot of food)
  3. Wealth Creation & Employment – particularly through economic diversification and development of the mineral and agricultural sector (oil and gas doesn’t generate much local employment)
  4. Mass Transportation – necessary infrastructural development
  5. Land Reform – to enable more commercially viable farms and boost production (BTW, ever wondered what happened the white Zimbabwean farmers dispossessed by Mugabe’s land reform? The Nigerian government, recognising their requisite skill, offered them land and a new start in Nigeria) 
  6. Security – maintaining law and order, especially in the Delta
  7. Qualitative and Functional Education – absolute poverty and illteracy is high

The government has gone sort of quiet recently as it gets back to basics of detailed planning after the administration change with the 2007 elections. The Finance Minister on the one hand was a little defensive about this saying something to the effect that people did not understand, media manipulation etc, but we would soon see more detail. On the other hand he was sincere in his view that the Finance Ministry in the past had wasted a great deal of money due to poor project conceptualisation, planning and execution. For example this week in the local newspapers he was reported to say that the previous administration had spent USD$10 billion on power infrastructure and had little to show for the efforts. He also spoke of similar examples of state funded efforts to ignite the local sugar industry.

On the corruption question he was forthright, he said (i) corruption often comes about through poor public project management, or at least there is a fine line between corruption and poorly negotiated & managed contracts and (ii) now that the government has spent many years cleaning up it’s own house he would also like to extend focus to the bribe payers. He said he would soon announce an initiative and invite the private sector to participate. I suspect this could be a new trend emerging where emerging markets somewhat jaded by poor performance on international indices such as the Transparency International Corruption Perception Index rightly are shifting more of the share of responsibility to the supply side of the bribery equation. The government last month, at the order of the President, suspended all business dealings with Siemens, pending investigations of allegations that Siemens bribed public officials. I suspect pressure will begin to mount on the international banking sector to take tougher measures to prevent the corrupt from moving embezzled funds off shore. Thus we could see some new angles of risk for GRC management as we know it.

The minister said he ‘liked’ my presentation on IT led innovation and how it can help public sector reform and development in a constrained economy like Nigeria. I think he recognises well the need for the government to deliver on the democracy dividend in Nigeria and he sees IT as key enabler to accelerating these changes. Compared to any western government ministry the level of dificulty of his job is exponentially more difficult. He seems dedicated to carrying out his work with a good measure of integrity, just look at his full declaration of assets as it appears on the ministry website. I could find no such declarations on the UK Treasury site for Alistair Darling or the US Treasury site for Hank Paulson for that matter.

Nigeria is an exciting place, full of intrigue and entrepreneurship, but faces immense challenges. But don’t take it from me, read this excellent round up from the FT.  I think it has a somewhat tarnished reputation that deserves a second consideration. As I said in comments to Jason’s blog post, these markets are not for the faint hearted but they do reward handsomely. Free enterprise really should not be too afraid of risk and in the case of Nigeria, it will be the doubters and risk averse in cosy corporate offices in Europe and North America that may the ones that will loose out.

Guns, Laptops, Wire Taps and, er, Late Payments

The Sydney Morning Herald last Saturday had an extraordinary story of how local US telephone carriers shut down FBI wire taps because of late and no payments from the FBI with subsequent loss of sensitive intelligence. The report cites various US Department of Justice, Office of the Inspector General (OIG) audit investigations. In 2002 and again in 2004 the OIG also raised some difficult questions about missing guns and laptops.  

You can read the latest OIG report on the wire tap payment problems here and the earlier 2002 guns ‘n laptops report here. But here are the best bits from the wire tap report:

As part of our audit, we analyzed 990 telecommunication surveillance payments made by 5 field divisions and found that over half of these payments were not made on time. We also found that late payments have resulted in telecommunications carriers actually disconnecting phone lines established to deliver surveillance results to the FBI, resulting in lost evidence including an instance where delivery of intercept information required by a Foreign Intelligence Surveillance Act (FISA) order was halted due to untimely payment.

Moreover, our audit found that many FBI employees did not know how to handle refunds of confidential case fund money. One technical agent told us that he sends refunds back to the carrier attached to other telecommunication surveillance bills and requests that they be applied to the remitted bill. Another official told us that he does not know why he receives refunds and has a difficult time matching them to the proper case. In some cases, special agents told us they returned refund checks to the third party draft office simply because they did not know what else to do.

we also examined the personnel and security files of 35 field division employees who had daily access to confidential case funds. This examination revealed that nearly half of the sampled employees had indications of personal financial problems, such as late loan payments and bankruptcies. As demonstrated by our review of FBI files, the 5-year background investigation program may be helpful in identifying employees who have financial hardships or concerns. Beyond identification, however, the FBI has not developed or implemented procedures that ensure employees with financial concerns are not placed in situations where they are responsible for approving and handling confidential case funds without enhanced supervision.

Conclusion

FBI’s FMS lacks the controls necessary to prevent theft and, as such, is not an effective financial system for FBI employees to use to account for and approve confidential case funds. In addition, the audit found that the FBI has not established sufficient guidance and consistent procedures necessary to track and pay telecommunication surveillance bills accurately and timely. The audit also identified areas where field division oversight should be improved to further mitigate the risk of improper use of confidential case funds.

SOX has really forced the private sector to think a lot about corporate governance but this latest report is a timely reminder that the workings of the public sector are also too often in need of better fiscal and administrative controls. And there can sometimes be a great deal more at stake than shareholder value. 

 

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