BSkyB reports

29th July 2011

In a statement on Friday accompanying its full-year results, adds the Financial Times (paywall), BSkyB said that NewsCorp would participate pro rata in the buy-back, which means that its share of the equity will not grow, something that would have triggered immediate action by the Takeover Panel.

Announcing an increase in revenues of 16 per cent to £6.6bn and a 51 per cent rise in free cash flow to £869m, BSkyB also said it would enter into a partnership with the BBC by which the publicly funded broadcaster will present half of all grands prix in the Formula 1 seasons from 2012 to 2018 while the satellite company broadcasts all of them.

BSkyB said it now had 10.3m subscribers and that the number taking its high-definition service, for which it charges £10 a month, had leapt by 30 per cent in the year.

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10 thoughts on “BSkyB reports”

  1. Anonymous says:

    Hi Kim. Lots of sentiments with which I fully agree. I feel that shareholder/stakeholder involvement in pay settlements will not solve the underlying problem but merely prove to be a “band-aid” for the cause. I am reminded of previous discussions we have had on the topic of Human Resource Management versus Human Asset Management and it is in this area where I believe the problem can be at least partially solved. As I see things now, H.A.M is relegated to the back room; it needs to exert more force in its dealings. Also I perceive it to have four (miserable) functions:

    Find them
    which is the
    recruitment process

    Feed them
    which is the
    payment system

    Forget them
    since once they are in, they are IN and become someone else’s problem

    Fire them
    either for not doing the job they should, or when downsizing is “convenient”

     In my opinion, no organisation can move forward with this mind-set. Change the mind-set of the H.A.M. practitioners and you stand a better chance – not 100% but at least far removed from the slovenly way of managing people we see now.

    1. Grumpy Old Paul says:

      Your comments on the limited real functionality of HR departments made me chuckle!

      I’m pessimistic about the ability of  shareholders or insiders within an company       
      to inhibit risky or ill-advised policies. Even if you could incorporate the cognitive diversity you desire into an organisation, what chance is there of contrary opinion or doubts actually influencing major decisions ? This is especially true of companies and/or leaders riding the crest of a wave.

       Which leaves me asking the question ‘what can be done?’. We probably have to accept that large companies will fail on a regular basis and that sometimes that will be as a result of a failure of leadership. That’s capitalism and the alternatives haven’t been notably successful either. So what governments can do is to prevent companies from getting so large that they can bring down whole economies. Straightforward regulation I’m more sceptical about. It too often generates a tick-box culture, will be circumvented by the corrupt or mendacious and can stifle genuine innovation; indeed, a regulatory regime may manage to achieve all three outcomes simultaneously in different organisations!

       The only other thing I can think of as I write is the tailoring of share options and other incentives to long-term success with clear and  demanding metrics. But who is going to create and enforce the ground rules?

       Enoch Powell said ‘all political careers end in failure’: maybe that is true of corporate leadership too with the difference being that the failure of a corporate leader is often less visible to the public. Company leaders may be successful at certain phases of a company’s development or the development of a market or within certain corporate or broader cultures. 
       

      1. Anonymous says:

        Hi, GOP and thanks for the response. Having read your comments I would agree and confirm a high level of pessimism in shareholder ability to control/monitor what happens. Taking up one specific you mention, I think the might be a case for looking at two separate “animals” – first companies (outside finance) and secondly companies inside finance. Regarding the former, they should be left to either win or lose and no government interference should be allowed – that’s capitalism. Regarding the second group the situation to me is  very different. In part this is because of the “product” (money) which it seems everyone wants more of currently. Legislation on salaries etc. will have minimal effects as the human brain is “hot-wired” to circumnavigate legislation. Rewards (even large ones) can be justifies by looking at the degree of value that is passed from banks to people, with feedback being given by those who have benefited from the value. Additionally I would also like to see some level of correlation between top and bottom of salary scales – currently (in most western countries) the span is far too high for comfort. What think you?  

  2. Kim says:

    Thanks guys, in relation to the scepticism about picking leaders, what I said was that it isn’t easy, not that it is impossible.

    It needs you to know what good performance is expected to be (which you get from decent job analysis) a clear picture of the types of aptitude, ability and style that will be effective and get (and maintain) a good mix of those.

    Most jobs at the top don’t have good job analysis, they work on – this guy made billions short term (even if, were he any good he would have made billions sustainably, had a happy staff, developed a cure for cancer, produced a negative carbon footprint and had customer satisfactions scores in the high 90’s and no complaints) and he’s been lucky for a few years (under-rating the role of chance, since some people will do well for ten years or more by sheer fluke).

    Then they have no idea what abilities are needed, they reward what they’ve got, which, because the rewards and the structure are the way they are will almost invariably be the alpha male (even if, as in the case of Thatcher and possibly Merkel, they are female).

    Then they subscribe to the “great leader” myth instead of a decent team (although it is even tougher to select an effective team than a single person, it’s just the team can deal with a lot of problems the person can’t).

    As I said “trust me on this, it’s part of what I do for a living.” It would be nice to prove it with bank leaders, but there’s no point until the reward system changes along the lines I’ve described before, because even if I picked the greatest team ever, the shareholders and the competitors would get rid of them because they wouldn’t talk tough enough or make enough short term profit, and they would be a good team and not have a “great leader”, or at least, not the same one for every situation.

    1. Anonymous says:

      Kim – thanks for your latest response. I have been thinking about the BCG product matrix. Taking this as a start point surely (in my mind) one should select leaders (yes and teams) for very specific roles. For example a leader of a “dog” requires far different characteristics than those required for a “star” or “cash cow”. And then to allow them a limited life-span. So even within a finance company (for example) there is a need to address the types of “products” and select the right person for the right job – which goes back to your view on detailed job analysis and requirements.

      1. Grumpy Old Paul says:

        Ray,Kim

         A quick response to a few points raised by you. I’m the world’s worst typist which makes responding difficult and very slow.

         I share Ray’s concern about the range of salaries within the west. So far as I’m aware, in the US real incomes for middle and lower earners have barely shifted over the last 30 or 40 years. When everyone feels good because of rising property values, rising stock markets and, in the case of the UK at least, rising real incomes, then income differentials are not likely to be a major issue. Given the outlook for the next decade, I wonder how long before income differentials become a political hot potato and even the focus of unrest and instability. Think Fred Goodwin!  The obvious way to resolve the issue is via the tax system. I remain to be convinced that any country would suffer by having high tax rates on incomes above £1 million. A more subtle approach would be to have a tax regime on share options which encouraged long-term retention: this might serve to encourage corporate  leadership to also think longer term.

         Great leaders are few and far between (like great fund managers) and often thrive in particular circumstances. Churchill and Anthony Bolton come to mind! Ray’s suggestion of a limited lifetime is interesting; four- yearly elections for CEOs by shareholders, perhaps. 

        The parallel with fund managers is interesting. You can compare the performance of fund managers with similar objectives within a sector using widely available statistics:

         – ratings from independent agencies 
         – raw performance over various periods of time
         – performance versus a benchmark
         – volatility
         – metrics such as alpha, beta 
         – correlation to benchmark

          Would that it were possible to quantify the performance of corporate leaders in a similar fashion! But even in the case of fund managers there is much debate as to how much predictive value these statistics have.

         There is undoubtedly a case for building a strong team at the top of organisations and taking succession planning seriously. Building a strong team is not easy; it’s too easy for like-minded individuals to coalesce and then creative tension and critical questioning fail to materialise.

  3. Kim says:

    Hi Ray, I think it’s OK selecting leaders for roles, but what happens when you want them to pass over the reins, and how do you decide when they should?  The BCG model is a nice model, but where do the borders begin and end and how do you know you’re transitioning from one to the other?  And how do you get rid of the leader past his sell by date when he’s the leader and calls the shots – or do you have a time clock so that if somebody eats the bean, they become CEO for two years, in which case what do you do if they are still the best person to take the lead in two years time when they are due for the chop?

    That’s the trouble with theoretical approaches, when they hit real companies, the beautiful, idealised world that exists in the textbook is messy – it’s like fixing your car using a Hayne’s manual, the blasted thing never looks like the pictures when it’s covered in rust, road muck and the wrong sized bolts that the last owner put on because he sheered the proper ones off!

    That’s why I think the cult of the great leader is so dangerous.  So many leaders end up beliveing their own hype and after they are clearly no use any more are like Hitler, futilely moving imaginary divisions around the Russian front and refusing to believe the reality that time has moved on and their world model is no longer accurate.

    If you look at sports teams, you get the same thing – England won at rugby when they had a good captain sure, but Johnson was surrounded by other people who had captained their club and sometimes their country and could step up when needed.  They lost when they had a good captain, but if he didn’t tell them what to do or told them the wrong thing, they hadn’t got a clue.  England’s cricket bowling attack is good because although it’s probably not as good man for man as SA, people step up to the plate when their skills are needed, (like Finn, Monty etc.) and the batting is rubbish because although they have four batsmen averaging 49 or more, they are a bunch of Muppets who can’t take responsibility.

    Companies that have a management team that can deal with transitions and work as a team to deal with change, submerge their ego to the team success and not be prima donnas will tend to be more succesful, long term.  Companies that have a “star”, however good they are (and most of them are nothing like as good as the hype) will eventually have problems when the situation is different to that in which they work best, and they can’t get it out of their head that they are the star and have all the answers.

    So I think organisations (and countries) need leadership teams who are actually teams that have a range of skills and views, so that they are flexible and can change with the conditions, not collections of one trick ponies that can only perform when the conditions favour their particular form of prejudice and their conceit about their own genius.  And the trouble is, the system still selects for, rewards and maintains in power the one trick ponies – and people still believe in the “great leader” despite all the evidence.

  4. JW says:

    Kim, the real trouble with selecting executive teams on the basis you described is you often end up with a ‘lowest common denominator’. Great teamwork because everyone knows how to work as a team, but going nowhere fast.
    The best Board I worked on was a bunch of ‘stars’ with enough EQ to realise they often did better pulling together most of the time, But often there were violent disagreements and yes, clashes of egos. The executive Chairman was good enough and enough of a bully to keep it together. That company exceeded all expectations, however it also had pieces of good luck, a much overlooked key element.

  5. Kim says:

    Interesting, thanks guys.

    JW, I know what you mean, but I wasn’t suggesting you have lots of average people –  as you said you “often” end up with the LCD and you’re absolutely right, that’s a disaster.  But you don’t always get that if you do it right.   I recommend that you have a team that won’t form, storm, norm, ossify, go into a rut or worship the leader and then run into trouble.  You have a team that will form, storm, carry on storming, adapt, learn to storm in a productive way and handle conflict effectively.  That is why I used the analogy of the rugby team, if you’ve got lots of leaders on the pitch, you potentially have a fight about who calls the shots, which you need to control, but if you’ve got a lot of mediocre people, if the leader doesn’t tell them what to do, they are stuffed. And it is very hard to do.  That’s why some of the most satisfying jobs I’ve done have been working with top teams, because when you can get it to work, it is fantastic and produces great results.

    Ray, Grumpy Paul – totally agree on the salary bands.  I always admired the original Ben and Jerry, nobody (including them) could earn more than 7 times what anybody else (including the cleaners) earned. 

    I’d also like to have high top tax rates, but a word of caution.  I was a financial advisor for years.  Our wealthiest clients often paid the least tax (and that applied when you had 60% and I gathered from colleagues had appled when you had 80% plus 15% investment income surcharge).  The point is, the super wealthy can afford to hire the best accountants, lawyers etc. to drive holes through the rules.  I couldn’t have afforded my own advice, if you see what I mean.  The rules are made in advance, the advisors can pick them apart in arrears.  And the poachers have the initiative on the gamekeepers.  Not that I think high tax is wrong, I believe it’s appropriate to try to tax the wealthiest the most, it’s just that in reality it is very hard and what actually happens most of the time is that the major burden falls on the “squeezed middle” who aren’t poor enough to avoid the tax naturally, or wealthy enough to afford to avoid it by unnatural means like hiring somebody like I was!

    I also agree that it is very hard to measure corporate performance, that’s why I don’t think having votes of the shareholders is necessarily worthwhile, and for the reasons I gave I think a “4 year term” is dangerous.  How do you know that you won’t throw somebody out just when their personal style will be most effective, when they haven’t been useful so far, just at the four year mark?  How do you make sure they don’t “do a politician” and put all the hard measures in at the start, blame it on the previous administration and then have a giveaway budget (dividend increase) after three years six months?  You don’t know, even at the time, exactly how it is going, so how can you tell in advance, and how can you make sure that people don’t “play” the time period if they know exactly how long they’ve got?

    On measures for fund managers, don’t get me started!  Alpha, Beta etc. are based on normal distributions, so since markets do not have independence of observations and thus fail a fundamental feature of normal distributions (and they’re not normal anyway, they are platycurtic) they would seem to be fairly meaningless.  If you work out whether somebody beats the average for a sector, the odds they’ll do it 10 years in a row are one in 1024.  So somebody doing it must be great, right?  Except that chance says they’d do it that often and there are tens of thousands of funds kicking about, if you include all the ones that are closed, merged etc. (Thaler and De Bondt did a nice paper on this).  So if somebody does it, does that mean they are great, or just that, out of all the mediocre fund managers, they got lucky?  I did a piece on that a while ago.
    http://www.mindfulmoney.co.uk/wp/kim-stephenson/it%e2%80%99s-our-only-chance/
    I’m not saying there aren’t great fund managers, I just don’t think it is possible to identify them for sure, because however good they look, it could all be luck.  Same with leaders, Churchill was great in war, pants in peace (as Paul implied) and being in the right place at the right time could be great for a leader or a fund manager’s reputation.  After all, Fred Goodwin got Knighted and was made European banker of the year.  I didn’t notice anybody at the time saying that he was a chancer, lucky, arrogant, stupid, etc.  But now, in hindsight, everybody is convinced that it was inevitable that he would fall.  So who says the latest flavour of the month who is a “great leader”, great investment genius etc, won’t be stripped of their Knighthood in ten years or so?

    I still think you can pick good leaders (and potentially good fund managers) but you have to decide in advance what “good” means, and if it is defined as “makes lots of money”, you make it impossible because there is too much chance involved.  What I think you can do is to define good as being about driving for sustainable value, customer benefit, etc. for a leader and “appropriate” risk taking (which is probably the result of very robust argument at the top level on what is appropriate) for both leaders and fund managers.  It still doesn’t guarantee big bucks, but, in my experience, it produces more flexible, higher quality decision making about whatever decisions have to be made, and that seems to me to be a highly desirable outcome.

  6. Anonymous says:

    To JW and GOP – may I build on your super comments by saying I am a great believer in payment by results. The results should be both quantitative and qualitative (and this is the area that is lacking. They should/must be time-bound as short term (up to 6 months) medium term (up to 18 months) and long term (up to 3 years). I would add these time frames are not immutable but would be adjusted according to the market and customer needs.
    Who sets them? I believe a combination of stakeholders and in-company is preferred, with the former with the authority to amend in the light of expectations. Perhaps a mix of the two would produce better results for all AND give a positive base for the rewarding of remuneration packages.

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