:00:08. > :00:11.information.... Now on BBC News it is time for The
:00:11. > :00:17.Bottom Line. We are back with a brand new series of business
:00:17. > :00:20.conversations. I'll ask my guests about the big issue of the moment,
:00:20. > :00:24.capitalism, its virtues and vices. The word has been associated with
:00:24. > :00:27.negatives like crisis or crony. I will ask my guests how they would
:00:27. > :00:37.re-brand capitalism. I'm going to ask them if they are past their
:00:37. > :00:51.
:00:51. > :00:58.prime. When do you peak in business? But first I spent a few
:00:58. > :01:01.minutes meeting each of the guests. Keith Clarke, returning to the
:01:01. > :01:08.programme, former chief executive of Atkins, now you are a chairman
:01:08. > :01:12.of the Middle East operations. I wanted to talk about the Olympics.
:01:12. > :01:16.You designed quite a bit, or the company designed quite a bit of the
:01:16. > :01:19.Olympic Park? We have had 400 people working... We are doing the
:01:19. > :01:24.temporary overlay of the infrastructure. We did half of the
:01:24. > :01:32.infrastructure on site. Like all things in good engineering, you
:01:32. > :01:35.never hear about it when it goes well. The question I was going to
:01:35. > :01:42.ask, did you get any Olympic tickets? I managed to buy some on
:01:42. > :01:48.the internet the same as everyone else. Not the corporate tickets. It
:01:48. > :01:57.is very difficult to give them away. I cannot invite ministers from
:01:57. > :02:00.Qatar I am advised. It is a conflict of interest. Deborah
:02:00. > :02:03.Meaden, who made her money in holiday parks, famous is one of the
:02:04. > :02:11.dragons from that TV programme, Dragon's Den. What are you
:02:11. > :02:17.investing in these days? Interestingly, I see a lot of
:02:17. > :02:21.opportunity in helping businesses behave in a more sustainable way. I
:02:21. > :02:29.have a business that is a piece of software that encourages good
:02:29. > :02:35.behavioural change. Give me the customer experience, how does it
:02:35. > :02:38.work? What is a typical transaction? I would be working
:02:38. > :02:46.inside an organisation, I will be asked to do something differently,
:02:46. > :02:50.probably to stop waste. I would tell the piece of software this is
:02:50. > :02:54.what I have done, the company will keep 50-80% of the savings, the
:02:54. > :02:57.rest gets dropped into a pot. I or my workmates can come together and
:02:57. > :03:01.we can say, we want to build a playground for the local school.
:03:01. > :03:08.Cash goes towards community projects. A corporate reward scheme
:03:08. > :03:11.with the rewards going... It is social. It goes to the heart of
:03:11. > :03:21.what we are talking about today. I'm a sustainability ambassador for
:03:21. > :03:23.
:03:23. > :03:27.the Olympics and I did not get tickets either. My third guest is
:03:27. > :03:30.Heather Killen, who had a career at Yahoo, but who has found herself in
:03:30. > :03:32.the investment sphere as the co- founder of Hemisphere Capital. A
:03:32. > :03:42.private equity corporate finance advisory boutique. What you invest
:03:42. > :03:49.
:03:49. > :03:51.in? We have a full plate at the moment across a range of interests,
:03:51. > :03:54.particularly interactive gaming, marketing services, we are working
:03:54. > :04:04.right now with a company that is involved in motion capture imaging,
:04:04. > :04:06.
:04:06. > :04:10.particularly for faces. We are shareholders in a broadcast and
:04:10. > :04:13.digital media company called Horse and Country TV. It is a huge
:04:13. > :04:18.economy, somewhat underrated. �4 billion a year. �4 billion of
:04:18. > :04:28.horses? No racing in that. No bloodstock. That is just what
:04:28. > :04:32.
:04:32. > :04:40.people spend on sport horses and leisure races. Do you miss your
:04:40. > :04:43.days in Silicon Valley? It was a great opportunity. I spent five
:04:43. > :04:51.years living in San Francisco. I enjoyed it. But I moved back to
:04:51. > :05:01.London nine years ago. You left Yahoo in 2001. Just after the dot
:05:01. > :05:04.
:05:04. > :05:07.com era had had its peak. It has not had a great decade, has it?
:05:07. > :05:11.They turned down offers from Microsoft, the company is worth
:05:11. > :05:15.much less than if they sold to Microsoft. Where did they go wrong?
:05:15. > :05:17.It is now really interesting that the board has hired someone from
:05:17. > :05:24.PayPal. There is a tremendous amount of utility in that
:05:24. > :05:28.infrastructure in the internet. A turning point for Yahoo was when it
:05:28. > :05:38.became if more of a content company and less of a utility. Utilities
:05:38. > :05:50.
:05:50. > :05:54.are not so glamourous, but boy you go back to them every day. I
:05:54. > :06:02.personally think there was a bit of a schism between that fun, friendly,
:06:02. > :06:05.reliable brand metric that we had in the early days. It was about
:06:05. > :06:09.personalisation and it was about Web-based mail, I think for a
:06:09. > :06:11.period the company really kept pace with all of the things that were
:06:12. > :06:15.happening in the new internet infrastructure that was coming
:06:15. > :06:19.through. Then it went off in a much more content, entertainment sort of
:06:19. > :06:22.direction. I think there was a bit of a cultural point of difference
:06:22. > :06:25.there. Let's talk about capitalism, it has been much in the news
:06:25. > :06:28.recently, I want to talk about crony capitalism, which means
:06:28. > :06:31.different things to different people. The way it has been used
:06:32. > :06:35.has been designed to capture the ideas that the rules of Western
:06:35. > :06:38.market economies have somehow been distorted to benefit the people who
:06:38. > :06:42.tend to make the rules, especially the financial elite. Ll elite. L by
:06:42. > :06:45.talking about whether you think bits of it are not working, what is
:06:45. > :06:49.not working? Is it always going to be messy? Whatever it is called,
:06:49. > :06:53.there are a lot of words. It drives me mad, actually. The minute
:06:53. > :06:56.something is given a word, everyone agrees with it, they do not know
:06:57. > :06:59.what it means but they all agree with it. You ask someone what is
:06:59. > :07:06.crony capitalism? It is terrible. Capitalism or generating profits
:07:06. > :07:10.and growth and cash for a business and for a country is a good thing.
:07:10. > :07:13.It is not the cash that is wrong, it is what we do with it, the
:07:13. > :07:23.effect that generating that cash has on society. Capitalism, making
:07:23. > :07:24.
:07:24. > :07:29.money, making profit is not bad. It is the way it is supplied. It is
:07:29. > :07:33.the way it is applied and what we do with it. We should not be saying,
:07:33. > :07:38.it is wrong to make money. I agree with that. But capitalism works
:07:38. > :07:44.because people fail. You must have failure to have success. That is
:07:44. > :07:47.the whole learning cycle. That is why Soviet economies failed. Not
:07:47. > :07:51.because they did not have good design or technology, they had
:07:51. > :07:59.better aerospace than America for a while. It is whether or not you can
:07:59. > :08:05.have failure and a learning cycle. There is stuff that weff that we
:08:05. > :08:15.Too many companies have not been allowed to fail. There is lack of
:08:15. > :08:22.
:08:23. > :08:28.diversity on boards. You said the lack of failure. There is only one
:08:28. > :08:32.sector that has not been allowed to fail, the financial... That is the
:08:32. > :08:35.one that allocates capital in the rest of the economy. That is the
:08:35. > :08:45.fundamental driver for entrepreneurs or salary people. If
:08:45. > :08:45.
:08:45. > :08:54.that is flawed, that ied, that i foundation of capitalism. It is not
:08:54. > :08:58.a nice little service industry off to one side. I kind of agree. The
:08:58. > :09:08.e that any failures do nlures do ne
:09:08. > :09:09.
:09:09. > :09:14.country down with it. That is what I think what happened for the banks.
:09:14. > :09:18.They could not allow... I do not want the banks to fail because I'm
:09:18. > :09:22.going to pay, not the banks. too big to fail syndrome has got
:09:22. > :09:32.worse since 2008 rather than better. I think it is a very important
:09:32. > :09:38.
:09:38. > :09:41.watchword in this situation. I think it has greater repercussions
:09:41. > :09:51.on the overall global economy than on any questions of executive pay
:09:51. > :09:52.
:09:52. > :09:55.alone, which I think is a side bar. Away from the moral hazards issue.
:09:55. > :09:59.What is more, one thing that is really important with this whole
:09:59. > :10:01.crony capitalism debate is the implication of people at the top of
:10:01. > :10:05.either the industrial or financial industry with governments. This is
:10:05. > :10:08.one of the things I find, speaking about what is the definition of
:10:08. > :10:15.crony capitalism, I find it extraordinary that David Cameron
:10:15. > :10:25.thinks it does not involve the government. Usually it does. That
:10:25. > :10:27.
:10:27. > :10:30.is the whole definition. Now, particularly as financial
:10:30. > :10:34.institutions and companies become larger and more transnational, you
:10:34. > :10:44.really wind up with the tail wagging the dog. I think this is a
:10:44. > :10:47.huge risk. This is very interesting. We agree there are business models
:10:47. > :10:56.in the financial world that failed, yet they persist, rather than going
:10:57. > :11:00.under they persist. The public clearly do not feel satisfied that
:11:00. > :11:10.the banks have faced this penalty commensurate with the mistakes that
:11:10. > :11:16.
:11:16. > :11:20.were made. If you take a look at what is happening in the US, where
:11:20. > :11:30.I spent a big chunk of my life. The US economy is starting to show
:11:30. > :11:33.
:11:33. > :11:37.signs of recovery, whereas the UK has completely stalled out. Here is
:11:37. > :11:40.the rub, one of the reasons things are starting to improve in the US
:11:40. > :11:43.is because the Fed has kept the discount window open to the banks
:11:43. > :11:48.and virtually 0% interest. There has been a great arbitrage
:11:48. > :11:54.opportunity for all of the banks. They have made more and the last
:11:54. > :11:58.four years than they did in most of the noughties. That has enabled
:11:58. > :12:02.them to start to pump a little bit of life back into the veins of the
:12:02. > :12:06.economy. You are reiterating the dilemma. You help the banks and the
:12:06. > :12:13.economy, or you hurt the banks and bring everyone down. We have been
:12:13. > :12:21.kind of doing that here. When I say we, I talk about the country as
:12:21. > :12:24.encouraging that behaviour in the banks. We are vilifying them for
:12:24. > :12:28.everything they did wrong, and quite right too. Then we are asking
:12:28. > :12:31.them to repeat the behaviour that got them into trouble in the first
:12:31. > :12:35.place. That is freely lending to businesses against the wrong
:12:35. > :12:45.criteria. We need to think, how do we need to generate growth in the
:12:45. > :12:46.
:12:46. > :12:52.economy, in which sectors? How much cash do we need to make available
:12:52. > :13:01.in their sectors? Otherwise banks are terrified. Every time they make
:13:01. > :13:05.a decision, we say they got us into it in the first place. This whole
:13:05. > :13:08.issue of telling to banks they must lend to small businesses is not
:13:08. > :13:13.going to happen. It should not happen. Where the banks failed was
:13:13. > :13:19.understanding their credit risks. They always lend too much to the
:13:19. > :13:22.wrong people. The manifest failure of that through complex financial
:13:22. > :13:32.insurance that they did not understand themselves... The whole
:13:32. > :13:34.
:13:34. > :13:38.industry was obscuring... If you lend badly on a derivative to
:13:38. > :13:46.yourself, to yourself, to yourself and... Nobody wanted to say the
:13:46. > :13:56.emperor has no clothes. I want to change this into a more general
:13:56. > :13:57.
:13:57. > :14:00.issue that annoys the public. In any system, the communist system,
:14:00. > :14:03.the capitalist system, very clever people find ways of wrangling rules
:14:03. > :14:12.to their advantage. The communist system does have people driving
:14:12. > :14:16.around in nice cars, buying things that other people cannot by. It
:14:16. > :14:26.does appear to be the case that very rich people through capital
:14:26. > :14:31.
:14:31. > :14:41.gains and tax concessions seem to You need to be careful of moving
:14:41. > :14:48.
:14:48. > :14:51.into into a tax flat world. When you get on to there, we can't have
:14:51. > :15:01.business and politics as usual bandwagon, that can lead you into
:15:01. > :15:05.
:15:05. > :15:08.dangerous directions. I think if you bring this down to the
:15:08. > :15:10.individual level, this is a very serious point about the risks that
:15:10. > :15:20.people should have to take if they are anticipating supernormal
:15:20. > :15:21.
:15:21. > :15:29.rewards. One of the things that I think is required is to ask people
:15:29. > :15:37.to put more at risk. If they have the opportunity to make a lot of
:15:37. > :15:42.money, they should also have the opportunity of making nothing.
:15:42. > :15:47.Keith, can we talk about your career? You have done something
:15:47. > :15:55.interesting. You have moved down, but you have stayed at Atkins. What
:15:55. > :16:03.is your new role? One day you are a rooster, the next you are a feather
:16:03. > :16:09.duster. How is it moving down? did not want to run the company
:16:09. > :16:16.anymore. I had done it eight years. After that you start to get in the
:16:16. > :16:23.way. I thought it was not right to do another five years. It was the
:16:23. > :16:33.right cycle. I asked the board to find somebody new. I am advising
:16:33. > :16:40.
:16:40. > :16:46.the Government of Qatar. I said I would carry on doing that. Don't
:16:46. > :16:55.you find yourself wanting to interfere? If I wanted to do that,
:16:55. > :17:05.I would have stayed as chief executive. That leads us nicely to
:17:05. > :17:12.
:17:12. > :17:19.the topic of, when are you at the peak in business? Is there an age
:17:19. > :17:27.that you can attach to it? I would say 50, 60. The good architects,
:17:27. > :17:35.Frank Lloyd Wright, that is when they peaked. It varies enormously.
:17:36. > :17:40.It depends enormously on what you do and who you are. You could say,
:17:40. > :17:50.Mozart did all of his good things in his teens and 20s. He was dead
:17:50. > :17:53.
:17:53. > :18:01.at 30. Even with sport, if I can make the point about something that
:18:01. > :18:07.is near and dear to my interest. In a lot of sports, people do peak
:18:07. > :18:12.early and will be finished by 25. In equestrian sports, you often get
:18:12. > :18:20.better with age. People are still riding at the Olympics in their
:18:20. > :18:26.mid-50s. There is enormous diversity in human activity and
:18:26. > :18:36.endeavour. We are all different. Sometimes people have more than one
:18:36. > :18:36.
:18:36. > :18:44.home run. When I was younger I used to think so, but as I am reaching
:18:44. > :18:48.that time... It has got to be down to that individual. But I also
:18:48. > :18:53.think it is about relevance. Sometimes it is the thing that made
:18:53. > :19:03.you good, and that thing becomes less relevant. The market might
:19:03. > :19:10.
:19:10. > :19:15.move on. It is not just about the individual. There is a whole market
:19:16. > :19:20.doing its thing out there. One of the reasons we wanted to ask this
:19:20. > :19:27.question is, there is a lot of young chief executives. Mark
:19:27. > :19:34.Zuckerberg is worth billions. What will he be doing in 40 years?
:19:34. > :19:40.is a good point. There are specific reasons for some of these phenomena.
:19:40. > :19:47.Firstly, why are young people often associated with hi-tech activities?
:19:47. > :19:52.They are the ones looking for jobs. They are the ones in a position to
:19:52. > :20:02.take risks. People further on in their life are not able to take
:20:02. > :20:04.
:20:04. > :20:07.those risks. There are a lot of people who went to Harvard who are
:20:08. > :20:13.not Mark Zuckerberg. We are inclined to focus in on the
:20:13. > :20:17.exceptions and say, that is the rule. There are all these 25-year-
:20:17. > :20:20.olds running these huge companies. There is something about capital
:20:20. > :20:23.formation at the moment and the sorts of huge magnetic poles of
:20:23. > :20:33.capital formation and companies being formed and developing huge
:20:33. > :20:34.
:20:34. > :20:38.valuations very quickly. That is part of the phenomena as well. I
:20:38. > :20:48.would really hope that someone who has had an early peak will continue
:20:48. > :20:51.
:20:51. > :21:01.to find new and different things to do. Too many people think that
:21:01. > :21:08.
:21:08. > :21:18.because they have had a big career, the world owes them other careers.
:21:18. > :21:20.
:21:20. > :21:22.When you reach 60, you are in another competition. Society
:21:22. > :21:28.progresses because people are hungry to do something, not
:21:28. > :21:33.necessarily with money, it could be all sorts of things. The market and
:21:33. > :21:39.society will decide if you are good or not. Hopefully, not because you
:21:39. > :21:43.have done it a lot but because you perform. That is the difference.
:21:43. > :21:50.Every now and then you get these big step changes. In my time there
:21:50. > :22:00.was no internet. The younger you are closer to those changes, the
:22:00. > :22:00.
:22:00. > :22:08.better chance you have. You grow up with it. I can do most things, but
:22:08. > :22:13.I am choosing not to. Other people can do them. I will not even enter
:22:13. > :22:20.that competition. It is nice to think that it is my choice. It
:22:20. > :22:30.feels like it is my choice. The truth is, there will be better
:22:30. > :22:30.
:22:30. > :22:34.people suited. When Russia moved into its capitalist phase, a lot of
:22:34. > :22:44.the oligarchs were young people who had worked out how the new game was
:22:44. > :22:49.
:22:49. > :22:52.going to be played. I think the rules were made fairly clear from
:22:52. > :22:59.the outset, which was why it was not so hard to play the game, as
:22:59. > :23:07.long as you were willing to. interested in how the two of you,
:23:07. > :23:15.whether you agree with Keith that eight years is enough. You reach a
:23:15. > :23:23.prime in a job. You might have started it at 20, or 40, but there
:23:23. > :23:29.is a natural term limit. Doesn't it depend on the job? I loved the
:23:29. > :23:33.holiday park industry. It was enough. I could do anything that
:23:33. > :23:40.was thrown at me. I could sort it out. If you like challenges, that
:23:41. > :23:46.was not going to be enough for me. I had reached the end. How many
:23:46. > :23:50.years were you doing that? years. By the end it was time for
:23:50. > :23:54.me to move on. Other businesses I have been involved in have been
:23:54. > :24:02.fast moving. There are new applications, new markets. You find
:24:02. > :24:06.yourself doing different things. Creative people do not want to get
:24:06. > :24:09.stale. You want to be doing something new and taking on new
:24:09. > :24:18.challenges. If you want to accomplish something, it takes time
:24:18. > :24:24.to develop. You have to be a bit patient. There is a building phase,
:24:24. > :24:34.a consolidation phase. You need to know when to move on. That is a
:24:34. > :24:34.