Episode 1 The Bottom Line

information.... Now on BBC News it is time for The

Bottom Line. We are back with a brand new series of business

conversations. I'll ask my guests about the big issue of the moment,

capitalism, its virtues and vices. The word has been associated with

negatives like crisis or crony. I will ask my guests how they would

re-brand capitalism. I'm going to ask them if they are past their

prime. When do you peak in business? But first I spent a few

minutes meeting each of the guests. Keith Clarke, returning to the

programme, former chief executive of Atkins, now you are a chairman

of the Middle East operations. I wanted to talk about the Olympics.

You designed quite a bit, or the company designed quite a bit of the

Olympic Park? We have had 400 people working... We are doing the

temporary overlay of the infrastructure. We did half of the

infrastructure on site. Like all things in good engineering, you

never hear about it when it goes well. The question I was going to

ask, did you get any Olympic tickets? I managed to buy some on

the internet the same as everyone else. Not the corporate tickets. It

is very difficult to give them away. I cannot invite ministers from

Qatar I am advised. It is a conflict of interest. Deborah

Meaden, who made her money in holiday parks, famous is one of the

dragons from that TV programme, Dragon's Den. What are you

investing in these days? Interestingly, I see a lot of

opportunity in helping businesses behave in a more sustainable way. I

have a business that is a piece of software that encourages good

behavioural change. Give me the customer experience, how does it

work? What is a typical transaction? I would be working

inside an organisation, I will be asked to do something differently,

probably to stop waste. I would tell the piece of software this is

what I have done, the company will keep 50-80% of the savings, the

rest gets dropped into a pot. I or my workmates can come together and

we can say, we want to build a playground for the local school.

Cash goes towards community projects. A corporate reward scheme

with the rewards going... It is social. It goes to the heart of

what we are talking about today. I'm a sustainability ambassador for

the Olympics and I did not get tickets either. My third guest is

Heather Killen, who had a career at Yahoo, but who has found herself in

the investment sphere as the co- founder of Hemisphere Capital. A

private equity corporate finance advisory boutique. What you invest

in? We have a full plate at the moment across a range of interests,

particularly interactive gaming, marketing services, we are working

right now with a company that is involved in motion capture imaging,

particularly for faces. We are shareholders in a broadcast and

digital media company called Horse and Country TV. It is a huge

economy, somewhat underrated. �4 billion a year. �4 billion of

horses? No racing in that. No bloodstock. That is just what

people spend on sport horses and leisure races. Do you miss your

days in Silicon Valley? It was a great opportunity. I spent five

years living in San Francisco. I enjoyed it. But I moved back to

London nine years ago. You left Yahoo in 2001. Just after the dot

com era had had its peak. It has not had a great decade, has it?

They turned down offers from Microsoft, the company is worth

much less than if they sold to Microsoft. Where did they go wrong?

It is now really interesting that the board has hired someone from

PayPal. There is a tremendous amount of utility in that

infrastructure in the internet. A turning point for Yahoo was when it

became if more of a content company and less of a utility. Utilities

are not so glamourous, but boy you go back to them every day. I

personally think there was a bit of a schism between that fun, friendly,

reliable brand metric that we had in the early days. It was about

personalisation and it was about Web-based mail, I think for a

period the company really kept pace with all of the things that were

happening in the new internet infrastructure that was coming

through. Then it went off in a much more content, entertainment sort of

direction. I think there was a bit of a cultural point of difference

there. Let's talk about capitalism, it has been much in the news

recently, I want to talk about crony capitalism, which means

different things to different people. The way it has been used

has been designed to capture the ideas that the rules of Western

market economies have somehow been distorted to benefit the people who

tend to make the rules, especially the financial elite. Ll elite. L by

talking about whether you think bits of it are not working, what is

not working? Is it always going to be messy? Whatever it is called,

there are a lot of words. It drives me mad, actually. The minute

something is given a word, everyone agrees with it, they do not know

what it means but they all agree with it. You ask someone what is

crony capitalism? It is terrible. Capitalism or generating profits

and growth and cash for a business and for a country is a good thing.

It is not the cash that is wrong, it is what we do with it, the

effect that generating that cash has on society. Capitalism, making

money, making profit is not bad. It is the way it is supplied. It is

the way it is applied and what we do with it. We should not be saying,

it is wrong to make money. I agree with that. But capitalism works

because people fail. You must have failure to have success. That is

the whole learning cycle. That is why Soviet economies failed. Not

because they did not have good design or technology, they had

better aerospace than America for a while. It is whether or not you can

have failure and a learning cycle. There is stuff that weff that we

Too many companies have not been allowed to fail. There is lack of

diversity on boards. You said the lack of failure. There is only one

sector that has not been allowed to fail, the financial... That is the

one that allocates capital in the rest of the economy. That is the

fundamental driver for entrepreneurs or salary people. If

that is flawed, that ied, that i foundation of capitalism. It is not

a nice little service industry off to one side. I kind of agree. The

e that any failures do nlures do ne

country down with it. That is what I think what happened for the banks.

They could not allow... I do not want the banks to fail because I'm

going to pay, not the banks. too big to fail syndrome has got

worse since 2008 rather than better. I think it is a very important

watchword in this situation. I think it has greater repercussions

on the overall global economy than on any questions of executive pay

alone, which I think is a side bar. Away from the moral hazards issue.

What is more, one thing that is really important with this whole

crony capitalism debate is the implication of people at the top of

either the industrial or financial industry with governments. This is

one of the things I find, speaking about what is the definition of

crony capitalism, I find it extraordinary that David Cameron

thinks it does not involve the government. Usually it does. That

is the whole definition. Now, particularly as financial

institutions and companies become larger and more transnational, you

really wind up with the tail wagging the dog. I think this is a

huge risk. This is very interesting. We agree there are business models

in the financial world that failed, yet they persist, rather than going

under they persist. The public clearly do not feel satisfied that

the banks have faced this penalty commensurate with the mistakes that

were made. If you take a look at what is happening in the US, where

I spent a big chunk of my life. The US economy is starting to show

signs of recovery, whereas the UK has completely stalled out. Here is

the rub, one of the reasons things are starting to improve in the US

is because the Fed has kept the discount window open to the banks

and virtually 0% interest. There has been a great arbitrage

opportunity for all of the banks. They have made more and the last

four years than they did in most of the noughties. That has enabled

them to start to pump a little bit of life back into the veins of the

economy. You are reiterating the dilemma. You help the banks and the

economy, or you hurt the banks and bring everyone down. We have been

kind of doing that here. When I say we, I talk about the country as

encouraging that behaviour in the banks. We are vilifying them for

everything they did wrong, and quite right too. Then we are asking

them to repeat the behaviour that got them into trouble in the first

place. That is freely lending to businesses against the wrong

criteria. We need to think, how do we need to generate growth in the

economy, in which sectors? How much cash do we need to make available

in their sectors? Otherwise banks are terrified. Every time they make

a decision, we say they got us into it in the first place. This whole

issue of telling to banks they must lend to small businesses is not

going to happen. It should not happen. Where the banks failed was

understanding their credit risks. They always lend too much to the

wrong people. The manifest failure of that through complex financial

insurance that they did not understand themselves... The whole

industry was obscuring... If you lend badly on a derivative to

yourself, to yourself, to yourself and... Nobody wanted to say the

emperor has no clothes. I want to change this into a more general

issue that annoys the public. In any system, the communist system,

the capitalist system, very clever people find ways of wrangling rules

to their advantage. The communist system does have people driving

around in nice cars, buying things that other people cannot by. It

does appear to be the case that very rich people through capital

gains and tax concessions seem to You need to be careful of moving

into into a tax flat world. When you get on to there, we can't have

business and politics as usual bandwagon, that can lead you into

dangerous directions. I think if you bring this down to the

individual level, this is a very serious point about the risks that

people should have to take if they are anticipating supernormal

rewards. One of the things that I think is required is to ask people

to put more at risk. If they have the opportunity to make a lot of

money, they should also have the opportunity of making nothing.

Keith, can we talk about your career? You have done something

interesting. You have moved down, but you have stayed at Atkins. What

is your new role? One day you are a rooster, the next you are a feather

duster. How is it moving down? did not want to run the company

anymore. I had done it eight years. After that you start to get in the

way. I thought it was not right to do another five years. It was the

right cycle. I asked the board to find somebody new. I am advising

the Government of Qatar. I said I would carry on doing that. Don't

you find yourself wanting to interfere? If I wanted to do that,

I would have stayed as chief executive. That leads us nicely to

the topic of, when are you at the peak in business? Is there an age

that you can attach to it? I would say 50, 60. The good architects,

Frank Lloyd Wright, that is when they peaked. It varies enormously.

It depends enormously on what you do and who you are. You could say,

Mozart did all of his good things in his teens and 20s. He was dead

at 30. Even with sport, if I can make the point about something that

is near and dear to my interest. In a lot of sports, people do peak

early and will be finished by 25. In equestrian sports, you often get

better with age. People are still riding at the Olympics in their

mid-50s. There is enormous diversity in human activity and

endeavour. We are all different. Sometimes people have more than one

home run. When I was younger I used to think so, but as I am reaching

that time... It has got to be down to that individual. But I also

think it is about relevance. Sometimes it is the thing that made

you good, and that thing becomes less relevant. The market might

move on. It is not just about the individual. There is a whole market

doing its thing out there. One of the reasons we wanted to ask this

question is, there is a lot of young chief executives. Mark

Zuckerberg is worth billions. What will he be doing in 40 years?

is a good point. There are specific reasons for some of these phenomena.

Firstly, why are young people often associated with hi-tech activities?

They are the ones looking for jobs. They are the ones in a position to

take risks. People further on in their life are not able to take

those risks. There are a lot of people who went to Harvard who are

not Mark Zuckerberg. We are inclined to focus in on the

exceptions and say, that is the rule. There are all these 25-year-

olds running these huge companies. There is something about capital

formation at the moment and the sorts of huge magnetic poles of

capital formation and companies being formed and developing huge

valuations very quickly. That is part of the phenomena as well. I

would really hope that someone who has had an early peak will continue

to find new and different things to do. Too many people think that

because they have had a big career, the world owes them other careers.

When you reach 60, you are in another competition. Society

progresses because people are hungry to do something, not

necessarily with money, it could be all sorts of things. The market and

society will decide if you are good or not. Hopefully, not because you

have done it a lot but because you perform. That is the difference.

Every now and then you get these big step changes. In my time there

was no internet. The younger you are closer to those changes, the

better chance you have. You grow up with it. I can do most things, but

I am choosing not to. Other people can do them. I will not even enter

that competition. It is nice to think that it is my choice. It

feels like it is my choice. The truth is, there will be better

people suited. When Russia moved into its capitalist phase, a lot of

the oligarchs were young people who had worked out how the new game was

going to be played. I think the rules were made fairly clear from

the outset, which was why it was not so hard to play the game, as

long as you were willing to. interested in how the two of you,

whether you agree with Keith that eight years is enough. You reach a

prime in a job. You might have started it at 20, or 40, but there

is a natural term limit. Doesn't it depend on the job? I loved the

holiday park industry. It was enough. I could do anything that

was thrown at me. I could sort it out. If you like challenges, that

was not going to be enough for me. I had reached the end. How many

years were you doing that? years. By the end it was time for

me to move on. Other businesses I have been involved in have been

fast moving. There are new applications, new markets. You find

yourself doing different things. Creative people do not want to get

stale. You want to be doing something new and taking on new

challenges. If you want to accomplish something, it takes time

to develop. You have to be a bit patient. There is a building phase,

a consolidation phase. You need to know when to move on. That is a