Episode 2 The Bottom Line

Obama said there was no room for complacency.

It sounds stupid, but we talk about the advantages and disadvantages of

salary today. People work expect to get one. But we will ask whether it

is better to be paid in shares a profits. And we will talk on cars.

Each week, influential business leaders gather to talk on Bottom

Line. Now you can see it as well as Now we will spend a few minutes

meeting each of my guests. This is the managing partner of a venture

capital firm. It is also Private Equity. It is not just about

financing start-up businesses. It is about helping existing

businesses. Exactly right. We have venture-capital which helps people

start-up. On the other hand you have got the assisting of large

businesses. In the middle you have an ecosystem of a lot of the small

enterprises being helped to develop and restructure. So you would have

been venture capital, but it is not just about the start up, it is

about the next stage. Absolutely. It is to help profitable companies

develop. You might want to expand overseas or be bought out. So the

company has shareholders and you will help them. And so lewdly.

second guest is the managing director of a UK company. You have

been on the company -- show the four. It is an import business.

it is. We help them until they're reached the shores of the United

Kingdom. Who are you come to -- customers ques? To nobody can sell

anything unless they truck sent it somewhere. The other 50% for the

business is a one-man builder from north London. We go right across

the pages. My fellow guest is the president of European honour. It is

not all Japanese manufacturing. so lewdly. We have been producing

for over 20 years. We produce bikes in Italy and that sort of thing.

You ran a European Honda a sickly? -- basically. Last year was tragic

for the business because of the floods and tsunami. We have gone

through the toughest year imaginable. We also had the

Thailand floods. We did not appreciate that it would affect

British manufacturing businesses. Absolutely. There was a lot of news

coming out of Japan. Horrible circumstances. It was fascinating

that Thailand do not get a mention in Europe. Dealers were asking why

not. Production dropped Ray number of weeks. We could not get the

parts. Public knowledge was different for two very dramatic

natural disasters. Time to talk more generally about the automated

business. The automated business has endured a lot of turbulent

years. What is wrong with the motor industry? There is a lot of emotion.

The man -- the reality is that we're offering pupil mobility.

There is a massive amount of science in the evaluation of what

the customer or wants. I am not talking about car yards, and

talking about size, use of space, everything. You can take three

years of evolution before it gets close to manufacturing. The life

cycle is generally 5-6 years. Too many people inside the business the

life cycle is actually approaching anything up to ten years. There are

people who will have lived with this product. It is quite

interesting that the emotion is always there. It is a passionate

industry. The reality is more clinical in thinking. One more

before the others come in. The notion of the platform. The public

does not necessarily understand the importance of minimising the number

of platforms. In simple terms, the car is structured around a platform.

You can quote various parts on top of that an internal figurations. We

have the opportunity of Configuring for many customers from a single

basic product. That offers you an opportunity for economies of scale.

On a geographical basis it gives us an opportunity of having a single

platform. But effectively there will be two different cars that can

service different markets. Are you a fan of the car industry ques mac

not necessarily. I have got a lot to thank the car industry for. It

has been centred around Birmingham for forming a strategy. The way the

industry used to were was to back in metal-bashing company in

Birmingham. I love walking around them. You can see these machines.

There are immense. The trouble is that they made no money. The end

customer would save, good news, you are the model for the next eight

years. In that sense and not a fan in the business of supply. There

are some forces or dual problems. - - structural. That might explain

why the margins are so low. It is quite interesting logic if we take

your ideas. You have got to look at the total world. You cannot take

just the designed product. You also have to take the supply Bays

policies. It has got to be looked at on a global basis. It is quite

an interesting challenge. In our case because of the exchange rate

we want to encourage suppliers. To get economies of scale through you

need big investment in suppliers. You were in a car dealership at one

point. How does it break down, what is the thing everyone gets?

Contrary to popular belief, the margins are quite small. They rely

on lifetime value customers. delays are not making money? They

do in the United Kingdom. But depending on the franchise, the

total franchise might be phrasing even or at best getting to the cent

return. -- breaking even. Is this true? There are very competitive.

In truck, it is likely that you'll be only getting �25 per hour.

is getting the money? All of us are getting some of it. The point on

interference is that if you have a car plant in your home country, you

will have one, it is not necessarily the best place to have

one. They will and fly a lot of people. There is a centre of wealth

attached to it. -- they will employ. The whole structure could make

sense. But it will not if you have this external focus from

politicians and trade unions. an interesting observation. There

are many manufacturers in history who have survived because of local

and national emotion. I will not name names. However, this capacity

is not necessarily the future challenge. There are massive

markets like South America, India and China. Their opening up to the

point where there is a real opportunity. There may not be a

global capacity. There will not be making cars in Europe to sell to

Brazil. We make cars in the UK that are sent to Australia. There is no

reason we cannot send them to Brazil. The global situation is

very important. In the truck industry we are looking at 140

countries. Exchange rate is very poor at the moment. In real terms

our trucks are double the cost they were five years ago. They are

subsidising that in Europe. We're doing very well in the Far East and

Africa. Before we move on it, time to look ahead. Cars in 20 years'

time. Ali going to see cars significantly different's new fuel

sources? New ideas? I love cars despite knotting wanting to invest

in the motor industry. The idea that cars changing fills me with

horror. I know it has to happen. I like cars that sound like cars. The

thought that it could become Give us some experience of what is

happening in trucks. I think that the truck manufacturers by going to

have to combine. The technology and engine emissions is so complex and

trucks are so complex that to go- it-alone for the smaller

manufacturers will be very difficult. We will have to look for

in a partner to work with. We have electric trucks, their range is

around 100 miles. It is reasonable for running around London. They now

hugely expensive. Double the cost of a standard trier. It will be

difficult to get businesses to invest in that. My experiences that

companies will buy one. End the managing director, but an engineer.

I think that fuel cells would be the way bigger. For people who have

not followed this, the fuel cell is a ticklish technology to batteries.

But optimistic it is electric be powered. I had to do everything I

know about fuel cells. In Japan they are talking about fuel cells

for the future. Can, can you give us any more? The honest position I

have is that all manufacturers are developing. But we have to ask what

the customer wants. Ivied the customer will end up going with

wooden or unit he wishes. The power which unit will become less

important, provide the the product does what the customer wants.

talk about salaries and renumeration. A topic that has been

discussed heavily in recent months. Let's talk about the population as

a whole. A phrase has emerged of the John Lewis economy. Chunnel

this was a successful department store that was owned by employees.

It has become quite popular, employees having a stake in the

business. Wol Kolade I wanted start with you. Private equity people do

not get paid into the regular way. There is paid in shares? We invest

alongside Alphonse in the businesses we are backing. When

they do well, we get paid. Alongside of that we have our

salary. For me it is a wider question and entrepreneurship. Do

what they celery, what you want to be someone who create something

different and gets rewarded for it. I was encouraged by a colleague to

go and talk to some 14-year-olds about Private Equity. These were

the kids who were the most badly behaved. Private equity and 14-

year-olds, you can imagine. Some this intense and did not. The thing

they put them away at the end, was when I asked how many of the one to

start the grim business. More than half did. I asked them why. They

said they wanted to control their run destiny. That is what having

capital Ventures allows you to do. If you have a salary he were

controlled by someone else. Nikki King had you take your salary?

have had different thing. In 2004 we had a management buyout. It was

a passion of mine that everybody who worked for us should become a

shareholder. It was messy because it and with so many shareholders

there was not room to rent a company. Everybody who worked for

us had share options. We're almost a John there was, everybody is a

shareholder. It has made a big difference to the way people view

the company. We have a salary and a bonus, the bonus is proportionate

to everybody. It summer it will work in the company gets a salary

that is a much bigger proportion of their income. They get a bonus, 50

% is for personal objectives and the other 50 % is the overall

performance of the company. We didn't have departmental budgets.

Everything goes into a pot which stops the ridiculous walls coming

up stopping customers getting service. If we do work as a company,

they could take full bonus. It is very different. When I was managing

director of a different company, I had a lot more authority and had to

change by management style. Can you take us through that? Now wider not

to state to which, I say please to which, this is why I am doing it.

Then people vote on it. It's changed the dynamics. It is closer

to the jungle this model. Not quite a Corbridge, but it has an element

of that. By minority shareholders have to pay that back to not give

the entrepreneur's relief. They have worked for us for 14 years

building the business loving they. If you have shares in a company,

provided you have more than 5% you get to pay a lower rate. Up to a

maximum gain of �10 million. There are two factors. One is the

difference between entrepreneurship and managing an international

business. That is the first aspect of it. The second element of it is

the philosophy and the culture of the business is part of the

renumeration package. In terms of management style and respect for

the individual it is almost identical to John Lewis. What we

don't have is the share options. The driving force of the business

in John Lewis is maybe not necessarily the financial structure,

it is a factor and maybe in a mindset, but it is also the

philosophy of the company. The philosophy of Arab business is very

similar. It is of equality, trusts and it moves to a Honda, worldwide.

It comes from the Japanese? There is a different culture for this

appear. Importantly, there is a different mindset in the managing

and conducting business. I am not sure what the celery -- salary is

less interesting than any other form of option. I wonder if things

can get to performance related. You can get more at of people because

they're doing the job if they feel that is worthwhile. If they do not

understand what the future is, performance becomes meaningless.

People want to know they have - people make a business work. They

want a sense of security and value. And something that it's the know

paint a picture of the future and underline it to performance, then

you have something. It seems as though he lot of it is based on

performance in isolation. It is too short-term. During the tough times

like in 2008, we did not take a pay rise rather than making dances. The

senior management team that took pay cuts. If you're making lots of

redundancies in order to improve shareholder value and get a big

salary, it is immoral. It happens a lot. In our case, for two years we

did not go to a salary increase. The senior management took a slight

reduction. Directors took a significantly bigger reduction. We

did not announce it, but like all these things, everybody got to know.

It was accepted during these times. We had the opposite case this week.

It is such a difficult job to sack people that you deserve a bonus for

doing the work. I do not think the people found themselves very

convinced. We need to draw to be close. You will all be rewarded in

the usual way, but the feeling of having done something worthwhile.