RBS – My Part In Its Downfall…

Actually, I don’t think I had much part in the downfall of RBS, although I did work there for twelve years from 1994.

I am about to read an account of the bank’s collapse – Making It Happen, by Iain Martin (I also want to read Shredded: Inside RBS, the Bank That Broke Britain by Ian Fraser, but it wasn’t out in paperback when I was buying) – and I thought it would be a good idea to jot down my thoughts about RBS and its fall before I did so.

I don’t believe I have any special insight into RBS, and I don’t think I will have anything to say that isn’t already in the public domain. My job was far too lowly for that. My redundancy settlement, eight years ago, also had a clause about not bringing the bank into disrepute, but I think RBS has done a pretty good job of that without any assistance from me since I left.

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RBS flagship branch in St Andrew Sq, Edinburgh.

I joined RBS over twenty years ago as an analyst within a large change programme called Project Columbus, which, after a couple of bad years for the bank, was established to rethink the way the bank worked. It was Columbus which put RBS back on track and gave it the muscle and discipline to acquire NatWest in 2000, after a bidding war with local rival Bank of Scotland. (How many firms contain the name of their main rival within their own? People always confused RBS and BoS.)

Columbus refocused RBS on its customers. It brought in much better costing of its products and services – before, the bank hadn’t been able to tell how much it made or lost on each customer; it split (“segmented”) its customers into specific types, depending on the type of business (individuals – retail – and three different types of enterprises); and it established different types of specialist customer managers to meet the needs of those different types of customers, and in doing so it removed the generalist bank managers from branches.

Goodwin joined RBS in 1998, after Columbus was completed, as deputy CEO to George Mathewson. Goodwin masterminded the NatWest takeover.

By chance, I was one of the first RBS staff into NatWest. I had been at meetings in London the day before RBS took control, and, looking for people who could act as a presence, I was told to stay down in London. Three Jaguars drove a small raiding party from our midmarket hotel – there had always been a focus on cost management at RBS – to NatWest’s headquarters in Lothbury, in the shadow of both the Stock Exchange and the Bank of England. Fred Goodwin, the chief executive; Graeme Whitehead, the FD; Neil Roden, the HR director; Tony Williams, head of HR operations and systems (or something like that). And me.

(Actually, there were one or two other guys, too – I think we were six in total. All men.)

It was a symbolic occasion. Whitehead was wearing a kilt. There was little for me to do; I was secreted away in a small room, twiddling my thumbs, whilst the board directors established what there rules were.

At lunch, though, we all sat in the staff canteen, in a prominent spot; making a point. Jocks in kilts. This was a change. This bank was under new management.

* * *

Up until the NatWest takeover, RBS has been a medium sized regional bank. After it, it was (or saw itself) as a global. Before, it owned Direct Line, an insurance company, Citizens, a similar sized regional bank in north east USA, and a few other businesses. (The one that I always remember was Angel Trains, a train finance house that was spun off a few years later.) NatWest gave RBS global clout.

I believe the NatWest takeover was successful, though it probably lay the seeds for many of the problems that beset the bank later on.

RBS was a lean operation, with costs tightly controlled, and the same ethos. Fred Goodwin had earned the nickname “Fred the Shed” whilst at Clydesdale fire the way he shed costs – largely people (or alternatively, “Fred the Shred” – “shredded”). There was little fat at RBS, and there was much fat to be shed from NatWest. There were extensive wine cellars, an art collection, and lots of business units. And lots of efficiency savings to be made. RBS had a low cost/income ratio, one of the key measures city analysts and investors use to measure bank performance, and shifting NatWest’s operations to a similar C:I ratio would generate lots of profits.

The purchase of NatWest was based on cost cutting and removing duplicated services – essentially, economies of scale. NatWest, for instance, had something like twenty seven different versions of PeopleSoft (the database system used by HR departments) – which didn’t talk to each other. It was similar across other systems – there were multiple tax and accounting systems, all of which needed reconciling. Trimming the fat wasn’t difficult. (Bear in mind that there were many redundancies, too – a lot of people lost their jobs, from both NatWest and RBS.)

But relatively quickly RBS started to become as bloated as NatWest. When I joined RBS, the emphasis has been on servicing the customer-facing parts of the operation: I worked in a head office department which had cobbled together, second hand furniture in a building above a bus station; if you opened a window, you got a whiff of diesel fumes. True, this was somewhat the exception, but it made the point that we were an overhead, and what we were doing was working to make the customer-facing, revenue-generating parts of the organisation more successful.

RBS had central departments scattered throughout Edinburgh, many of them in somewhat dilapidated buildings, and it had been planned to redevelop a city centre site to house them all. After the NatWest takeover, Fred Goodwin apparently decided that something else was needed. Something out by the airport.

When Gogarburn was opened in 2005 – by the Queen – it seemed very opulent. There is an old investing adage – maybe from Jim Slater – that when a business starts investing in sparkly new headquarters, it is time to short the company. It would have been a very effective sell signal for RBS.

Gogarburn was very self contained. It had very good restaurants, a health club (with a full length swimming pool), a social club and bar, several shops, and a couple of Starbucks franchises. It had a nursery and a management school, delivering courses for the large numbers of executives it now had. It had a separate directors’ wing. There was no reason to leave.

Whereas RBS had been part of the city, after Gogarburn opened it was apart from the city. Gogarburn was isolated, and RBS became very insular. Being in Gogarburn felt like being part of the “Truman Show”. Everyone there worked for RBS. There were no more serendipitous meetings with contacts from other firms. You only saw people from outside RBS at Gogarburn if they were there for a specific meeting. Whilst communications within RBS undoubtedly improved, a broader understanding of and communication with those outside plummeted.

It was as if RBS saw itself above all that.

(I don’t think I lasted a year at Gogarburn, taking the opportunity to leave when I was offered a redundancy package during yet another internal reorganisation, in 2006.)

* * *

There were stories that Goodwin was intricately involved in the design of Gogarburn. Many may have been apocryphal – such as one saying he had personally been responsible for sending a shipment of marble back because it was the wrong shade, or that he personally spoke to the CEO of Vodafone to get a mast put on the roof to ensure adequate mobile coverage (under threat of removing the RBS contract). Either way, it was apparent that he was involved in details of RBS, rather than delegating and letting others get on with it.

He apparently held early morning meetings – “prayers” – add which he would grill his direct reportees. Failure was not an option. Some described his approach as bullying. It certainly don’t seem to have been particularly collegiate or collaborative. I don’t imagine he was easy to work for. The watchword was JFDI – “just ffffing do it!”

This permeated the firm, I would say. People were not happy making mistakes or getting things wrong. Success at any price. Thinking too much – or at all – was seen as a weakness. Decisions were made quickly and, once made, that was that.

Success at any cost is what probably broke the firm. When Barclays bid for ABN Amro (a year or two after I had gratefully left RBS), it was seen as a risk to RBS’s dominance – it’s claim to be the biggest bank in Britain – and, as a part of consortium of other firms (Santander, which had a long standing relationship with RBS, and a Belgian insurance firm), a counter bid was made. ABN Amro would be broken up and each member of the consortium would get the bits they wanted. RBS wanted the US retail business, which fitted well with Citizens, and some of the investment banking bits.

I’m sure the figures stacked up, at first: the deal would have made sense. But then as part of its defence ABN sold its US retail arm. And more importantly, the downturn started, and kept going. Barclays had dropped out. RBS continued. And ended up paying a lot of money for lots of toxic assets. And effectively going bust, and relying on a UK government bail out.

Between 1994 and 2007, RBS made accounting profits of £55bn before tax, and £39bn after tax. In 2008, it wrote off about £47bn according to Robert Peston on BBC Radio4’s “Today Programme”. In the seven financial years 2008 to 2014, RBS has has reported total losses attributed to shareholders of, by my calculation, £49bn. Basically, RBS hasn’t made any money since 1994, despite paying billions to the government in tax and to shareholders as dividends.

* * *

Personally, whilst I believe Fred Goodwin was the driving force both of the bank and the sour deal, I don’t believe all blame for the collapse of RBS lies with him. A lot does – it was his strategy – and his hubris which pushed forward with the ABN takeover.

Wanted Poster at Holburn Station (London, UK)
From takomabibelot on flickr, used under Creative Commons licence.

But many other people need to share some – or even much – of the responsibility:

  • other executive directors – the management team – should have been up to challenging Goodwin’s behaviour, including the more bullying, trampling aspects of it. I don’t know if any doubts were expressed by other members of the management team, but they probably should have been. Except that they would probably see their jobs and salaries get bigger as a result of the takeover. Could they be objective, even if they could stand up to Goodwin? Groupthink might also have played a role: it might have been hard to break rank. No one loves a naysayer
  • the board – particularly the non-executive board members. It should have been their role to make Goodwin and the management team accountable. Perhaps they did, though they all left under a cloud following the collapse of RBS
  • other employees. It is hard to tell the boss he’s wrong. It’s harder when the response is “jfdi!” But someone must have had doubts – all those people poring over the figures in finance; all those providing management training in the brand new management school
  • shareholders. Under market capitalism as practiced in the UK, shareholders are more likely to sell a firms shares than try to engage with management about corporate strategy that isn’t liked
  • regulators. They could easily have put an end to the folly. Following the crash and the collapse of RBS, the role if regulators had been greatly changed. (Until the next crash …)

I must point out that I fall into two of those categories – though as a fairly insignificant employee and a very small investor, I believe I had little influence (but lost a lot of money!).

I believe the real issue – the blame – lies with the board, both execs and non execs. They had oversight of the strategy and the deal. When the crash came, they should have pulled the plug. RBS would have looked weak – it might even have become a takeover target itself – but it would have survived the deal. Instead, they pushed on, buying illusory assets which quickly turned to dust, taking much of the UK economy with it.

Implementation.

For processes, design is coupled with implementation. It can be hard to separate the two, sometimes: poor design leads to poor implementation.

The City of Edinburgh Council has redesigned its domestic recycling processes, and over the last month it has been implementing the new design in my neighbourhood.

In addition to large communal bins for non-recyclable rubbish (destined for landfill), domestic recycling used to work with weekly curbside collections: cardboard and plastic bottles (only plastic bottles) collected one week; glass, paper and tin cans the other; and weekly collections of food waste for composting.

Each type of waste had a separate receptacle – red and blue boxes for cardboard and glass, a sealed container for food.

It wasn’t perfect. I would frequently forget to put out my recyclable waste and have to wait for the next collection. In a windy city, where gales seem to coincide with the weekly collections, the emptied containers would be blown all over the place.

The council announced in January that they were changing the process in February.

Instead of weekly collections, there are to be permanent large communal bins for general recycling (cardboard, paper, tin cans and plastic containers – not plastic bags, which are not recyclable), for glass, for food waste, and for landfill. Four different communal bins.

In many ways, this will work better: no more missing the weekly collection, no more boxes scattered across the road by the wind. Drop off recycling when it suits.

But…

(You knew there had to be a “But…”, didn’t you?)

But, firstly, communication has been poor. The launch date of “February” was unclear: when in February? Should I keep putting out recyclable waste for pick up before then? Where will the new communal bins be?

(These questions remain unanswered, despite the system already changing…)

Secondly, the one new communal bin for general recycling – cardboard etc (but not plastic bags) – looks very like the old landfill bin. It arrived a couple of weeks ago in the same place as the landfill bin it replaced. OK, it does say “general recycling” on it, with a long list of acceptable items and another list of unacceptable items. Maybe my neighbours can’t read. Maybe they didn’t notice the signs. Either way, on the first day it was on the street, it was full of plastic refuse sacks (presumably full of waste for landfill, not recycling). A couple of days later, it had just recycling waste in it, and someone – possibly the council, possibly not – had taped a new notice to it detailing again what could go in it – plus stating that putting the wrong items in the bin would mean it all had to be sent to landfill.

A couple of days later, I looked in it to see someone had placed polystyrene blocks in it – another no-no, meaning the whole bin is apparently destined for landfill.

The other bins – for glass and food waste – haven’t appeared, leaving my neighbours (and me!) clearly confused as to what to do with our waste. Before the changes, today would have been a cardboard collection; several neighbours have put out cardboard for collection, despite the new communal bin for cardboard (if it hasn’t been contaminated with landfill waste…).

According to the leaflets put through the door, the reason for the change was to increase the rate of recycling. In the short-term, this has clearly failed: at least two full recycling binloads will, according to the notice stuck on the bin, be destined to landfill because they contained the wrong kind of waste.

People are confused, and most likely throwing out recyclable waste in the landfill bins because of the uncertainty. The glass and food waste communal bins haven’t appeared. (Perhaps they have been camouflaged…)

So – in the short-term at least – the implementation has failed. It might just be bedding in. I can’t help thinking, though, had the design been better, with clearer communication (and, for instance, a timetable of what was happening when), it could have been a lot smoother.

Update: not only “today would have been a cardboard collection – but it was. The neighbours’ cardboard has been collected from curbside. For many systems, dual running during implementation makes a great deal of sense. But it has left me even more confused than before.

Design.

I listen to the radio. I listen to the radio in bed. So I have a clock-radio.

For many years, I had a Pure Siesta DAB radio. I liked it a lot: it worked well, it sounded good, and it was easy to use.

Particularly, its buttons were clear and easy to use. Kind of important in the dark.

But then, about a year ago, it stopped working. I couldn’t work out why it wasn’t working, so I bought a replacement. I thought about just getting the same again, but decided instead to try something else.

So I bought a Roberts, since they had a good reputation.

This one. It’s called Dreamtime.

A much smoother, more stylish design. Sleek, streamlined even.

And almost immediately I found out it was awful to use. The buttons, sitting level with the surface, are impossible to differentiate in the dark. Not a single day went by when the radio didn’t make me swear at it. Not necessarily conducive to a restful night. I was forever hitting the wrong button, and there wasn’t a way to cancel the operation without switching it off. Sometimes hitting “Select” actually reset the default settings so I’d have to reset them to my preference.

It might have looked good, but the Dreamtime was a real nightmare to use. Whoever designed it hadn’t used it in the dark. I doubt if they had used it at all.

Last week I finally cracked, pushed over the edge by it dreadful way of working. And so, whilst it was functioning much as it always had, I decided to get myself a new clock radio.

I bought a John Lewis Spectrum Clock. This.

It is small, it is simple, and I love it. It doesn’t do anything flash, it sounds fine, and it is a joy to use, even in the dark. The buttons are clearly laid out in batches, and feel different. Not once have I hit the wrong button by mistake. It sounds fine, too.

I’m not sure what the lessons are here. Maybe that “good” design is far more than eye-catching design: design has to include function; and good-looking might not necessarily by good design.

Talking ‘Bout A Referendum…

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A couple of weeks ago, a friend said that they hadn’t heard any good reasons to vote “No” in this week’s referendum. Sensing a challenge, I started to write a post, outlining the reasons why I’m going to vote “No”. But it didn’t get very far, in large part because my feeling was that the two sides are so fed up that they have long given up listening to each other, instead spouting repetitive tracts to their own supporters and completely missing the undecideds who may well determine what looks like being a very close result. The gulf between the two sides seems larger than ever, despite my belief that actually not much separates us, and that both sides truly want the best for Scotland.

It also seemed hard to believe that there were any undecideds left after what feels like years of fact-throwing.

I have certainly stopped listening, even to my own side, whose negative tactics have lived up the “No” on their posters. So when I was asked to come up with an introductory question to kick off the seasonal dialogue – which is all about listening – that was the topic I chose. I remembered the last of the James plays which I saw during the festival, full of nationalist fervour but also using the mirror tool to reflect the of the nation. I thought about using Burns’ ” To A Louse” as an opening text – “to see oursels as ithers see us!” – but instead, being me, I opted for music: Arvo Pärt’s quietly reflective “Spiegel im Spiegel” (“The Mirror in the Mirror”) to get us listening to each other.

The purpose of the evening wasn’t to discuss the referendum per se, but talk (and listen) about how we can heal the split between two camps after the vote: what would it take for us to listen to others’ views?

But the conversation inevitably strayed into the referendum itself. It was very civil and non-partisan (despite one member of the group apologising for being too stridently partisan – I didn’t think he been!) but understandably emotional. People have strong feelings about this, including me.

There were a great many different views: since we could all see good and bad things about both sides the debate, there were more views than participants. We talked for a couple of hours, and I can’t remember all that was said – we followed lots of tangents.

But here are some of my impressions – what I remember of what I heard (which may not be what was said…).

  • even after two years of campaigning, we were still very engaged in the process (even if we were looking forward to it being over)
  • there were several people who were undecided. My guess is that the group split three ways – “yes”, “no” and “don’t know” about a third each
  • we all wanted to create something better – a better country, a better society, a better community – even if the route (and perhaps the goal) may be different.

The number of undecideds surprised me. I have been pretty sure how I would vote for many months, having listened to early arguments and found them generally unconvincing. Everyone in the discussion last week was intelligent, aware and actively participating in the debate – but hadn’t been convinced either. One person felt they had had an epiphany that very morning and had decided how they would vote whilst sitting in the sunshine in their garden; but they have subsequently changed their mind. (I included them in my unscientific poll as “don’t know”!)

None of the undecided were quite sure what it would take for them to make a choice

Someone else, an expat from a European state, didn’t feel comfortable having a say in determining another nation’s future (despite believing they would never live anywhere else). I have heard that a lot from English-born voters, too. But the rules say you have a vote – so I reckon you should use it.

In many ways, this felt like many conversations I have had over the last year or so. Perhaps a bit more intense – more listening and more concentrating – but in essence, the same kind of discussion I’ve had over pints in pubs or over coffee in a cafe.

Within 48 hours, we’ll know the outcome – the result is expected around 7am on Friday. And then we can get down to rebuilding relationships and – perhaps – building a new country. Either way, I think we’ll have to learn to listen to each other again.

What unites us is a lot more than what divides us.

[Nb I have revised the last paragraph of this post since it was brought to my attention that I had said precisely the opposite of what I intended. This is what I wanted to say. One word wrong completely changed the meaning. And that is why one should respect sub-editors!]

Is the Message “Medium”?

“Medium is a new place on the Internet where people share ideas and stories that are longer than 140 characters and not just for friends. It’s designed for little stories that make your day better and manifestos that change the world.”

In the past couple of days, I’ve come across a few comments about Medium on Twitter and Facebook. I may have read some posts on it, as well. (Well, I have now. Several.)

I can’t quite work out what the offer is. It seems like yet another blogging platform, though perhaps one with some more social aspects. Building a circle of contacts – starting with Twitter followers and – or – Facebook friends, since you need to sign in with one or other of those.

Then you can add new Medium accounts you read – like following on WordPress, it would seem.

I began blogging on LiveJournal, which was a highly social space, but also public, too (if you cared to show your posts publicly; you can control who sees which posts). Since LJ was the place I first tried blogging, it set the standard, and in many ways its social features were way ahead of other platforms I looked at, such as Blogger, Blogspot – and WordPress. For instance, LJ had bested comments from the start of my experience with it, and when, a couple of years later, I wanted a more professional home for my blog, I couldn’t believe that comments couldn’t be relied to and nested. (WordPress brought that in a year or so later.)

Other platforms came along with similar ideas – like the now dead Posterous. But Facebook came to dominate the social side of posting, with the result that LJ has become a backwater, with little activity. It had started in California, I think, but has been sold on a couple times and is now owned by a Russian firm, I think.

Medium certainly looks good – LJ hasn’t changed much in the past few years, and looks dated (but since there are a huge number of user options and themes – just like WordPress – that may be my fault for not changing my layout). It is clean, smart – like a magazine. Actually, what it really remind me on is the social aggregator Flip, which looked great and was a joy to use – but did nothing that I needed it to do; it was just an extra space to log into.

So I can’t see what the killer function in Medium is. I’m sure I’ll be proved wrong and it will become apparent. Maybe the social drive to write and share in such a space will win through and resonate, in the same way LJ did, though it will be fighting the behemoth of Facebook there (though Medium seems to be about long form writing and collaboration rather than just sharing stuff. Maybe that’s just me.)

Still, a new space to keep an eye on.

Why Do The Campaigns In The Scottish Referendum Concentrate On Economics?

I was at (another) debate on the economics of Scottish independence on Monday. One of the panel members, Christine O’Neill, the chairman of a firm, expressed her surprise and dismay that both campaigns – for and against independence – had focused almost exclusively on economic issues, rather than, for instance, what it means for our culture and values, and what kind of society we would like to create in Scotland.

I’m with her – particularly when the economics is so up in the air, with both sides throwing around contradictory “facts” which are frankly nothing of the sort. O’Neill likened it to the campaigns trying to buy votes – with Better Together offering us £4bn (about £1000 each) and the SNP offering £5bn. (Both these claims are based huge assumptions which make them impossible to compare.)

Her question, though has a simple answer, as sephologist and pollster John Curtice described at a talk back in April. (See, I’m a glutton for punishment.) Then, in discussion with Stephen Reicher and Jan Eichhoin – it was like a public version of Newsnight Scotland (before it got axed) – Curtice explained that the prime determinant of voting intentions in the referendum was voters’ view on the economy, ahead of cultural identity and values. It apparently explains many anomalies, such the long standing gap between male and female voting intentions – women are more pessimistic about the economy, and more risk averse.

Both sides know this and are tailoring their campaigns accordingly.

Indeed, Curtice admitted he was also responsible for the campaigns focussing on £500 – all it would take to swing their votes: it was his research that identified this low price-point. How cheaply our votes can be bought.

“A Taste of Blue”: an exploration of synaestheisa.

I went to several talks during the science festival, some of which I might write about; but one which has really stuck in my mind was about synaesthesia, “A Taste of Blue”.

People with synaesthesia experience a cross over between their senses: things they see may cause them to hear something, or sounds may have a taste, or words a colour.

How they experience the world – their whole life, even – is thus very different from those without synaesthesia. It is also something I find incomprehensible, and I went along hoping to understand more.

It really was a fascinating evening. I found myself sitting next to the one synaesthete in the audience, who expressed her sorrow that most people can’t experience the world the way she does – she felt it added so much to her life.

There were three speakers: a geneticist, an interactive sound engineer, and an animator.

Kate Kucera works on the genetics of synaesthesia, and she talked about the science behind the condition. About 5% of the population are synaesthetic (other sources say about 1%, others that it is much rarer). It might be that there is a continuum in the way we experience the environment, with only those at one extreme of the continuum being synaesthetic.

Indeed, the way we respond to sounds suggests that everyone may be partly synaesthetic: nonsense words that Kucera tried out on the audience had a definite feel, with most people idetifying the same or similar characteristics to the sounds. (Perhaps onomatapoeia is in part an expression of synaesthesia?)

There is certainly a genetic component to synaesthesia: the condition runs in families. But the genetics is very complex, not surprising if one considers the complexity of our sensory systems and their processing in the brain.

The cause of synaesthesia is not understood, though it is believed to involve connections between different parts of the brain used for processing different senses. It has been suggested that everyone is born with synaesthesia and that babies are all synaesthetic – which may explain the dazzled way they look at the world! – but that most people lose the ability as their brains develop, just to enable them to adequately cope with all the sensory data they receive.

Augoustinos Tsiros looks at the way people use common sensory metaphors. This might suggest that we are all partly synaesthetic. For instance, we all use spatial metaphors to describe sound – such as “high” and “low”; we also use touch describe sound – hard, soft, rough, smooth. (I often talk about some jazz being jagged and angular.) We talk about someone having a “sweet voice”.

In experiments involving a variety of visual representations of sounds, it is easy to fit a specific sequence of sounds to an image

I’m not sure whether these are simply learnt metaphors – so common to have mass understanding – or an actual demonstration latent synaesthesia.

The star of the evening for me was animator Sam Moore. She has worked with several synaesthetes to produce an animation showing what it is like to have synaesthesia. It was stunning.

She was also full of great stories, such as one subject who had two forms of synaesthesia: colours produced sounds, sounds produced colours; but not the same sounds or colours. A red object, such as a traffic light, produced a specific sound, but that sound then created the experience of a different colour, producing a cascade of synaesthetic feedback.

Apparently a lot of synaesthetes are creative people: all of those that worked with Sam were, particular musicians. One of her subjects, a woodwind player, saw the sounds of string instruments as sludge-brown, which must have made orchestral playing unpleasant experience!

Moore’s film, “An Eyeful of Sound” was amazing. The world it visualised is how I imagine an LSD trip to be. It was gorgeous.

Synaesthesia poses a lot of questions of the way we perceive the world. We have a common assumption that share our senses – that when I see a colour you see the same thing. We have no way of knowing if that is true. Apparently synaesthetes are often not aware as they are growing up that they experience world in ways that may be greatly different their peers. Then they may learn to keep quiet about it, when as children they are told not to be stupid after describing their experience. It certainly sounds as if synaesthetes experience a richer world.

An Eyeful of Sound from Samantha Moore on Vimeo.

“Thinking Fast and Slow”

Last year I read Daniel Kahneman‘s “Thinking Fast and Slow“. It took me a long time – definitely reading slow, for me – but I think that was down to his style rather than the book’s content. I read it because two people from very different backgrounds recommended it in the since of a week, and despite being somewhat hard work, bits of it have stuck: they keep recurring in my thoughts.

So I thought I’d share some of those, and recommend it, too. (I haven’t looked at the book for the last six months, and I am deliberately writing from memory. So please don’t take these examples as gospel, and before quoting them, please look to Kahneman’s original text!)

Kahneman’s work can be considered an academic counterweight to Malcolm Gladwell’s “Blink”. Gladwell set out, I think, to suggest that we should trust our intuition (albeit that many of the examples he wrote about seemed to be based around what happens when intuition goes wrong. Policemen shooting innocent men, for instance).

Kahneman, a prolifically able psychologist (and Nobel prize winner in economics, for his work on behavioural economics), sets out to describe how the mind works, describing the unconscious, instinctive, intuitive brain – his “system 1″ – and the conscious, analytical brain – “system 2″. System 1 is much faster and cheaper to run than system 2, and this is why for most things we are happy to let system 1 get on with it. His book is full of fascinating stories that illustrate how system 1 can lead us to make some very counter-intuitive decisions, often his own expense.

I started the book very sceptical. Despite all the evidence Kahneman provides, what he describes just didn’t sound like me. I’m analytical, rational, sensible. But he also describes how just about everyone thinks that, too. And left to its own devices, system 1 seems to get us into several bad habits.

For instance, it makes us bad at estimating things, particularly our own (and others’) expertise. Kahneman tells a story of how he was part of a team writing a new curriculum for a psychology course. After several months when they though they were making good progress, he asked another member of the team, who had a lot of experience of the process, how long it should take. The answer was something like “a good team will take a couple of years”; and when asked whether this was a good team, the answer was a resounding “no”! This was a team made up of very rational people – psychologists and educationalists – who frankly should have stopped right there and seen what they could change to achieve a better result. But instead, despite the insight they had received, they ploughed on as if nothing had changed. When Kahneman left the project several years later, it still hadn’t been completed.

In another situation, he describes undertaking leadership assessments for the Israeli army. He understandably decided to validate the process, to see whether the assessments predicted future success as a leader in the army. They didn’t. The predictions were no better than chance. And yet Kahneman continued his work assessing candidates, despite knowing that it was a complete waste of time.

His work in behavioural economics lead to Kahneman working with some stockbrokers. He looked at the firm’s remuneration and bonus structure. Analysing individuals’ results, he showed that success was random: and hence the large bonuses paid for results were completely unwarranted. He told the board, producing his evidence. The board, of course, did nothing, because their whole belief system (and the firm’s culture) was based rewarding success. No one accepted his evidence; they – the experts – knew better than the statistics.

Another story that really stuck with me it’s how bad system 1 is at assessing memories. It only recalls the last experience of something, rather than the totality of that experience. So if you’ve been listening to a piece of music on vinyl, for instance, and it ends with a scratch, you remember the scratch and not the forty minutes of pleasure that came before it. In an experiment to test this, subjects preferred an extended period of pain that ended in a reduction of pain rather than a much shorter period of pain that ended suddenly. System 1 remembers the pain at the end rather than the totality of the pain. The lessons here for anyone designing any process involving customers are rampant. Make it end with a smile!

I think these four simple stories illustrate how irrational even seemingly rational, analytical people can be. This is painful – these are people like me – but it is a valuable lesson, too.

I think the best lesson is to stop and think. This brings the conscious, rational system 2 to the fore. It is harder work, and slower, than letting system 1 determine our actions, and maybe not always appropriate. But it also leads to better, more mindful outcomes. (For instance, it may well be why people who keep “gratitude lists” report being happier – because they are bringing their conscious mind to bear, rather than letting system 1 remember only those last painful moments. There seem to be real benefits to keeping a journal or diary: it helps us to bring an active dimension to our otherwise irrational intuitive minds.)

Head, Heart and Gut: Where I stand on the Scottish Independence Referendum.

I spent last Christmas in England. And with just about everyone I met, at one point or another, the conversation turned to the Scottish independence referendum, and how I felt about it.

Now, the debate has been hotting up; the politicians full of bluff and bluster. And it seems a good point to see where I’ve got to.

During one of the tv debates, I was exchanging views on Twitter (where the discussion has been lively, radical, and, despite some claims to the contrary, largely good natured – people on all sides of the debate have been open and engaging, and there are many people with whom I disagree that I like a lot); I reckoned that the decision came down to head v heart; someone shot back saying that guts must a say too.

Here’s what they’re saying…

Head

The rationalist in me is still “no”. I haven’t heard anything to counter my original feelings.

The campaigns have a lot of views and counter-views that they reckon are facts. Salmond made a speech in London where he said

After Scottish independence, the growth of a strong economic power in the north of these islands would benefit everyone – our closest neighbours in the north of England more than anyone…

He states this as a fact, but it is conjecture: Salmond may hope that he puts in place the policies that lead to economic growth, but you know what? He may not even be first minister after (and of course if) Scotland becomes independent: the next election for the Scottish Parliament is due in May 2015, before the politically-driven date of independence of 16 March 2016.

Facts are, of course, hard to come by. I have been in public meetings where each side has presented its facts, and countered the other side’s facts. Both sets of facts may be right – the world is ambiguous, and it is possible to select timescales to bring out the best in one’s data. Without knowing precisely the source and counter-source, it isn’t possible judge whose views are more valid.

So my head is sticking with “no”.

Heart

The thing is, I don’t believe this is about the head, anyway. It isn’t about facts. It is about heart – belief and faith.

And here I have to admit I am wavering.

Who doesn’t think that self determination is a good thing? In most other places in the world, I would support a separatist freedom movement. I believe in devolving power to the place where it can best be wielded (neither Westminster nor Holyrood, both of which seem to believe in centralising rather than sharing out power).

If Scotland were not part of the UK, I wouldn’t vote join it.

So my heart is probably saying “yes”.

Guts

This is the interesting one, really. My guts are a firm “no”.

In part it is because I think there are a lot of benefits if being part of a greater whole. I am not an isolationist. I think Scotland is richer culturally as being part of the UK, just as I think the UK is hugely richer by being part of the EU.

I have no problem in Scotland being part of the UK – it doesn’t stop being Scotland because it is part of something bigger. (I can’t help but see a contradiction in the SNP’s belief that, outside the UK, Scotland must be part of the EU. I don’t disagree, but when they are trying so hard to leave the UK, it seems strange for their plans to rely on being part of something larger.)

I might feel differently if I thought that, as a result of being part of the UK, Scotland was being oppressed. But I don’t. (Before anyone else points it out, of course I would say that – I’m one of the oppressors…) Scotland is, and has been historically, overrepresented in Parliament. It has over 9% of MPs but only 8% of the population. (Boundary changes in 2015 will remove this anomaly.)

For decades, Scotland’s politicians have wielded power and influence in Westminster. Tony Blair’s cabinet relied on Scottish politicians: Gordon Brown, Alistair Darling, Derry Irvine, Robin Cook, George Robertson, Donald Dewar, Gavin Strang – all Scottish. And that’s just his first cabinet. Even Margaret Thatcher had Willie Whitelaw, Malcolm Rifkind, Alastair Forsyth, and George Younger

The strong, visceral dislike of Tories in general (and Thatcher in particular) in Scotland – which I share – is largely responsible for the rise in nationalism in Scotland. The view that Scotland has had a government for which it didn’t vote – and hence should be independent – is rife. The first bit is true. Scotland voted Labour throughout the Conservative government between 1979 and1997. But it seems like a logical fallacy to say that requires independence. The two things aren’t connected. You don’t chuck out the system just because you don’t like the answer you get. Scotland didn’t complain (much) when it helped elect a Labour government in 1997.

So: head, heart and guts. One “yes”, two “no”. I have heard the journalist Lesley Riddoch described as “a reluctant yes” (a phrase I think she used in an article, but I can’t find it online!) Me, I’m a reluctant “no”.

Where the Debate on Independence for Scotland Has Got To…

In the first two months of the year, the campaigns for the referendum on Scottish independence seem to have really heated up. North and south of the border, the media seem like they’re taking it very seriously. BBC Scotland are running a series of debates and documentaries related to the referendum; STV’s Scotland Tonight is also having several debates.

I haven’t seen all these, but I saw the first BBC debate and a few minutes of the STV debate between the SNP.’s Nicola Sturgeon and Labour’s Johann Lamont.

The BBC use a similar format to Question Time, with a panel featuring politicians and others – one “Yes”politician, one “No” politician and two pundits meant to represent “don’t knows”. STV had only two politicians slugging it out.

So far, politicians on either side of the televised debates have done themselves no favours. On the Beeb, whilst the politicians were trying to score points off each other without giving any ground, the two “don’t knows” were asking reasonable questions, expressing uncertainty and generally saying what needed to said.

The fight on STV showed politicians in an even worse light; boxers would have been better behaved. They talked across each other, didn’t listen, and frankly proved to me that this is too important an issue to be left to politicians.

I recently went to a face-to-face debate at Edinburgh University between the two non-figurehead leaders of the campaigns. (Politicians Alistair Darling and Dennis Canavan ostensibly head up the “No” and “Yes” campaigns respecitively, although Alec Salmond and the SNP are driving the political discussion for the “Yes” campaign.) Covering the economic issues, Blair MacDougall manages “Better Together” and Blair Jenkins “Yes Scotland”. [Mr MacDougall seems to have neither a wikipedia entry nor a public bio on available. At least, I couldn’t find it.] You can see from the start that they have much in common, and indeed despite their closeness to the campaigns this felt much less partisan than I had expected. But, being economics, there weren’t really any facts – just interpretations. They threw numbers at each, in apparent contradiction, though one would actually need to see the sources, context and appropriateness before making any decisions based on the figures provided.

This does matter. Apparently, if people believe they will be £500 better off either way, it will influence the choice people make. (How cheaply we’re bought and sold. As Robert Burns wrote, “We’re bought and sold for English gold Such a parcel of rogues in a nation!“.) The main economic issue seems to be what currency Scotland would able to use, followed by how the assets and liabilities are divided, and the ability to sustain pensions and the welfare state.

The “Yes” supporters in the audience were much more vocal than the “No”s, and frankly less reasonable. I don’t find this surprising: they are driven by strong feelings. I don’t believe the views of anyone in the audience – whether “Yes”, “No” or “Don’t Know” – would have been effected by what they heard: we already know that we can’t get the answers we need, probably until many years after the referendum.

The UK government had said that it would not negotiate its position in the advent of a “Yes” vote ahead of the referendum which, whilst an understandable philosophical position, means that no one actually knows the answers to any of these economic questions (nor any others) before we are called on to make a decision.

Except that the UK government has recently been showing its hand, sometimes reasonably, sometimes not. In February, chancellor George Osborne, his shadow Ed Balls and deputy Danny Alexander all said an independent Scotland would not be allowed into a formal currency union with the rest of the UK.

(Scotland would still be able to use the pound informally, though this would probably be looked on poorly by financial markets, adding to Scotland’s funding costs, due to its instability. On the other hand, a formal currency union would completely tie the hands of any post independence Scottish government to develop its own fiscal policy.)

Then UK culture Secretary Maria Miller stated outright that an independent Scotland would not able to use the BBC.

The first of these interventions, by Osborne and co, seems to me to be valid. The currency an independent Scotland would use is clearly important to many people: the economy is the most important issue for many people and also of great consequence to the other inhabitants of the UK – and if it is really non-negotiable, far better to get it out now. (The SNP don’t accept that it is not negotiable: they reckon Osborne is bluffing. They have ruled out revealing plan B.)

Ms Miller’s intervention, however, just seems bonkers and unnecessary. What part of the British Broadcasting Corporation does she not understand? My guess is that the BBC might feel rather differently: they have a large presence in Scotland. The BBC is available throughout Europe; citizens of Eire, for instance, can access BBC broadcasts. When I lived in Brussels for a year, I watched BBC tv and listened to Radio 4 (albeit on long wave!). Perhaps Miller is unaware that much of the BBC’s output is available over the internet? Even if the BBC is divided into Scottish and rUK components, the infant SBC might want to provide programming from its former partner – a commercial decision, not one for interference from ministers. And subject to negotiation, of course. Perhaps Ms Miller is unaware that culture is one of the many devolved powers, too?

And then there was David Cameron’s charm offensive, turning the referendum into a games show with his suggestion that people in England might like to phone a friend. “Who Wants To Be Independent”, perhaps. My phone has been running off the hook.

Whatever their purpose, I think these interventions have been misguided. They play into many nationalists hands by reminding those north of the border that the UK is governed by parties for which Scotland didn’t vote. A dislike of the Tories, going back generations, is one of the key motivations for independence. It allows the “Yes” campaign to portray Westminster’s politicians as English bullies.

The argument that since Scotland hasn’t voted for a Tory government and yet they get elected seems to be a very poor reason for independence, frankly. It turns politics into an infants’ playground: if we don’t get the answer we want, we’re not going to play. It applies not just to Scotland, but much of the UK. The north east of England voted against increasing devolution. It is only the chance combination of a nationalist government in Scotland and a Tory-lead coalition in the UK which has brought us to this point, and the SNP took full advantage of their majority in Holyrood. But as grounds for independence, I funny think so.

There have also been several companies announcing that they are either against independence – like Shell and BP, the two British oil giants (which clearly have an instant in North Sea production) – or that they are parroting to protect their (clients’) interests by relocating at least some of their assets to England – like Alliance Trust and Standard Life.

Again, this really shouldn’t surprise anyone. These large corporations are all about making profits – for themselves and their customers, and they will base their assets and activities wherever they think they can make most money and minimise business risk. My guess it’s that they have subsidiaries in many different parts of the world already, and if they decided it would be better business to move elsewhere, they would. Either way, they’d be remiss not to plan for contingencies, since no one knows what will happen in September, nor, under either outcome, the implications of the result. Whatever happens, change is coming.