The Power of Proposal

The Power of Proposal

Gordon Brown is benefitting from being the proposer of the bail out solution which has become the framework for others to follow. It is a very good example of how a realistic proposal will dominate, especially in a multi lateral environment when a solution is needed very quickly.

The problem with the idea behind the initial US option was that the White House had not proposed a “realistic” proposition in the political sense, which is why it did not have the support or momentum from Congress. By the time the UK had finished its “behind closed doors” discussions between the Bank of England and the FSA (along with other private discussions), the World was desperate for an idea that could be clung to as alternative to disaster. The UK proposal worked politically and financially as a start.

The slight hiccoughs from Germany, and the problems in Iceland and the difficult Irish suggestion (dangerously expensive and unilateral for others to follow) helped the UK proposal be the “only game in town”.

The proposal was powerful because it was conditional, addressed the immediate issues on most sides, provided safeguards and had the pressure of urgency on its side. It was deemed to be essential to stabilise the markets.

The alternative would have been an unsightly public competition between western leaders over who would be the “one” to save the world. The arguments would have been partisan and divisive.

Having established this workable proposal, we now watch the modifying and packaging of the core elements into variations which better suit the different national markets. The next serious problem will be how disciplined parties will be in honouring these agreements.

You can only Spend it Once (WIGIG)

One of the fundamental rules of negotiating is to ensure that you know the real value of your concession before offering it conditionally. So before making a proposal, it is wise to know all the values in play, know all the priorities that need to be addressed, and sensitive to those of one's partners. Additionally, know the level of risk. If it can go wrong it will! If you are going to make a generous offer, then make sure that the conditions match it.

The problem in today's highly dangerous climate is that there are so many “unknowns” to consider; so much that we know that we don't know - that it is high risk to throw one's money around without a clear grasp of how complexity works and what might be the consequences of a hasty gesture. You only get to spend your money once – spend it wisely – but only when you know all the risks and have a very clear – crystal clear – view of the impact of the investment. Will it really have the affect you anticipate? Does the market share your opinion and your analysis?

This is no time for grand gestures. There is nothing new about today's problems, it is just a bigger mess than usual.

Strategy defeats Objective.

“We will do whatever is necessary?”

The objective of these words is probably to calm the worries of all of us with deposits in banks. It is also to be heard as a sign that someone is on the case - appearing to be in action. The reality of the phrase is to signal that there is not a clear idea of what needs to be done at this point in time. Blanket phrases often deliver the opposite message to the one intended. Instead of confidence, it develops worry. Instead of calm it generates genuine concern. It demonstrates that something has to be done, but not sure what. Worse, there is a message of knee jerk responses – reactive not proactive – not thought through – waiting for someone else to take a lead.

But the problem of strategy clouding objective is one reason why the current economic situation has developed. The Banks wanted to grow their profits, the Directors of Banks wanted to see their share prices rise and their own ability to earn bonuses be certain. However, the real objective of a bank is to offer a secure and safe deposit for other people’s money. Allow the bank to use it in a responsible way in return for reasonable interest and security. The covenant between the banks and the community they serve is one of security – it appears they have forgotten this, blinded by greed.

The opportunity for considerable profit from financial instruments developed by mathematical wiz kids proved too much. This is the very old – age old – problem of being deal struck and greed struck. The salesman already spending his bonus before the deal is done. The deal being done for personal gain – never mind implementation and delivery (that’s someone else’s problem). No management control, no focus on critical objectives (security) and a belief that someone will bail me out. No responsibility – no integrity. "I was only following orders."