Business is Best When Accountants Don't Get Creative

By Ben Scott
Entrepreneur

There is an old joke that goes like this: the CEO walks into work one fine Monday morning and says “good morning” to the admin crew, the first people he meets is he walks into the office and asks “what’s one plus one?” And they respond, “Two, of course.” Then he walks off to the factory, says “good morning team,” bumps into his production manager and asks “What’s one plus one?” The production manager looks a bit confused and says “Well, it’s two, sir.” The CEO replies, “Thank you very much.” And off he goes to see the accountant, and he says, “Good morning, what’s one plus one?” And the accountant just looks at the CEO, smiles and says, “What would you like it to be?”

Now, as we all know, there’s never a truer word said in jest. And throughout modern history, there are plenty of examples of scandals and problems caused by people dabbling in financial engineering. Whether that was Enron, WorldCom, Nortel, or obviously the most famous of them all, the 2008 financial crisis. And whether the games were played with junk bonds or home loans, it’s all the same. You could dress it up any way you wanted to, but it was still fraud. Bent people taking advantage of those who don’t think things through or are too trusting.

From a reporting point of view, accounting is at the heart of any business. Many people, especially company leadership and investors, must know and understand the financial health of their business at a given point in time.

For most of us, when we start a business we work on a cash accounting basis. This is quite simple and intuitive — how much cash did I put in the bank, what am I spending and what has come in. This works as it focuses us on cash flow, which keeps us fed and clothed.

As businesses grow we generally move to the more accepted, accrual-based accounting. This allows us to be more precise, take into account things like inventory, inventory movements, things we have paid for but not used and investments in machines. From there, both the profit and loss statement and balance sheet can be formed. This then precipitates the need to begin recruiting more qualified people.

At first, an accounting service or firm will be enough. That is usually replaced by recruiting an in-house bookkeeper which is then upgraded to a full accounting service and full-time accountant. As a company continues to get larger, you must have an accountant on the board of directors. I have always stretched my available resources to build and structure the business in order that it functions correctly and key stakeholders, like the bank, have comfort and confidence. However, this is where having the right people on the bus is critical.

For an accountant, the company’s balance sheet takes precedence over the profit and loss statement, but what takes precedence over everything is cash — you can be profitable and insolvent at the same time. It matters not how much profit you think you might be making if you can’t make payroll.

One of the things that often happens in the accounting department is the so-called “innovations” in finance. Financial engineering was en vogue pre-financial crisis. This always made me laugh as it is bullshit and eight-tenths fraud. Earnings manipulation is real and has been with us since the dawn of trade. The oldest error detection tool is double entry bookkeeping. This has been with us since the 11th century and in daily use since the 15th century. Wherever there are people and money, controls are needed.

The incentives on management to dress things up can lead people to get distracted, to try and show that they’re making more money than they really are. Certain treatments of accruals, pre-payments, CAPEX, depreciation, inventory, income, or warranty claims can all manipulate the image of how well the business is doing. Any leader or accountant can dress these numbers up any way they like, but in the end, good business is good business.

Cash is cash. If cash isn’t coming in, or cash is going out too fast, you’re screwed.

Manipulating the balance sheet is so easy, and hard for many to avoid the temptation and seduction of monkeying with the numbers. However, if more people applied Benford, Beneish or irrational number tests (preferably a combination of all) to balance sheets, fewer frauds would go undetected as these tools see right through the veneer of numbers and structures that are the function of a human mind rather than a function of operations and activity. Numbers just don’t lie, people do.

No matter what you do, these tricks are only short-run solutions. The message here, really, is don’t get distracted by the numbers and don’t think that somehow, something new is better than good old fashioned business and good old fashioned accounting and cash management. That is, paying customers and cash in the till, all day, every day. It’s a simple matter of honesty and integrity.

Your business needs cash; cash is everything and when you’ve got profits and you’ve got cash in the bank, you’re in good shape. That’s a simple measure for success (the other is paying taxes). If you’re trying to play games because you don’t have that cash, then no matter what you do, the cash won’t magically appear. One of my first customers used to say that to have a business you do not need an office, you do not need a factory, or a desk, a name or logo. You need a customer. When you have a customer, you have a business. Good business is very simple — it has a purpose and purpose transcends money.

Even if you’re not currently making an accounting profit, but you’re generating cash, you’re in good shape. The key is to keep your mind focused on paying customers, making sure they are sticky and you are creating new ones. As Peter Drucker said, our only purpose [in business] is to create a customer.

Magic of Board Governance in Turbulent Times – Ethics & Risk

By Mr. KV Rao


 We are all far too familiar experiencing occasional turbulence in the air when flying, but not so often - on the ground in our external environment. If you added “turbidity” to “turbulence” – visibility drops drastically, and you may lose sight of the steering, and crashes are imminent – essentially crashes in managing ‘ethics’ and ‘risks’ – the two most popular words in corporate religion. There are no autopilots in here. 

It is paradoxical to talk about ‘ethics’ in the context of a corporate governance, and when you become board directors – where ethics is so integral in one’s personality, shaped by early life experiences. The first seeds are cast by our own parents, school teachers, early experiences and matured and shaped through the experiences of life. It is rather counter intuitive to expect the learning and practice of ethics, when you are entering a board room. Frankly, either you have them or you don’t.  However, ethics in the area of business don’t fall into straight black and white, I am reminded of the book “The Difficulty of Being Good – The Subtle Art of Dharma”, by Gurucharan Das. ‘Dharma’, is such an integral word that has no equal in English – it encompasses within it – rightitude, truthfulness, fairness, appropriateness, correctness, compassion, care, courage, etc. that make it very so very complex in its practice, in our business environments.

The reflections of what is right and wrong, are both contextual and largely based on the lens used to view the reality. This is what makes the role of Directors challenging in voting for the ‘right’ – what appears right might not always be the right. At the end of the day, one needs to rely on one’s own inner moral compass, when in doubt. Of course, all the literature, case work, and ethics manuals and all good reference materials but no substitute a strong inner moral compass. Still without the rectitude and courage to speak one’s mind and stand ground to what you believe in, simply having a moral compass has no real value – if your protest is only a whimper or a whisper, you just wither away. Ethics in practice is an emotional intelligence at work. 

The second paradox is about ‘risk’ – without risk there is no business, and with risk too there is no business! Hard wired risk management processes, methods, tools have all helped in making business risk taking a far more evolved and objective process, but they often end up becoming restrictive, and counterproductive to growth, innovation, and entrepreneurship, if not managed with a sense of balance. Here again, it is often the collective wisdom of board leadership to support managements in taking, albeit calculated risks and encourage them to hone success. 

The third paradox, to me is on safety – organizations and boards spend considerable time and effort on ensuring, the operations, facilities, systems, people are well ring fenced and secure. The important paradox, that goes unnoticed and often unaddressed is not the external security, but the internal insecurities that management and leaders face. In turbulent times, this personal insecurity can make the best of managers behave and take decisions in a somewhat nervous and self-protective manner, imperiling the organization. Processes in itself, sometimes strangely become self-serving - as protective blankets to cover managements, against their own failures.  

The way forward, has a few elements for us to reflect upon: - 

Board Composition

1. Good People: Ethical Leadership is an outcome of having ethical leaders. It is important to find the right people, not just qualifications and achievements but look at their backgrounds in terms of leadership styles and practice of ethics. 
2. Diversity – beyond a gender diversity, board directors appoint directors from known circles with similar backgrounds, and a ‘sameness’ pervades all over - of thought, of intents, of views, and it does not help in today’s times of disruption. Adding diversity in terms of having a social worker, a sportsperson, an artist or whatever will bring into the board new angles of thought. 
3. Age: I believe a 3 generational composition, i.e. grandfathers, fathers and sons in a family board make a great team. They bring the wisdom of the past, the pragmatism of the matured current, and the youthfulness of current and hence being best of past, present and future to insulate board vision to the future, with maturity. 

Board Culture & Leadership. 

1. Boards cultures we have inherited are archaic, largely colonial, and English. We still wear suits in some boards, in hot summers... There is a stiffness, formality and ceremony with board meetings that cover it all in a thick diplomatic layer. Look good, say right…. Don’t actually help. It’s important to break loose, when needed, and have a no holds barred discussion, debate, and encourage mutual challenging amongst board members. Many forward-looking boards have moved forward to have periodic board retreats to achieve this informality and help break from convention to bring unhinged thought processes. 
2. The Chairman plays a very critical role, and their ability to manage conflict, leading with purpose and keeping the managements challenged, stretched, yet motivated is not found in corporate guide books or manuals. You do need to find, install and empower such Chairmen. The flip side of it is also often seen where larger than life Chairman lead, where there is so much deference to a personality that having a board makes no real difference! Deference should not kill difference. 
3. Independence, is for all directors and not just for the independent directors. Each one should have an independent view on matters and question oneself hard when you find yourself agreeing with ease with others. 
4. All cultures are nothing but a set of shared values and beliefs, there is great value in the heritage and success stories of the past and it is important to preserve that unique set of a cultural mold, that unique glue, and keep re-inventing itself into the future. If your board has done nothing new, in the last 2 years’ time to ask yourself what could have been done differently. 
5. The times are complex, and issues that come to boards are equally complicated and deserve a deeper understanding of the market place, consumers, technology, competition, regulation, etc. and Directors too need to continuously LEARN, and keep themselves abreast than to depend only on management inputs and presentations. 
6. Last but not the least - time management. Not enough time is spent preparing for the board meetings, and reading heavy board notes, with huge stack of presentations etc. There is a whole need for directors, and managements to work more effectively and efficiently on allocating and managing time, and bringing focus, and brevity into discussions. 

It there is really a magic in here? No, old world wisdom has no expiry date – except that it needs to periodically upgrade its OS – (the operating system.) relevant to the emerging environment and challenges. The answers point to the same old wise wine, in new bottles.  

To end on a lighter vein, here are my one-liners with a punch. Quote them, if you wish! 

-      “The job of a Managing Director, is not managing directors’ only! – it’s actually managing the business.” 

-      ‘You don’t have to be an Independent Director, to be independent in your views! 

-      ‘The best and often the most honest conversations happen when walking out of the board room, if only they can happen inside!” 

You are in a 'board', not to get 'bored' !!!!!

When the Kid Does You Proud

Kiddo has started working at my night job with me last week and it was especially interesting because she was actually transferred to work with me at the Bistrot over a long weekend. The experience was amazing. The kid who was the cause of a few embarrassing phone calls because of her inability to make it to school on time, suddenly became the epitome of punctuality, dragging me out of the house so that we’d get to work on time. I was suddenly brought back to the seven-year-old who once showed me her watch rather impatiently as I muddled my way in getting her to one of her earliest schools.

Much to the annoyance of her new colleagues, she refused to get involved in idle chit-chat and instead of leaving the cups for the next day, she made it a point of ensuring that every cup was washed before we went home. She was very matter of fact about it – “I am here to do a job and I will finish the job,” she told me.

It wasn’t just me being in Proud Papa Land. The restaurant owner in our nightly drink’s session was quite open about his appreciation of her new work attitude (she had an earlier working stint, which didn’t go too well).

Watching your child take on challenges with guts and determination is an amazing experience. Parenthood is generally an exercise in worrying. You worry about every little thing that the little tyke gets up to and that worry generally grows when the little thing becomes a little less little and every screw up the kid makes gives you a feeling that you must have been a really awful human being for god to give you a screw up. So, when the kid actually shows you that he or she is taking charge of his or her life, you get this amazing sense that you didn’t mess up along the line.

However, while her “new” attitude to work attitude was refreshing, I got a huge jolt of pride when she told me that one of her new sisters had tried to corrupt her by telling her that she could leave work at 9.30 but she should sign out at 10.00 and claim an extra half hours’ worth of wages. She said to me, “She’s nice but keeps trying to get me to do bad things – I’m not going to let her have power over me and it’s wrong – I want to make money but I will do it the correct way.”

I think of this because we do live in an age where you often end up doing the “practical” thing instead of the “right” thing. It’s especially true when it comes to money, where most of us find that we our wages are stagnating or even declining but costs are increasing. The temptation to take short cuts always seems so appealing.

However, there is a maxim in life that says “there is no such thing as a free lunch,” and we often forget that there is a reaction for every action that we take. When something sounds easy, there’s probably a trade off somewhere. If someone encourages you take “easy” money, they’re probably after something else. I go back to the saying – “If it’s too good to be true – it probably is.”

Kiddo proved she has the streets smarts to recognize a scam and an inducement. I’m happy she has a sense of ethics. She’s taken a tremendous load of my shoulders for these two facts alone. 

Investors remain bullish on India

By Gurdip Singh - Founder and Editor-In-Chief -FII News

Interview with Mr. Girija Pande, Chairman of Apex-Avalon Consulting Pte Ltd 

Indian states and major cities will henceforth play a major role in industrialization of India and the race is on as each state is seeking investment independently.

Given the attractive growth trajectory of 7 per cent per annum in Gross Domestic Product (GDP), foreign investors are responding favourably to recent policy reforms, said Girija Pande, who is Chairman of Singapore-based Apex Avlon Consulting Pte Ltd.

Pande was recently moderating a high-level Investment seminar in Singapore on role of Indian states hosted by the Confederation of Indian Industry and the Indian High Commission here.

“Foreign investors remain bullish on India with its improving economy, backed by the Central Government’s recent reforms of GST and Bankruptcy laws which has improved transparency, ease of doing business and improving the Banking sector so that industrial lending can resume.

“Investors’ favour India for its strong consumer-driven domestic demand as well as huge export potential which falls in line with the Government initiatives,” Pande, previously the Chairman of TCS Asia Pacific, pointed out.

A growing number of Indian states are active in wooing International investors as the Central Government in New Delhi has increasingly delegated its authorities in this area, giving the states a free hand and independence of seeking foreign direct investments.

Under current rules, only very large foreign investments in some restricted sectors and multi-billion-dollar projects requires New Delhi endorsement.

“Clearly Indian States now have most of the authority to attract investors which makes them reasonably autonomous. New Delhi, in a way, has decentralized FDI processes – very similar to what they have for provinces in China,” he pointed out.

“Four southern and two western states along with NCR have been most successful in attracting the bulk of investments into the country by creating a very competitive and enabling environment,” he noted.

The states are Tamil Nadu, Telangana, Karnataka, Andhra Pradesh, Gujarat and Maharashtra with commercial hubs being created in cities of Chennai, Bangalore, Hyderabad, Pune and Mumbai.

Similarly, NCR has Gurgaon/NOIDA cities which are favourites of foreign investors, noted Pande.

He also noted that most of the states were now seeking “ease of doing business ranking in their respective jurisdiction” from international agencies.

“There is now a very healthy competition amongst States to attract investments which is excellent as it improves all,” he added.

The Lee Kuan Yew School of Public Policy School in Singapore has set up competitive metrics for ease of doing business and many Indian states have begun to use such metrics to simplify regulations and improve businesses processes. The School’s Asia Competitiveness Institute ranks the states and help with creating ease of doing business processes.

“Investment promotion requires State Governments to build trust with investors by creating a progressive and stable regulatory regime and attractive incentives.

“These are some of the good measures being adopted by the pro-active Chief Ministers – an increasing number of whom are participating in such investment seminars and setting up one stop online investment portals,” he said.

Pande feels that newcomer states such as Punjab, Madhya Pradesh, Uttarakhand, Rajasthan and Chhattisgarh, who have held investment seminars in Singapore, should focus on differentiating themselves by establishing industry specific clusters.

“The way forward is to establish industry clusters,” said Pande, citing the success of Chennai, Gurgaon and Pune where global automobile component vendors have setup operations to service automobile manufacturers located there,” he said.

Similarly, Bangalore has attracted global IT industry as it has a concentration of IT talent and a very proactive administration, added Pande, who was earlier Chairman of CII in Singapore and has been participating in international investment conferences on India in Singapore over the last two decades.

Punjab and Madhya Pradesh are ideal for building Agro industries clusters or to develop Mohali in Punjab as a knowledge hub for North India. This will bring services and white-collar jobs to the states, he believes.

Uttarakhand, perhaps, should focus on strengthening tourism and healthcare, leveraging on its hill stations and pollution free environment, he said.

Though the states’ FDI campaigns may seem competitive, Pande sees opportunities for the states and their major metros/cities to collaborate actively in this area.

“At the end of the day, to an investor, the city with its myriad services are as important to house talent and provide facilities.

“Hyderabad is a classic case where the city has built hard and soft infrastructure ahead of the curve and is consequently being looked at very favourably by foreign investors, especially in high tech areas,” he said. fiinews.com

Apex Avlon Consulting Pte LtdConfederation of Indian Industry

Shags and Fags.

The Governor of the State of Alabama, Ms. Kay Ivey has brought the issue of abortion back into the front pages of the world’s newspapers by signing what is perhaps the most stringent “anti-abortion” laws in recent history. Alabama’s abortion laws effectively ban abortion including in cases of rape and incest. As expected, the passing of these laws has caused a stir. The “Pro-Life” camp is celebrating the victory and the “Pro-Choice” is bemoaning how far we’ve regressed.

This story makes my eyes roll and I develop, what my mother calls, a “Smug” Singaporean mindset, thinking that I am bloody lucky that I live in Singapore, a country where “common sense” rules the day.

 For all that is said of the man, our Founding Father, Lee Kuan Yew was a man filled with common sense and an uncanny ability to make intelligent decisions. The old man understood that crucial decisions were not much a question of a choice between good and evil but a question of choosing between the lesser of two evils or the greater of two goods. It’s a point that you often want to slam down the throats of the sanctimonious, particularly on the side of Trump Supporters claiming to be Christians.

Speaking as a man who sent his partner to an abortion table, I believe that abortion laws need to be based on the understanding that this isn’t a choice of good or evil but a choice of the greater good/lesser evil. If we can understand it from this perspective, we can get the extreme emotions out of the topic and create something that is in the best interest of as many of the parties involved.

Let’s start with the obvious. Abortion is a nasty business; however, you slice and dice the scientific process. It does involve the destruction of life in as much as it does involve the formation of cells coming together to create a life. Hence, the morality of abortion laws essentially evolves around when does life begin and you are effectively not allowed to have an abortion after a certain stage into a pregnancy because the “said cells” have really became a life form.

Abortion, as they say, should never be a method of birth control and I guess you could say that I was “punished” for sending Gina onto the abortion table, because I was too carried away with having a woman willing to give me sex on demand to forget that there were consequences to having unprotected sex.

However, as I look back at that fatal decision and to the other decision of entering my two-year marriage with Gina, the decision to abort the child looks like the right one. Although “What if” questions will always be at the back of mind when I look back at my relationship with Gina, the decision not to go through the pregnancy with her was the right one. We were fundamentally unsuited to be together and her demands on me were such that it was virtually impossible for me to make a living (so much so that one of my former bosses biggest pieces of career advice was “you better have a chat with her about showing up at the office) and my parents described it as a question of when we’d murder each other (Mum’s version being you’ll punch her to death and kill yourself). Her parents, who were initially for the relationship would have wised up and realized that we were not good for each other.

You can call me a cynic or selfish but it is clear from the marriage that we had that the greater evil would have been to expose a child to parents who would be detrimental to its well-being. While I’ve not been wildly successful, I’ve managed to do things I’m proud of since I left Gina without the responsibility of a child and Gina, the last time I checked, has done OK for herself. We didn’t expose those cells to a nasty custody battle or the violence that took place in our marriage.

Then, there’s the practical side of things. As my former English teacher (Mrs. Clark), said, “I’m against it in principle but banning it is going to kill off women who will seek the help of quacks in dubious back alleys.” History has shown that just as anti-abortion laws have been around, women have gone to quacks to deal with unwanted pregnancies. 

I often like to refer to Lee Kuan Yew’s thoughts on prostitution when it comes to abortion. Better to have it legal and controlled rather than to have it driven underground and managed by the nasty element.

Lee Kuan Yew would have been good for addressing the abortion issue in America. Unfortunately, Lee Kuan Yew’s successors seem to have lost his common sense touch on a few things. The two most common instances where I believe that the Singapore Government has lost the plot are in the cases of smoking and homosexual sex.

I look at the debate on smoking and “alternative” tobacco products and cringe. The government is actually sounding increasingly impotently-sanctimonious on the topic. Despite and increasing number of bodies like the Royal College of Surgeons in the UK coming out to state that “alternative products” have a use in combating the smoking habit, the government remains adamant that it needs to ban such products in a “preemptive move” to stop people from taking up the habit. In the meantime, normal cigarettes, which everyone agrees are worse than the alternative, remain readily available.

 I guess you could say the desire is to look tough, but I do believe there comes a point when you actually end up looking silly by sticking to a position despite growing evidence that your position is factually weak – America’s Food and Drug Administration (FDA) has recently allowed the sale of IQOS, a heated and not burn tobacco system by Philip Morris, which has shown that there’s a way to make what everyone agrees is a lesser evil work.

If the government’s stance on alternative tobacco products looks silly, the stance on consensual sex is downright stupid. The emotion of the debate has been such that the government has stuck to its position of “Keeping the law but not enforcing it.” This is clearly not something you’d expect from a government that makes “upholding the rule of law” as part of its DNA and as one lawyer said – “what’s the point of having a law if you don’t intend to enforce it.” As I’ve often said, those who support this particular section of the penal code have yet to come up with a sound, rational argument as to why we need to keep this law.

Lee Kuan Yew wasn’t perfect but I don’t think he’s been right on every issue.  However, he understood his role as a leader and made decisions that did benefit the greater good or the lesser evil. When I look at some of these debates in the world, I miss him and the pragmatic wisdom that he displayed.

Business is a team sport - and that's why people matter most

Creating a Fun Environment to Work Drives Success 

By Patrick Grove

Group CEO of Catcha Group

We’re at the  half  way point of 2019 and as I reflect on what we’ve achieved - with iflix, Common Ground, Wild Digital and the rest of our #Catchafamily, I can’t help but to feel a sense of pride at what Catcha has become.

iflix has just recently hit 15 million global subscribers - with an insane 250% growth in only 6 months! Common Ground has been expanding so rapidly it’s hard to keep track of their new locations. In under 24 months, they’ve opened a total of 7 outlets all over Klang Valley and another one in the incredible Philippines.

At Catcha, our work philosophy (or should I say, work-play philosophy) is “Work hard, play hard”.

If there’s one thing I’m dedicated to, it’s building fun workspaces - which is one of the reasons why Catcha is known for our fun offices and parties, and Common Ground is such a successful co-working space. Not just because it’s cooler, but because I believe people love to work where they feel most relaxed and comfortable. Our team represents our belief as a brand - that hustlin’ isn’t a job, it’s our lifestyle. We like to celebrate achievements and successes - as we should - and when we do, we go hard.

Of course, sometimes it may seem that the people of Catcha play more than we work but that’s only because the real hustle is never glorified on media. The times we have worked for months without a break, chasing that next big idea; the 30-hour days we had; the trial and error; and the sheer grit to keep going - that’s what makes us such a great team. But we can only do these things, because we know we’re in it together.

I’m a strong believer that you can only achieve the stars and the moon (or an IPO or two) with the right people in your team. I’ve mentioned this before in an interview with Forbes Asia (read it here) - my management philosophy is to hire the right CEOs and then get out of their way so they can do their best work. These are smart, talented people and I have my full trust in them.

And it’s not just me who has put my bet on them.

Investors not only look at our products and business models when they decide to back us. These people and their “whatever-it-takes” attitude are a big part of why investors love to work with us. You don’t need to have the best business model since day one - you just need the passion and the people to figure it out. The spotlight has always been on me and my successes, but any successful entrepreneur would tell you that the greatest asset of any business is the people, the team, behind it.

The people who work with me will tell you that I’m constantly challenging them to set the bar higher. Because I’ve got a team of incredibly passionate, super-ambitious and remarkably talented people, I know that they will only see their maximum potential when they set seemingly impossible goals for themselves, and yet exceed them. Which is why I continue to drive them to do things bigger, better and faster.

Working with 2000 over staff in 35 countries isn’t easy, but when you have a team like Catcha’s, you’ve got a headstart. What makes me proudest is that as a team, we’ve proven that people from ASEAN are as smart, talented and creative - if not more - than the people of Silicon Valley. It won’t come as a surprise to me if the next mind-blowing innovation comes not only from ASEAN, but from one of our own in the Catcha office. When that happens, it will be the ultimate mark of success for me.

It's OK to be a Good Guy

My mother once said that my younger brother and I would never be terribly successful with women because we were both nice guys – the type of guys who girls wanted as friends rather than as lovers. In a certain way, my mother was right. Girls, inevitably saw me as a good friend rather than as a “hot” sex machine and my twenties were fairly disappointing in the girl department. When friends told me “Move in” I didn’t know how to – it remains a psychological anathema for me to touch a woman unless she touches me first. I only realized I was attractive to the opposite sex in my 40s when someone insinuated that I was “hunky” (the compliment came from someone who gives me tummy tickling feelings and she said it in a tummy tickling way).

My lack of success with the opposite sex, probably carried over into part of my professional career. As a “nice” person, I didn’t know how to tell people to “piss off” and I always felt that I needed the other side to give me what they thought I deserved rather than what I believed I deserved. It took nearly a decade of freelancing for me to overcome the nice guy instincts of asking for what I want. I guess you could say that I fell into Green Day’s wisdom of “Nice Guys Finish Last.”

However, I’ve just had an interesting lesson in being a good person, which was administered by a group of “foreign workers” from India and Bangladesh, whom I met a few years back when I was part of the liquidation team that closed down the company they were working for. The guys had hung on for five months and the company did not have the means to pay their wages.

The process of getting them paid turned out to be a very long and arduous one. While the company in question had receivables (money coming in), there were unforeseen issues that we had to handle and so on. Whenever they called, I didn’t know when we’d be able to declare a dividend to them.

So, I ended up dipping into my own pocket to help a few of them. While this wasn’t money I had, I reasoned that it was money I could earn more easily than they could. I also reasoned that since I had perpetually been blessed by the Indian community, it was time for me to give back.

In a way, I had to prepare for the fact that I was probably not going to see the money back. Paying laborers from the Indian Subcontinent badly is part of the game in our local construction scene and many of them borrow money at usurious interest rates just to get here to get a job.

I also found that “my” people were a little upset with me for risking my money on the proverbial darkies of South Asia. One of them advised me, “Don’t you know – Bangladeshi workers are not very trust worthy.” – The person in question had mentioned that the views were formed for working in a law firm and seeing construction workers fake injuries to cheat the insurance companies (given the amount of money that construction workers and make and how much insurance companies take from you and how little they give out when you need the money – I’m inclined to say good for the worker).

In fairness to my own kind, I remember meeting one of my creditors, who is the senior manager from a finance house telling me privately, “How much can you pay me – 10 cents on the dollar. I tell my finance team to write off the debt – you should pay it to the guys who need it - the workers.”

In a funny way, this was supposed to be a year when I am supposed to do OK on the financial front. In a funny way, I have in as much as I’ve caught up on bills and paying down debts. I just didn’t expect the source of it to be from these fellows that I helped.

The two that owed me the most paid the fastest. One of them transferred the money he owed instantly and showed me the receipt. Not only did I get the money back, he actually showed me his gratitude via WhatsApp.

The largest debtor actually called me up and was worried I was going to waste money on taxi fares chasing him. I saw him off at the airport and he paid me in cash and then insisted on buying dinner. Interestingly enough, prior to receiving his money, he actually sent me a friend request on Facebook. This is a character who wanted to take photos with me and shared them with the rest of the guys.

I write this because we live in an age where its easy to turn on the less fortunate from other parts of the world. I think of my ex-wife who claimed that she was in danger of getting rapped if she walked by a group of workers or I think of another Singaporean born Indian fellow who claimed to get scared going to Little India on the weekend because it would get very crowded with – Indians.

I find people in multicultural and multiracial Singapore defending Donald Trump whenever he makes xenophobic remarks about “rapist from Mexico” or “banning Muslims” from migrating into the USA.

I don’t understand these sentiments. My experiences with people from the poorer parts of the world has generally been positive. My Indian and Filipino colleagues in the restaurant have looked out for me. My new found friends from the construction industry had every reason to hate me and screw me up but in the end, they were the ones who showed me that it is more than OK to be a good guy.

Why Written Contracts Truly Matter In Business

By Ng Boon Gan 

Senior Legal Associate

VanillaLaw LLC

Many business relationships start with a single transaction. Maybe the first transaction goes well, so both sides decide to rinse and repeat. They continue to trade with each other, compiling their invoices, receipts, delivery orders, and so on.

In a dispute, the mountain of documents and correspondence can show that parties intended to and did perform this contract. The problem arises when the mountain appears in a different shape or size to different people. Trying to explain to the judge what the actual relationship is becomes an uphill task because there are multiple possible interpretations.

Here are three frequent objections to using written contracts that I often hear from our SME clients. 

“We trust each other, so there is no need to sign a written document.”

This is only true if nothing changes. But everybody knows that change is the only constant.

Will you and the other party always remain in control or management of the business? What happens when there are successors who may not enjoy the same personal relationship as you did?

We know how frequently demand, supply and prices change. What happens when one day they change beyond either party’s expectations?

“Asking for a written contract implies that I don’t trust the other party.”

A written contract is a form of commitment. By putting intention and words on paper, you commit to performing the contract based on the written terms.

Parties can agree to vary the contract later to account for different market conditions, so it’s not as if the contract is set in stone.

Showing the other party that you are willing to commit will help to create even more trust, because you are willing to act according to clear standards (whether or not your written standards are clear can be a different story).

“Getting a lawyer to draft an agreement is expensive!”

Not necessarily! There are a few online tools that will allow you to use template agreements or even modify them for your own purposes, such as our very own VanillaLaw™ Docs.

The real work of the lawyer then becomes advising you on which clauses are important for your objectives, and not just assembling or typing out the document.

Here are three advantages (amongst others) of using written contracts:

1) It forces parties to get together and agree to specific terms. Of course, this is assuming that parties have more-or-less equal bargaining power and it’s not one party signing a standard form that the other party uses for their own advantage.

2) It creates the incentive to look to the future. Parties will have to think about whether they want to vary the contract to account for different market conditions, what procedure they want to adopt for repeated and similar transactions and what type of dispute resolution they prefer.

3) It is easier to assign or novate (replace with a new contract) the contract. Having a written document to contain all the obligations makes it clear which rights and responsibilities are being transferred. This helps when one party wants to exit the business but still wants to preserve goodwill by ensuring minimal disruption to the other party’s business, or wants to restructure their business and have a related legal entity be responsible for carrying on the contract.

Written contracts are definitely the way to go if you intend to do business for the long run.

The London-Singapore Comparison Fallacy

By Ben Scott
CTO & Founder 

London has the potential for a new industrial revolution, but politics and power will always get in the way.

(This article appeared originally on Data Driven Investor)

In Linda Lim’s Bloomberg article, “Why Brexiteers should stop fantasizing about Singapore-on-Thames” much of what the author writes is correct. As are her observations on how Singapore works.

However, she does misses the point on what makes Singapore successful, and how these differ from the UK today.

Countries develop over time, and most of that change occurs at critical junctures and it is the nature and timing of these junctures that shape a country’s institutions. These institutions include (but are not limited to) an inclusive form of government that is elected by the people (all people, men and women irrespective of their social standing or age, wealth, relationship status, sexual orientation, criminal record or if they pay tax), law and order, property rights, the judiciary (one that is independent of government and can hold Government accountable), how and to what extent the population are educated, health care, and a free press (this is not libertarian fluff, but an essential part of holding Government and others in power accountable).

The key success factors are inclusiveness, understanding that all are equal [at law], property rights protected, and being able to sell our labor how we chose. For the UK, some of the critical junctures that led to the formation of inclusive and pluralistic government include the Black Death, the Glorious Revolution, and the repealing of the corn laws.

Lastly, for an economy to be successful, the people (and the Government that represents them) must accept creative destruction [failure] and innovation [challenge]. These things only come from instability, which is why good democracies provide a framework of instability: challenge and constant change that is driven from the people — the ground up. This is essential as it is the foundation for the incentives that reward risk, investment and thus enable the population.

To Singapore.

Singapore used to be a British colony. However, before this, it was actually part of the English East India Company’s empire. The modern history of Singapore is similar to all other countries that were colonies of European empires. By this, the systems of government established in these colonies started off as one based on extraction and coercion. The colonizing country needed the local population to work and work for as close to free as possible in order to extract at a maximum profit the respective country’s resources. Thus where slavery didn’t work, taxes, coercion, marketing boards, and other tools of the State were employed to keep the local population down. This was carried out most effectively (and brutally) in Southern Africa. The only exception to this was Australia and the United States (for reasons that I will come to in a later piece).

Therefore, today what you observe in Malaysia, Indonesia, and Singapore are not only the impact of these extractive regimes but what happens over time as critical junctures shape the country, its institutions and impact the founding principles.

For Malaysia and Indonesia (just like most other former colonies), the post-independence governments were no different to the ones they replaced. The new Governors found that they could use the apparatus left behind to enrich themselves in the exact same way the colonizing countries had done. There were no incentives for changing the system to one that is pluralistic and inclusive or creating the institutions that protect the people’s interests and incentivize them to invest and take risks. Those in power had all the incentives to expropriate anything of value for their own personal gain — if it ain’t broke, don’t fix it.

In the case of Singapore, there are many differences.

Singapore (as we know it today) was established by the English East India Company (see 1819 Singapore Treaty). This was a 3-way Treaty that was mutual and required the East India Company to pay an annual fee to both the Sultan of Johor and the Temenggong for the right to establish their port and a factory. Free ports attracted trade and investment, but also vice and thus administration and policing costs. Singapore became part of the British Empire in 1824 and ultimately an independent country in 1965. The critical junctures that helped shape Singapore include the above, but also the race riots of 1964 (there had been much instability prior to this and race riots before this time). These riots were the result of tensions between the Malay and Chinese populations within Singapore. The Malaysian government sought to destabilize Singapore by exploiting the racial tension, as both the Governments of Malaysia and Indonesia did not like the Chinese due to their ability to succeed in the most adverse of conditions.

However, one of the most critical junctures for Singapore was the election of Lee Kuan Yew in 1959 as Singapore’s first Prime Minister (MM Lee). MM Lee was a Cambridge University Law graduate and thus understood the importance of a functioning legal system and an independent judiciary. His selflessness, focus, and self-discipline were a productive accident of his election.

In 1963, Singapore joined with Malaya, Sarawak and North Borneo to form Malaysia (the ‘si’ in Malaysia is to recognize Singapore’s membership to the Malaya club). MM Lee was a strong advocate of equality and fair treatment for all which riled the other members. This, with the economic dominance of Singapore, and because the other members were unable to control Singapore or extract what they wanted, Indonesia and Malaya decided to punish what they saw as a Chinese problem by expelling Singapore from the “Club.”

Racial tensions then only increased.

One of the critical insights MM Lee drew from this time was that if people were treated equally and fairly, had opportunity and work (income), stability would follow. MM Lee and his government also understood well the challenges Singapore faced as a small country with no natural resources to extract and sell. Another productive accident as it turns out. It was then decided that the country should be modeled on the pluralistic principles that treated all equally (the choice of English Law and thus the English language was also an astute choice (at the time), as not only was this the legal system of the business world, it was also the language of the business world at that time), had an independent judiciary, respected property rights, and incentivized investment (risk-taking) and work (the right to choose how we sell our labor).

This resulted in the creation of inclusive institutions of education, law and order, and a functioning legal system. This fostered openness (essential for pluralism) which included opening up to international trade. Labor was truly mobilized.

The focus on inclusive institutions and a legal system that protects people’s fundamental property rights is the foundation of Singapore’s success.

Foreign investment poured in, as no other country in the region had such a reliable foundation. This trust brought certainty to financial decisions and meant that investments were made in Singapore that otherwise would have gone to Indonesia, Malaysia, Thailand, Taiwan, or Japan.

Today, Singapore’s competitive edge is its legal and financial systems (even Japan and Korea’s legal systems can be unpredictable). Thus, it is better for many companies to work here than in any other Asian country. It also means that much of Asia’s wealth is managed and banked in Singapore.

Until other countries understand this, they will remain where they are and continue to lag behind. This includes China. One should not mistake breakneck short-run economic growth brought about by authoritarian and extractive government with long term success.

The labor market. This is Singapore’s Achilles heel. It appears that many in Singapore correlate economic growth only with the mobilization of labor (the first stage of economic development), rather than total factor productivity.

To put this in equations, GDP = C + I + G + NX (Consumer Spending + Investment + Government Spending + Net Exports) rather than AKN (Total Factor Productivity x Capital Stock x Labor).

The differences in these two equations are important to understand. The first says that people spend money and save (investments) and Governments spend and the country trades. All good stuff, but in order to have more GDP all you can do here is have more people spending more money and hopefully saving and investing more, with the worst sin being increasing Government spending to increase GDP. However, a focus on the second produces different results as it is clear that the biggest gains to GDP come from investment in capital items (machines, factories, infrastructure) and productivity.

You can’t double your workforce during the life of a government, but you could double productivity and capital invested. The challenge is that most governments like the first equation, in which spending is convenient and as a result, in Asia, you see huge infrastructure spending and continued investment in housing and other easy ways to push up GDP and soak up labor.

In Singapore, there was never enough labor to soak up, so it's imported. The dependence on foreign labor is also a subsidy and also results in extractive and coercive practices (crap management and nonexistent productivity). Worse, it results in a lack of innovation and thus an absence of productivity gains. Business in Singapore is in the same place as the Cotton Barons of the Southern United States. They (The Southern States) lost the Civil War but won the slavery battle. The access to cheap, almost slave labor, means no incentive or need to invest in productivity and slavery remained, only in different clothes.

This is why productivity in Singapore is so low and continues to fall — there is no incentive on management to change. If you compared the patent filings in the Southern United States with those in other agricultural states that did not rely on forced labor, you would typically observe an average twelves times more patent applications filed per year in states that had competitive labor markets.

The most basic right is for a person to decide how they sell their labor.

Coercive markets are not competitive and thus always fail. In order to succeed a nation must protect and incentivize its people — everyone is the same and no-one has executive power. Again, this is not libertarian fluff or a political view, this is evidence-based economics. The evidence is clear and unambiguous.

Lastly, Singapore’s savings.

The very fact that Singaporeans have been required to save via the CPF, and that the Chinese population is prolific savers has resulted in vast cash resources. These resources are deployed via GIC and Temasek in investments that are designed to improve Singapore as well as preserve and grow these savings. These investments are both domestic and international.

Private investment is also strong. People and companies have significant sums to invest and invest they do. They invest in their own business as well as other people’s and other countries. The only Europeans who think like this are the Germans and Norwegians. The UK has no savings base, no government surplus to invest and shows no sign of satisfying its rapacious appetite for public borrowing to fund social spending (much of which is important, but doesn’t create wealth or get people to work). Money continues to flow into Singapore and the Singapore Dollar continues to appreciate. Money flows out of the UK and Sterling declines.

The markets have confidence in Singapore, but not in the UK. So, as a Caucasian, if you feel aggrieved that rich Asians are buying up companies and housing stocks, maybe try to compete — get out and work and save, there is no secret sauce, just hard work and self-discipline. You too could own assets in other countries.

What does this mean for the UK?

The UK has the institutions necessary for success, but these institutions are not the same as they were. The industrial revolution happened in the UK because the UK respected property rights and had an inclusive form of government that operated under very different incentives than those in Europe. Thus the UK welcomed inventors, new ideas, and those that wanted to work and take risks. Whereas, most governments in Europe wanted to prevent labor market reforms and wealth creation because these threatened their position.

Today, I would argue that the UK is not as inclusive as it was (there has been a decline in institutional quality) and we see this in the increase in extreme political views and social instability.

Many people feel unheard.

Economic stagnation is a signal of declining institutional quality.

This, coupled with a corporate culture that is extractive in nature, leads to many companies engaging in unfair and ethically questionable practices, reaping benefit but shouldering none of the responsibilities such as paying taxes or wages that people can live on and raise a family on.

(See the commentaries on the impact of a poorly functioning labor market, particularly one where extractive, coercive and other anti-competitive practices appear.)

From an economic perspective, the UK cannot be like Singapore because it is surrounded by developed countries with functional legal and financial systems. There is no inherent incentive for companies to invest in the UK. They can invest in other European countries and gain access to those (local) markets at a lower cost.

Competitive strategy 101: To compete you must bring something new to the table.

In order to attract inward investment, there has to be a reason and it has to be more profitable than the alternative. In the short run, the EU will win over the UK because of risk aversion, but in the long run, as trade flows establish and the new business model and transaction costs of this model become observable, things could be different.

However, the UK will always have to compete on taxes. A great example of this is the reason that Silicon Valley is in the US and stays in the US: tax.

Taxes shape economies — the labor market, the products we buy, but most crucially, it shapes the investment landscape and peoples’ risk appetite. People in the US are no more or less creative or ingenious than those in any other country, they are only incentivized differently.

Taxation requires reform. People are understandably uncomfortable about this, but if we learn anything from the Chinese, it must be pragmatism. What most people tend to want, is to work at something meaningful, be paid and treated fairly and have not only some certainty that their future is in their hands, but that there is hope and opportunity that they can make a better life and leave something better for their children. It is critical to understand how what you wish for impacts these desired outcomes.

The government does not build countries, the people do.

Government creates the institutions and incentives — structures and controls that enable the people, which are the economic growth engine of all economies.

For example, it was not the British Government that built the empire, it was private enterprises using contracts and joint stock companies. People who wanted to invest in the enterprise without risk of their assets being expropriated on the whim of authority. The industrial revolution happened in the UK because of its inclusive institutions, and that innovators and entrepreneurs could pursue what they wanted without a monarch or authoritarian interfering with their property rights. In simple terms, it was people responding to incentives.

Authority fears industrial growth as the wealth it creates challenges their power base. There could always be a second industrial revolution in the UK, a renaissance, but this would be dependent on better policies and rebuilding the democratic base. This means looking hard at some of the institutions to determine what needs fixing. It requires people to work and work hard. I say this as not only because the institutional drift in the UK resulted in a loss of pluralism, but also too many people in the UK have forgotten what real work is, and what it takes to succeed.

Get out of the narrative of politics, or how you feel, and look at the evidence.

One of the downsides of EU membership is that the EU is a closed shop — rather like the guilds of the middle ages. These Guilds prevented growth as they preserved a status quo that benefited its members by shutting down the competition.

The EU is anti-competitive by design. The main selling point for EU membership is that life is easier (in the short-run). However, as we see now, life is not easy and governments across Europe are reaping what they have sown, and there is now a little opportunity and no growth. Germany, France, and Italy are (at the time of writing) in technical recessions. The only tool the EU thinks it has is monetary, but you can’t buy your way into prosperity.

Prosperity requires reform of incentives to enable people. In particular, reforms of the labor market and taxes. People make better decisions than the government. The challenge here is that politicians don’t like giving up power and this makes them similar to the self-appointed monarchs democracy was supposed to replace.

Barriers are high in Europe, it is difficult to start a business in countries like Italy and France. It is these factors that create an opportunity for the UK. The correct strategy for the UK going forward is to create the incentives for Europe’s brightest and best, the most driven, to come to the UK to set up their businesses there instead.

This brings not only capability but also a capital — the seeds of creative destruction.

It’s about getting the real working-class entrepreneurs, the ones who give you the most value for money. These businesses employ more people, pay better, treat people better, and pay more taxes. Not only that, they are more innovative and bring more reliability, because a sustainable economy is built on creative destruction — the acceptance of failure and the instability of innovation that only comes from a functioning democracy.

The last thing that really bothers me about the article I mentioned in the first paragraph, is not what’s written, but the headline. The very fact that politicians talk of “Singapore-on-Thames” reinforces some very sad facts that those in London think no further than London. What’s worse, it implies that the only sector in an economy is the financial sector.

How offensive is that?

The financial sector is a secondary sector that grew from peoples’ trading activity. When we trade we need banks and ways to pay bills (settlements and settlement instruments), we need lawyers and contracts and stock and bond markets to raise funds for our businesses. Putting the city before the industry is rather putting the cart before the horse.

I think the worst thing about this is that its clear that Westminster has no industrial policy, plan, or strategy and certainly nothing that would benefit anyone who lives outside of London or the Home Counties.

This means that Westminster has no plan for most of the people that work in the biggest part of the economy. The economy that actually puts the most number of politicians in Westminster and pays the biggest piece of revenue to the Exchequer.

In plain English. If politicians are serious about improving the state of the UK economy and enabling growth, then there is much work to do and many thorny reforms to undertake. If the UK government approaches the UK’s current problems like MM Lee and his post-independence government did — with humility and honesty and a genuine drive to make the country better for everyone while being clear in what the desired outcomes are, and then exercising iron discipline in execution, anything can be achieved.

Sadly, it is more likely that it will be business-as-usual in Westminster, the Singapore-on-Thames will remain a fantasy, and the people will only be poorer.