Spotlight

As Ireland’s housing crisis deepens, Pat Dennigan of Focus Ireland is calling on the Government to take immediate steps to support those at risk  Faced with a 24 percent rise in homelessness and this month’s lifting of the Government ban on no-fault evictions, Pat Dennigan is forecasting a challenging year ahead for Focus Ireland, the homelessness charity he has led as CEO since 2018. Figures published by the Department of Housing put the number of people officially homeless in Ireland in February at 11,742, up 24 percent on the same month last year. “About 12,500 people came to us last year for support and the lifting of the eviction ban means we are about to enter a new phase of homelessness,” says Dennigan. “Nothing has changed since the ban was introduced. We still have a housing crisis in this country and lifting the ban will do nothing to allay fears among landlords as they are selling up in vast numbers because of high taxation and market uncertainty.” As CEO of Focus Ireland, the not-for-profit organisation founded in 1985 by Sister Stanislaus Kennedy, Dennigan leads a team of 400 people providing services nationwide. “We offer about 90 different services and operate a two-tier approach. The first tier is prevention—making people aware of their rights and responsibilities and making sure they have access to the right information and entitlements,” says Dennigan. “The second tier is our sustained exit policy whereby people who are homeless can get a long-term home and keep it.” Focus Ireland also has Focus Housing Association, an Approved Housing Body operating 1,400 long-term homes nationwide. “One of the big attractions of this job for me is the variety of the work I do and the people I meet. The situations and challenges I encounter are completely different from one day to the next,” says Dennigan. One of these challenges is ensuring that the experiences of the people Focus Ireland works with are fairly and accurately reflected in public policy. Fair reflection “We are almost unique among Irish charities in the sense that, from our foundation, we have concentrated on having an evidential response to what we do, based on the data we accumulate. All of our work is underpinned by research and evaluation,” says Dennigan. “Given current circumstances, where we have record numbers of people who are homeless and entering homelessness every month in Ireland—and also the ending of the moratorium on evictions—we face a massive challenge in putting forward constructive and progressive proposals that have a national impact.” To this end, Focus Ireland has partnered with Chartered Accountants Ireland to launch a joint briefing paper calling on the Government to help ease the housing crisis by introducing targeted measures to keep small-scale landlords in the private rented market. While the long-term government objective of increasing the delivery of social, affordable, and cost rental housing is the right course of action, the short-term challenge presented by the large-scale departure of private landlords from the market must also be addressed, Dennigan says. “The vast majority of families who come to us, who have fallen into homelessness or are facing the risk of homelessness, come from the private rented sector,” he says. “They have been served with a notice to quit and, in many cases, this is because their landlord is selling the property they live in and leaving the market.  “Typically, the landlord decides to sell the property, serves the tenant with a notice to quit and then puts the property up for sale. The property is then bought by someone who is going to be the owner-occupier. “On a wider scale, this means that the stock of rental property is shrinking daily and, for the tenant served with the notice to quit, finding somewhere else to live is hugely difficult, particularly if they want to live in the same area with links to schools and the local community.” The Focus Ireland and Chartered Accountants Ireland briefing paper sets out seven fully costed proposals, primarily using tax policy as a lever to encourage small-scale landlords to remain in the residential rental market in the medium- to long-term. “At Focus Ireland, we believe Government targets set out in Housing For All are too low, but until we begin to address the issue of increased housing supply, there will continue to be a shortage of private rented homes to buy,” says Dennigan. “In order to incentivise landlords to stay in the market until we increase our housing stock, we believe short- to medium-term measures are needed over four to six years to help deal with our housing crisis.” Meaningful work Sligo-born Dennigan joined Focus Ireland in 2014, initially as Acting Finance Director, having spent much of his career in the multinational sector in the west of Ireland. “I worked for organisations like Boston Scientific, Nortel Networks and other medical device and tech companies. In the background, I was always motivated by applying the skills those experiences gave me in the service of others and the community,” he says. “My role with Focus Ireland gives me the balance of applying my skills in what is, hopefully, a meaningful way. There is a lot to juggle but I enjoy that and the feeling that I am helping to make a real difference in people’s lives.” Focus Ireland published its current five-year strategy in 2021, laying out plans to support more than 4,000 households out of homelessness and prevent 3,000 households from becoming homeless. The strategy aims to deliver 1,150 new homes in partnership with local authorities and other State agencies through a mix of direct build, buying and leasing. “We have ambitious targets and a significant fundraising requirement each year,” says Dennigan.  “We receive substantial state funding, but it is not close to being enough to meet our overall financial needs. This year, we will have to raise over €14 million to fund our services and that is a big challenge.” A Fellow of Chartered Accountants Ireland, Dennigan says he was delighted to partner with the Institute to publish the joint briefing paper calling for targeted measures to keep small-scale landlords in the private rented market. “The document is relevant and appropriate in the current situation. We also believe there is an amplified voice when Focus Ireland and Chartered Accountants Ireland come together with a similar view and a similar set of proposals,” he says. “I would personally like to thank Chartered Accountants Ireland for helping us to share our message and we look forward to building on this collaboration in the future.”

As Ulster Bank and KBC ramp up plans to exit the market, retail banking in Ireland has reached a critical juncture with far-reaching implications for the wider economy, writes Elaine O'Regan In mid-August, an article appeared in the Financial Times, heralding a “once in a generation” growth opportunity for Ireland’s banks. Irish lenders were primed for expansion, the article said, amid rising interest rates and the exit of both KBC and Ulster Bank from the market, leaving behind €30 billion in loan books and one million customers. While the exits may be good news for AIB, Bank of Ireland, and Permanent TSB—the three remaining full-service high street lenders in the Irish market—the contraction of the sector is of wider concern. “Industry stakeholders face fundamental questions about the sector’s sustainability and direction,” Brian Hayes, Chief Executive of the Banking and Payments Federation of Ireland, said. “As it stands, the profitability of the retail banking sector in Ireland is among the lowest in Europe, measured in terms of return on equity. Irish retail banks must hold back an estimated €2.5 billion in additional capital for mortgages, impacting the price of products and the share valuation of retail banks.” These banks need to be profitable to generate organic capital, which is lent back into the wider economy to support jobs, businesses, and economic activity, Hayes said, and “this will require new and diversified sources of income as well as further efficiencies in operational costs.” The biggest challenge facing Ireland’s retail banking system now is the need to continue running core functions while also meeting a diverse set of needs among competing stakeholders. “Financial regulators place a strong emphasis on strength and stability, while shareholders need to focus on sustainable profitability,” Hayes said. “These demands and expectations are not necessarily mutually exclusive. However, there is a need to acknowledge and seek a means to achieve balance between stakeholder demands.” Retail banking review As government officials prepare to present the draft report on the Retail Banking Review to Minister for Finance Paschal Donohoe, TD, in the weeks ahead, Hayes called for an informed and open conversation between all stakeholders and “meaningful and effective dialogue”. “We need a viable, safe, innovative, and purpose-led retail banking system, which serves its customers, the economy and society. A stable and viable retail banking sector is a fundamental prerequisite to a well-functioning modern economy and society,” he said. A new discussion paper on consumer protection, published at the start of the month by the Central Bank, noted that structural changes in retail banking, including the withdrawal of Ulster Bank and KBC and branch closures by other retail banks, was impacting “availability and choice” for both consumers and small businesses in Ireland. The discussion paper is the first stage of the Central Bank’s review of the Consumer Protection Code. The Irish financial system has “extensive scale and reach” at both retail and SME level, it noted, including 5.4 million current accounts, €101 billion in credit to households, €22 billion to SMEs, and €2.64 billion payment transactions in 2021. As KBC and Ulster bank continue to progress market withdrawal plans announced last year, some one million customers will need to move their current and deposit accounts to new providers. The Central Bank was, it said, “closely monitoring” this mass account migration process, including assessing ongoing implementation plans at an individual firm and sectoral level to ensure the protection of affected consumers. CCPC submission In its submission to the public consultation for the Retail Banking Review first announced in July 2021, the Competition and Consumer Protection Commission (CCPC) expressed its own concerns about the impending increase in concentration levels in retail banking in Ireland. “With KBC and Ulster Bank closing, small businesses here will have access to just two full-service banks, while for consumers, there will be just three,” CCPC member Brian McHugh said. “When you have just two or three players in any market, you would generally have competition concerns, because the evidence shows that customers in these situations tend to be worse off, not just in terms of price, but also quality and innovation.” While there had been some entry into the market at product level—in mortgages and business lending, for example— the CCPC noted that much of this was being provided by non-bank lenders, and that there had been no entry into the market by a full-service provider and no indications that such entry was likely in the near future. It was therefore vital that public policy and regulation facilitate entry into market, the CCPC said; that the mandate of the Central Bank of Ireland be amended to include competition objectives; and that its revised Consumer Protection Code promote fair competition in financial services. The CCPC also called for an evaluation of the operation of the Bank Switching Code as part of the Central Bank review of the Consumer Protection Code, and that the Government engage at an early stage with the proposal for a European Digital Identity Wallet to maximise consumer engagement and protection. “What we want to see, ultimately, is a more competitive landscape for banking in Ireland where we have new entry into the market. We are not specific about exactly what that might mean. We don’t know what the right solution is, but what we do want is to have lots of different providers coming into Ireland, offering consumers and businesses a variety of products,” McHugh said. “We have to ask why we are not seeing more European players moving into the Irish market and competing here as they do in lots of other markets. There is a need for Ireland to be at the forefront of any efforts to promote the European banking market and make it easier for other players in Europe to move into the market here under common EU rules. “I don’t know if we’ll ever see another full-service provider coming into the market here and opening a full branch network, but ultimately, we need to have competition for both pricing and innovation.” Jobs in banking Central to the continued viability of the retail banking sector at a time of “evolving consumer and regulatory demands”, would be its ability to attract the skills needed with competitive pay and career opportunities, Brian Hayes said. “Retail bank employees and potential recruits are subject, under both Irish legislation and administrative orders, to the most restrictive remuneration conditions in the EU. They are clear outliers when compared with graduates and employees in financial services and a range of other sectors. This places Ireland’s retail banks at a considerable and growing disadvantage,” he said. “The skills composition within banks is evolving rapidly, and the normalisation of pay and employment conditions is needed in the sector to attract the skills and employees necessary for the provision of services expected by Irish consumers.” The Financial Services Union (FSU), meanwhile, wants an “open transparent model of engagement on the future of banking” involving all relevant stakeholders. “Stakeholder banking is common across the EU. A new governance framework involving workers and consumer directors on the boards of banks would put the voices of customers, business, and staff, at the centre of decision-making,” FSU General Secretary John O’Connell said. “This is a big strategic focus now for the FSU—and it isn’t just a trade union matter, it is something the Financial Conduct Authority in the UK has identified in its own regulatory approach, identifying ‘worker directors’ as one option for providers. “It is about having a sustainable banking sector that doesn’t trample over people for profit and the race for digital. That’s not to say that change won’t, or shouldn’t, occur. It is about how this change will occur. We don’t want to see announcements of sudden branch closures in the future and all that entails for staff and customers.” Digital challengers According to the results of a survey published in May by the Department of Finance, just one percent of people in Ireland have their main current account with a digital bank. Carried out as part of the Retail Banking Review, the survey of 1,500 consumers found that 97 percent conducted their main current account banking activities through a traditional retail bank. Despite this, however, close to one-in-five said they were using a digital provider for banking or payments at least occasionally. The main appeal of fintech providers compared to traditional retail banks is that they offer instant money transfers, free banking, and allow customers to split bills as well as providing a user-friendly app, the survey found. Fifty-eight per cent of fintech customers strongly believe that the services offered by fintech providers are a very good substitute for the services offered by more traditional banks, it said. “Speed, convenience, and simplicity are at the core of positive customer response to digital banking, and we can’t ignore the new players joining the market,” said Billy O’Connell, Head of Accenture’s financial services business in Ireland. Revolut, the UK-headquartered digital bank, officially launched as a bank in Ireland earlier this year, operationalising its European specialised banking licence here, while N26 is licensed by the German Central Bank, operating in Ireland on a European Passport. Dutch neobank Bunq has, meanwhile, secured Central Bank authorisation to launch an Irish IBAN, and also recently acquired Capitalflow, a specialist digital lender to businesses in Ireland. “Early traction in this market has been based around highly frictionless, digital-first experiences for payments, money transfers and features like money management across demographics in Ireland, but new digital players continue to face challenges for providing complex lending and highly regulated products,” Billy O’Connell said. “New players are driving enhanced and innovative propositions—shaping customer expectations in the market and tapping into this need for new ideas, but they aren’t necessarily replacing banking services. Most people retain traditional bank accounts for core activities, like receiving salaries and taking out loans, so incumbents locally still retain a large market share despite disruption.” At the same time, O’Connell said, traditional retail banks are investing in new digital offerings and capabilities, releasing high-end apps, and improving online banking services, to compete with neobank challengers. According to the BPFI, Irish retail banks have collectively spent more than €3 billion in the last five years on technology and innovation projects to deliver new digital services for customers. Synch payments Synch Payments, a mobile money app joint venture involving AIB, Bank of Ireland and Permanent TSB secured CCPC approval earlier this year. “The ability to make instant peer-to peer-payments, without the need for complex payee addition journeys, is a key customer need, and it is envisaged that Synch Payments will address this need, with all Irish customers being ‘auto-enrolled’, so that they can make payments using just their phone number,” Accenture’s Billy O’Connell said. To continue to be competitive in the future, however—particularly among younger demographics—he added that traditional retail banks would need to commit further investment to more advanced services, such as end-to-end digital account opening, digital accounts aimed specifically at “juniors”, share dealing, and cryptocurrencies. “Decades from now, the banks that will be successful will be those that shape their businesses continuously to the needs of customers, employees, and other stakeholders, honing their abilities to identify opportunity and innovate efficiently,” O’Connell said.

Russia’s invasion of Ukraine has dampened the global economic outlook, prompting predictions of spiralling price hikes not seen since the 1980s and looming recession. But, is it too soon to predict with any accuracy what really lies ahead? Professor Anthony Foley investigates. After two years of economic uncertainty because of the pandemic, Russia’s invasion of Ukraine, and its associated sanctions, have unsettled our markets once again, lowering projected GDP growth rates and increasing global inflation rates in 2022 and, to a lesser extent, in 2023.  However, the exact scale of the impact is as yet uncertain. It will depend on several factors, including the duration of the conflict, developments in economic sanctions — both in terms of impositions on Russia and its own retaliative measures — and the nature of any possible peace deal.  Together, Russia and Ukraine comprise a relatively small part of the global economy, making up about two percent of GDP internationally. They are important players in the markets for certain products, accounting for about 30 percent of global exports of wheat, 20 percent of corn, roughly 20 percent of fertilisers, 20 percent of natural gas and 11 percent of oil.  Both countries also have substantial uranium reserves and are significant suppliers of the inert gases used to make semiconductors and the titanium sponge used in aircraft manufacturing.  On top of that, Russia is a major supplier of the palladium used in the catalytic converters for cars and the nickel used in batteries and steel, while Ukraine is among the world’s foremost producers of sunflower oil and sugar beet. Mechanisms of the economic impact of war There are several mechanisms through which war has an economic impact. Trade flows are suppressed, hitting integrated global supply chains. The rising cost of commodities like gas, fertiliser and oil upends business cost models and lowers real consumer income.  Even had there been no response from the rest of the world to the Russian invasion, Ukraine would still be unable to maintain existing supplies of products, such as wheat and minerals, to the global market. This alone would result in supply chain disruption and price hikes for certain products.  Uncertainty, in general, suppresses economic growth, muting confidence and lowering consumer spending and enterprise investment — and this is especially true of the current situation in Ukraine. The intervention of the West thus far, through economic sanctions imposed on Russia and Belarus, has increased the economic impact of the war by limiting trade engagement with Russia.  Russia may retaliate against these sanctions by restricting gas supplies or defaulting on sovereign debt, which would further deepen the economic impact.  Energy prices were rising even before the Ukraine invasion, but the war has now accelerated the rate of inflation. Even if a country has no direct trade link with Russia, it will be affected by ongoing global price hikes.  Countries with trade links to Russia will have lower growth rates, curtailing their capacity to trade with other countries – even those with no direct trade links to Russia — triggering further global economic impact. Hundreds of western companies have opted to cut business ties with Russia, even if not required by official sanctions, including big brand names like Coca-Cola, McDonald’s and Nike. In addition, there are implications for the public finances of those countries taking refugees from and sending aid to Ukraine. If a peace settlement is reached, there will then be the cost of rebuilding Ukraine.  Irish trade with Ukraine & Russia Ireland exported goods worth €627 million to Russia in 2021 (just 0.4% of its total exports) and imported goods worth €598.1 million from Russia. In the same period, goods exported to Ukraine totalled €91.7 million, while imports came to €70.2 million.   The imports of goods are dominated by petroleum and petroleum products (€231 million), coal and coke (€140 million) and fertilisers (€134 million). These three imports are 84 percent of total Irish imports from Russia.  The value of services traded with Russia is much higher, however. Ireland’s service exports to Russia were valued at €3,242 million in 2020 (i.e. 1.3% of total service exports). The value of services imported to Ireland from Russia in the same year was €360 million. The main services exported to Russia were computer services (€1,840 million), operational leasing (€926 million), financial services (€81 million) and insurance (€27 million). The main service imports from Russia were business services. Service exports to Ukraine were €647 million in 2020, and imports were €49 million. Impact on economic growth and inflation There is significant uncertainty about the magnitude and duration of the economic impact of the war. However, the OECD, the National Institute of Economic and Social Research in the UK and the European Central Bank (ECB) have all recently attempted to quantify the economic impact.  The OECD estimates that in 2022, the war will reduce global growth by about one percent, from 4.5 percent to 3.5 percent. Global 2022 inflation will increase by 2.5 percent from 4.2 percent to 6.7 percent.   The Euro area economic growth will drop by about 1.4 percent from 4.3 percent to about 2.9 percent. Euro area inflation will increase from 2.7 percent to about five percent in 2022. The estimated impact on the US is almost one percent off the growth rate and 1.5 percent on the inflation rate. The assessment by the National Institute of Economic and Social Research in the UK is a little more optimistic but broadly similar to that of the OECD. Global growth this year may fall by 0.5 percent, while inflation could rise by about three percent.  Next year’s impact will not be as drastic, but it is something to watch out for. In 2023, we will see about one percent less in growth and an added two percent on the inflation rate. Euro area growth this year will fall by 0.9 percent, and inflation will rise from 3.1 percent to 5.5 percent. Euro area growth would be about 1.5 percent lower in 2023, and inflation would be about 0.8 percent higher.  Three economic scenarios The ECB recently undertook a detailed analysis of the economic impact and presented three scenarios (Table 1). In December 2021, the ECB forecast a GDP growth rate of 4.2 percent and 3.2 percent for the Euro area in 2022. These figures were revised in March, following the Russian invasion, to GDP growth of 3.7 percent and inflation of 5.1 percent.  This “baseline projection” assumes that current disruptions to energy supplies and suppressed confidence are temporary and that global supply chains are not significantly affected.  The ECB also produced forecasts based on two more negative but possible scenarios.  The adverse scenario assumes a worsening in all three impact mechanisms of trade, prices and economic confidence. The severe scenario assumes a more significant and prolonged increase in commodity prices, leading to second-round inflation and financial system impacts.  The differences between the severe scenario and the pre-war forecasts here are substantial. The growth rate drops by almost half from 4.2 percent to 2.3 percent, and the inflation rate more than doubles from 3.2 percent to 7.1 percent.  Of course, we do not yet know what the eventual impact of the Russian invasion of Ukraine will be. We can be sure there will be lower growth, and inflation will rise. On the most extreme assumptions, growth could almost halve, and inflation could more than double compared with the forecasts for the Euro area before the invasion. The ECB has also considered the potential longer-term impact of the Ukraine invasion on growth and inflation in the Euro area into 2023 (Table 2).  The news here is relatively positive, in that growth is closer to the ECB’s pre-war forecast of 2.3 percent on the severe assumptions, compared to 2.9 percent in December 2021. The same is true for inflation — 2.7 percent on the severe assumption compared to 1.8 percent in December 2021. Possible economic impact on Ireland Before the Russian invasion of Ukraine, the economy was expected to perform well in 2022. The Stability Programme Update, published by the Department of Finance in April 2021, forecast GDP growth of five percent this year, followed by 3.5 percent in 2023.  Modified domestic demand was expected to grow by 7.4 percent this year and 3.8 percent next. Inflation was expected to be 1.9 percent in 2022 and 1.5 percent in 2023. Up until the invasion of Ukraine, this forecast was expected to be exceeded.  The forecasts underestimated the rise in inflation, however – the October 2021 budget forecast Irish inflation rates of 2.2 percent in 2022 and 1.9 percent in 2023.  Using the relativities of the severe ECB scenario, Ireland might face a growth rate of about 3.5 percent instead of around six percent in 2022 and inflation of eight percent instead of four percent.  The good news is that growth is still likely in Ireland and the Euro area because of the relatively high growth rates before the effects of the war.  Of course, particular sectors face a more daunting situation. Ireland’s aircraft leasing sector has high exposure to Russia, and it is uncertain how this will play out in terms of aircraft recovery.  International tourism was expected to rebound after COVID-19 in 2022, but the war may have a dampening effect, particularly in the case of US tourists. Many enterprises in Ireland have had to pause or end their business activities in, and trade contacts with, Russia. Ireland must now cope with the financial requirements of taking in possibly 100,000 Ukrainian war refugees. However hard this may be, consider the position of Poland with millions of refugees to support. The major immediate economic problem is the very high inflation rate to which the war has contributed but is not entirely responsible. How will consumers and producers cope with the price increases? To what extent can the Government shield households from the effects of rising energy prices?  It is already clear that the economic impact of the war is substantial, and the scale and duration of the impact are still unclear, but, as of now, we should be able to avoid recession. Over the longer term, the economic impact will depend on whether there is a return to the pre-war normal (which is unlikely) and what the new normal will be in terms of trading blocs, continuing sanctions, higher defence spending, cyberwar, political tensions and bank payment systems. Anthony Foley is Emeritus Associate Professor of Economics at Dublin City University Business School.

In the nearly six years since the UK public voted to leave the EU, negotiators have yet to come up with a plan that meets the needs of both sides with regards to Northern Ireland. Tony Connelly outlines the negotiation issues, the problem with the NI Protocol and what could change in the future. As 2022 gets underway, it is striking to realise that it is nearly six years since the Brexit referendum and a full year since Britain’s formal departure from the European Union (EU). Despite the desires among fervent Brexiteers for a clean break, the past year has taught us that Britain and the EU will remain entangled in each other’s affairs for some time to come. The problem of the NI Protocol The Northern Ireland Protocol remains at the heart of that entanglement. While European capitals are growing weary of the perpetual antagonism over Britain’s departure – including the Irish question – the incoming French Presidency of the EU has made it clear the first step in normalising a post-Brexit relationship is a resolution to the Protocol standoff. The EU’s support for Ireland’s position remains striking. Irish diplomats have always feared that the Irish border question would end up as the “stone in the shoe” – a minor, regional irritation that should not stand in the way of a broader EU–UK relationship. So far, that has not come to pass despite some reliably-sourced occasions where the UK has appealed bilaterally to capitals for a more pro-British understanding of the Protocol. Dublin, indeed, remains alert to the UK’s efforts to place the problems of the Protocol in a broader geopolitical context. In her first detailed remarks on the subject, the UK’s new Brexit negotiator, Liz Truss, specifically linked the Protocol negotiations to conflicts elsewhere. “I believe that the United Kingdom and the EU, as believers in freedom and democracy, are capable of working out a solution which delivers for the people of Northern Ireland,” the Foreign Secretary wrote in the Sunday Telegraph on 8 January. “This will enable us to focus our energies on major external threats – such as Russia’s aggressive activity towards Ukraine – and building our economies following this pandemic.” The EU would undoubtedly like to deepen its strategic relationship with the UK. The UK resisted any attempt to include a treaty-based relationship on foreign and security policy in the Trade and Cooperation Agreement (TCA). However, Brussels would still like one to develop. “There is a common-sense willingness and political will [among member states] to engage with the UK…and having the UK as a partner,” says one EU diplomat. “It’s simply been blocked by the noise of the TCA, the Protocol, and the fact that the Brits say they don’t want to have a formal agreement. I’m not hearing people saying, ‘over our dead bodies’, ‘the Brits have nothing to offer’, ‘Brexit means Brexit’. We were never hearing that.” For now, no such relationship is maturing. The EU invests a lot of energy in its economic and security relationship with the United States, but there is no outline of what a long-term partnership could look like with the UK. London has refused to articulate what it wants, and the EU lacks the tools (the “scaffolding”, as one diplomat puts it) to construct one.  What is the economic damage of Brexit? The COVID-19 pandemic has obscured the true economic impact of Brexit, and that means it is hard to predict.  1 January 2022 saw the full introduction of customs checks and controls on EU goods entering the UK, meaning a more realistic picture of trade friction will emerge, but it is not fully apparent yet. “As the UK starts phasing out all of its derogations and starts actually implementing checks, we will see how things bite and the impact that will have on trade flows,” says one EU official. “As the pandemic starts to lift and people start to travel again, that will be the moment that the penny really drops: just what is the damage here?” The UK has exempted goods from the Republic of Ireland from its new checking regime. This is good news and bad news: while it keeps trade – especially the agri-food trade – flowing, it has caused frustration for many companies that have invested heavily in preparing systems and training staff. Many Irish companies have been looking beyond the UK, not least because of the uncertainty about London’s intentions. Irish food, drink and horticultural exports to other markets have increased. Although exports to the UK are still significant (Bord Bia recently reported sales worth €4.4 billion or 33% of total export value), there was a 9% decline in volume between January to October 2021 compared to the previous period in 2020. This was partly due to stockpiling in late 2020; however, it also suggests that food exports to the UK will suffer. The big concern is the requirement for UK export health certificates on Irish beef, cheese, lamb and other valuable commodities, due from 1 July.  Irish companies importing goods from the UK have adapted after a challenging first quarter in 2021. “As companies got used to the new controls, particularly food companies, where they’re having to get their heads around [EU] health cert requirements, month-on-month it’s probably just got better and better,” says Carol Lynch, a partner in BDO Customs and International Trade Services department. The major development of 2021 was undoubtedly the decline of the UK landbridge as the preferred route into Europe (and vice versa) as direct, two-way sea crossings to Europe increased from a pre-Brexit level of 12 to 44 crossings last year. This growth reflects the real-world adaptation by companies. What is harder to predict is Brexit’s overall impact on the island of Ireland economy. The deadlock of the Northern Ireland Protocol means that exporters and importers, and foreign direct investment remain in a holding pattern while the politics remain unresolved. As is so often the case, Ireland is hostage to the internal dynamics of the Conservative Party – the same dynamics which gave rise to the referendum in the first place.  May UK elections and the Protocol Liz Truss has introduced a more cordial style to the relationship with the European Commission, in contrast to the antagonistic approach favoured by her predecessor Lord Frost. The EU delegation warmly appreciated her welcoming of the EU’s chief negotiator Maros Sefcovic to Chevening House in Kent for their first face-to-face meeting. Still, once the pleasantries were out of the way, both sides retreated to well-worn positions on the Protocol. The fact that Truss is a front-runner in any contest to succeed Boris Johnson as Conservative Party leader will undoubtedly restrict her room for manoeuvre. Suppose there is to be a leadership challenge after the May local elections. In that case, Truss will need the support of the hard Brexit European Research Group (ERG) to get into the second round, so she is unlikely to sign up to a deal on the Protocol which does not meet its sovereignty yardstick. For his part, Boris Johnson is launching a raft of right-wing initiatives, from reducing the number of migrant boats crossing the English Channel to freezing the BBC licence fee, to expressly appeal to the kind of Tory backbenchers who have been the most unyielding on the Protocol. This does not bode well for an agreement by the end of February, which the Irish government had recommended to avoid the issue colliding with the Northern Ireland Assembly elections scheduled for May. The UK government, leadership contest or not, will also be determined to ensure that the DUP maximises its vote. Will London play hardball and refuse to compromise on its maximalist Protocol position in order to give the DUP a rallying point? Or, will Truss decide that a quick deal on the Protocol can be dressed up as a win for Jeffrey Donaldson (the Foreign Secretary has not shied away from championing post-Brexit agreements even where the detail does not quite match the hyperbole)? Moving negotiations forward So far, the Protocol negotiations have remained stuck. The UK believes the EU October proposals to ease the burden of the Protocol don’t go nearly far enough, and the EU says they can’t go any further, and certainly not as far as the UK Command Paper.   The EU has dealt with the issue of how to ensure the free flow of medicines (both generic and innovative) to Northern Ireland by reforming its own legislation, so the focus now is on reducing customs and agri-food controls. London believes there should be no checks or controls on British goods clearly destined only for Northern Ireland end-users. In other words, it should be as easy to move goods from Birmingham to Belfast as it is from Cardiff to Glasgow. The UK does accept there should be checks on goods heading for the South via Northern Irish ports (in that sense, London has acknowledged the need for an Irish Sea border). Differentiating the two goods streams should be up to commercial British operators through a trusted trader scheme based on enhanced product line surveillance. The EU more or less accepts this approach in principle, to the extent that Brussels would permit green lanes at Northern Ireland’s ports for such consignments. However, working out the safeguards and reassurances is proving very difficult. Brussels insists a discretionary level of checks on British goods must still happen (even if traders say the goods are staying in Northern Ireland) because a risk-based approach requires it. There must also be strict labelling of individual items to indicate that they can only be consumed in Northern Ireland. In some instances, goods would have to be manufactured according to EU standards. While each consignment would have a smaller number of data lines under the Commission’s proposals, they would be backed up by detailed information – pre-notified electronically – to ensure traceability. Checks would, therefore, be reduced but not eliminated; the UK wants checks eliminated (at least for NI-only trade flows).  The retail industry in Northern Ireland insists that for smaller and medium-sized operators involved in Irish Sea trade, complying with all three requirements – labelling, conformity, pre-notification – would be too expensive or would not be worth the hassle. Frost’s insistence that the European Court of Justice no longer has a role on the Protocol did not lend itself to an atmosphere in which a deal looked doable. The question is whether or not Liz Truss can break the deadlock.   The Irish Government believes an improved atmosphere cannot but help and that a deal based on the Commission’s October proposals and packaged as a victory by Truss might be possible. But the margins will be tight. “The Commission isn’t an independent actor in this,” says one EU diplomat. “The package that’s on the table was agreed with the 27 member states, and it was agreed with considerable difficulty inside the European Commission. The member states somewhat reluctantly signed off on it, and it was made clear that we were at the limit of legal and political acceptability. “The Commission has come a tremendously long way. And yet, the British are right in saying that last year the Commission was ruling out a lot of this stuff. So, with the right packaging and the right presentation, Truss could present it as a big victory.” That suggests a lot of careful diplomacy and expectation management. Yet, the process, already under time pressure, is playing out amid the helter-skelter turmoil of Westminster. London has not abandoned the threat of triggering Article 16, although with each new survey showing Northern Ireland businesses and manufacturers acclimatising to the Protocol (or even thriving), it is a weapon that looks riskier and riskier. By January 2022, the Central Statistics Office confirmed what many had predicted: exports from Northern Ireland into the South had surged by 64% in the first 11 months of 2021, while exports in the other direction rose by 48%. The EU’s instinct at previous upheavals in the Brexit process has been to hold firm and let the Westminster histrionics play themselves out. But politics in Northern Ireland do not enjoy the same luxury. Tony Connelly is the Europe Editor at RTÉ.

2022 represents a new dawn for boards as the panic brought about by the COVID-19 crisis subsides and businesses learn to live with the associated uncertainty. For many boards, it represents an unprecedented opportunity to transform, writes Kieran Moynihan. The pace of change in boardrooms before the COVID-19 crisis could best be described as glacial, with very little change over many decades in how board directors were recruited and how they functioned. For most boards, COVID-19 has been an acid test of their effectiveness, leadership, and resilience at a time of extreme crisis. It also asks fundamental questions about their core purpose and values in terms of how they treat their customers and employees, how they balance the interests of their shareholders and stakeholders, and their overall contribution to – and impact on – society. While several forward-looking boards are seizing the opportunity to fundamentally transform how they operate and who sits around the table, many boards are still clinging to an outdated model. In short, their composition and functioning are no longer fit-for-purpose. Organisations and their boards face fundamental challenges to their long-term future: how they navigate through a maelstrom of economic headwinds, sector disruption, and rapidly changing customer requirements. Then, there are the existential challenges such as climate change and employees embracing a new flexible work paradigm and who want to work for organisations with genuine purpose and values. Board composition and diversity: breaking the legacy mould The day will come when we will no longer require trojan efforts by initiatives such as The 30% Club and both government and institutional investors to persuade and cajole boards on the value of board diversity (gender, age, sector, ethnic, thinking style and customer demographics). The COVID-19 crisis accelerated this transition. Many boards struggled to demonstrate a diverse mix of non-executive directors (NEDs) who could bring value in the form of creative solutions to severe strategy and business model challenges; an understanding of the impact on customers and employees; and a vibrant range of thinking styles to enable the board – in partnership with the executive team – to imagine a very different future for the organisation. Progressive boards are now assembling “the best board team we can find” where diversity is celebrated. One’s gender, age, sector, ethnic or geographic background no longer matters, provided the end product is an exceptional board team. An exceptional team can be described as one with strategic fire-power, independence of mind, understanding of customers and sectoral trends, and the capability to combine high-quality challenge, debate and oversight with support and value-add to the executive team. In the COVID-19 era, many boards ‘got religion’ regarding the gaping hole in their board composition. There is a dearth of younger NEDs who have digital DNA and truly understand what it means to embrace environmental, social and governance (ESG) criteria and embed it into the fabric of the organisation. I have evaluated and supported some exceptional NEDs in their 60s and 70s who do not understand the evolving digital world, the danger of cybersecurity threats, the mindsets of customers in their 20s and 30s, the values and aspirations of younger purpose-driven employees, and the need in some cases for transformational business models. What boards need is a vibrant mix whereby you get the best of both sets of NEDs, combining the deep experience, leadership and wisdom of the older NED with the dynamic, fresh perspectives and current expertise of younger NEDs. ESG: a defining moment for boards As the dust settles on COP26 in Glasgow, it has dawned on the boards of many organisations that they have a compelling responsibility to tackle climate change and reassess how their organisation contributes to society. There have been some critical foundation stones for ESG. These include the introduction of triple-bottom-line economic thinking, the growth of corporate social responsibility (CSR), and milestones such as the Business Roundtable statement in 2019 that companies need to serve not only their shareholders but all key stakeholders. ESG has become the hottest topic in boardrooms worldwide as institutional investors, customers, employees, governments, and society redefine the role of companies. While the seriousness of the climate change crisis has correctly focused attention on the ‘E’ in ESG, the spotlight on the ‘S’ and ‘G’ has also grown considerably. In the coming decade, ESG could become the single most significant change catalyst for boards of directors. Purpose-driven: an opportunity for servant leadership by the board In evaluating and supporting boards week-to-week across the world, those that impress me most have a triple-helix in their DNA of customer-centricity, employee engagement, and a deep commitment to ESG and ‘doing the right thing’. These boards also have a diverse mix of high-calibre board members, generalists, and sector specialists with a great balance of robust intelligent oversight and outstanding support to their CEO and executive team. However, at the core of these boards is a profound clarity of purpose, a vibrant and healthy culture, and the highest standards of behaviours, ethics and values. In addition, modern progressive boards have a core modus operandi of servant leadership and the most profound respect not only for their shareholders but their employees, customers, and broader partners in society. I believe that purpose-driven servant leadership by the board will become the defining paradigm of organisations that thrive in the coming years. Re-shaping the relationship between the board and its employees One of the not-unexpected consequences of the COVID-19 crisis for many boards was the realisation of the fundamental role and importance of the organisation’s employees. In a recent survey by the Chartered Governance Institute of FTSE 350 companies in the UK, 53% changed their approach to “workforce voice” during the pandemic. In addition, 68% of the boards surveyed now believe that they are more aware of “employee opinion”. But why has it taken a pandemic crisis for these boards to realise that an organisation’s employees are a critical stakeholder, deserving of the utmost respect and support from the board and their voice incorporated into the major decision-making of the company? In reality, many CEOs are culpable for wanting to separate the board from the organisation’s employees to control the narrative and deflect attention away from a poor organisational culture, avoidable turnover of employees, and serious operational or customer problems. In Ireland and the UK, there has been severe resistance to employee representation at the board table. This is understandable when you consider the challenges of finding an employee board member who can bring the employee voice to the table but balance the overall needs of the organisation as well as the complexities of industrial relations. The resistance by boards to genuinely partnering with their employees is also a stubborn hangover from the traditional elitist ivory-tower paradigm where employees did not figure as critical stakeholders. One of the most practical methods to ensure that the employee voice is heard at the board table is a strong non-executive director who understands the employees’ perspectives, with solid support from the board chair. This approach ensures that the employee voice is factored into the overall decision-making of the board. It is another area where improvements in board diversity can help modernise its mindset and attitude toward employees. Customers: the most important stakeholder of all? Ireland has been blighted by some terrible examples of customers being mistreated by companies and organisations for many years. Whether it is the misselling of financial services products, appalling levels of customer care, or the cover-up of negligence in the health sector, we have had – and continue to have – boards with simply appalling attitudes to their customers and the people they serve. In the company sector, the tide is turning. The oft-rolled-out excuse by boards that “we simply didn’t know that our customers were being treated so badly” simply doesn’t cut it anymore. When evaluating boards, I always seek to understand how the voice of the customer or service user is heard and prioritised in the boardroom. Which non-executive directors will stand up to a CEO to say that poor customer treatment is simply unacceptable? Does the board realise what the customer experience actually is? This is what servant leadership at the board level means: putting customers at the heart of the organisation’s functioning. Culture, ethics, and a commitment to do the right thing Despite the continual strengthening of corporate governance codes and company laws, there continues to be a never-ending cycle of boardroom scandals in Ireland and internationally. The introduction of the Companies (Corporate Enforcement Authority) Bill 2021 paves the way for a new independent statutory authority, the Corporate Enforcement Authority (CEA), to investigate and prosecute economic and white-collar crime in Ireland. This is an important stepping stone, building on the solid work of the ODCE. However, unless the right culture and standards of ethics exist in an organisation and you have a sharp board and committees such as audit and risk on its toes, you will always have the potential for boardroom scandals – irrespective of how experienced board directors are. We are slowly starting to move away from some of the worst attributes of the elitist board model in terms of arrogance and disrespect by board directors for their responsibilities – not to mention the shareholders and stakeholders they serve. This is one area that has changed significantly in recent years in terms of the board chair’s critical responsibility to set a very high bar for the organisation’s behaviours, ethics, and values. The board chair has a critical responsibility to set the board’s moral compass, conscience, and commitment to do the right thing. With ESG and society in general setting the bar higher for boardroom standards, today’s boards are under no illusions regarding the high standards expected of them in discharging their legal and fiduciary responsibilities. Resilience, strategic agility, and a new paradigm for risk management From the outset of the COVID-19 crisis, I found it striking to see the difference in the quality of crisis management by highly effective boards compared to ineffective boards. One of the hallmarks of high-performing boards is resilience and the ability to cope with a significant crisis. As we look forward to 2022, most sectors will continue to experience significant headwinds and volatility, requiring continual strategy and business model evolution. Progressive boards are now adopting a far more agile mindset on these issues and have a greater appreciation for risk management. I now see progressive boards take a far more pragmatic approach to risk management, making more use of scenario analysis and learning the lessons from COVID-19 in terms of cascading risks (i.e. how the pandemic and the resulting public health restrictions completely turned the world of work upside down and disrupted the world’s complex but fragile supply chains). Walking the talk on the board’s performance and re-thinking board director tenure I am continually taken aback by the number of boards that put in place the most elaborate performance assessment structures for their CEO, executive team, and employees, but when it comes to their own annual assessment of their performance, both individually and collectively as a board, they either have inadequate basic processes or undertake pointless tick-the-box exercises that add no value. In many cases, I see large companies and organisations where each board chair and director’s performance are not assessed annually. However, there is a strong trend emerging of shareholders, institutional investors and broader stakeholders asking far more searching questions about the effectiveness and performance of the board, the level of value added by the board, and whether the board is walking the talk on assessing and improving its own performance – as well as replacing board directors who are not performing. In the best boards, every board director must continually justify their presence at the board table irrespective of their profile and past glories. One characteristic of many ineffective boards is the bad habit of leaving in place under-performing board directors. This has seriously impacted many boards’ ability to improve diversity and bring in critical new skillsets. However, this is starting to change. You will soon see a greater degree of refreshing the board of directors, with under-performing directors replaced and a more robust performance culture instilled to ensure that the board truly excels for shareholders, employees, customers and stakeholders. Summary One of the unexpected impacts of the COVID-19 crisis is the opportunity presented to boards to reflect on their purpose, how they function, and the value they add. It has also allowed them to consider how they partner with the CEO and executive team, their ability to handle major crises, and the agility required in terms of strategy and business models. There has never been a greater spotlight on the role of the board of directors, the critical leadership it provides to the organisation, and its broader set of responsibilities to shareholders, employees, customers and stakeholders. The boards that will thrive in the years to come will be highly diverse with a great mix of general and sector-specific skillsets. They will also place employees, customers, and the critical needs of society at their core. The current ESG momentum is vital as it is finally breaking the shareholder primacy and profitability-at-all-costs paradigm that has, to be honest, not served society well. Shareholders and institutional investors now understand that you can still drive long-term, sustainable profit and success while simultaneously being a highly ethical and respectful organisation that truly excels for all stakeholders. This enlightened model of servant leadership-centred and highly diverse boards with a solid moral compass and conscience underpinned by a high-performance culture is also key to significantly reducing board failures and scandals. There has never been a better opportunity for boards of directors to look in the mirror and ask searching questions about becoming a modern, progressive and diverse board that is purpose-driven and deeply committed to excelling for shareholders, employees, customers, and stakeholders. Kieran Moynihan is Managing Partner of Board Excellence, which supports boards and directors in Ireland, the UK, and internationally to excel in effectiveness, performance and corporate governance.

Brendan McGurgan FCA explains the four facets of Sebastien Tondeur’s Magic Diamond of Performance, which has helped the MCI chief’s company scale at speed and generate annual revenue of over $500 million. Sebastien Tondeur, CEO of MCI, has led the company on an incredible scale-up journey. From a team of 30 operating in his home country of Switzerland, MCI has grown to employ almost 2,500 across 60 cities in 30 countries. Today, the company has revenue of over $500 million. There are, of course, many facets to this success, but I want to focus on the novel way Sebastien manages company performance. The Magic Diamond of Performance, as he calls it, focuses on four areas: Financial success; Employee promoter score (eNPS); Customer promoter score (cNPS); and Sustainability (aligned to purpose). Sebastien argues that you don’t need to measure and manage hundreds of different metrics. Instead, focus on these four areas and you will save time, energy, and resources. You will also remain acutely sensitive to the pulse of the business. Let’s look at each in turn. Financial success Anyone leading a high-growth or scaling organisation understands the importance of financial metrics. As a Chartered Accountant, I am only too familiar with ROCE, ROE, EBITDA, ROI, APT, etc. Put just about any three letters together, and it will likely be an acronym for yet another financial measurement. The question, of course, is which should you focus on? Sebastien cites four, which combine to capture financial performance. This is positioned at the apex of the diamond. Sales growth; Gross profit margin; Net profit margin; and Cash headroom. Sales growth Sales growth indicates the sales team’s ability to increase revenue over a fixed period (current month vs prior month, current quarter vs prior quarter, current month vs same month prior year etc.) It is calculated as follows: As a benchmark, a scaling company has average annualised sales growth of 20% over three years. Gross profit margin Gross profit margin indicates the amount of money remaining in sales after deducting the costs of goods sold. The calculation is as follows: Gross profit margin assesses how efficiently the company generates profit from sales. For example, suppose your gross profit margin is low compared to your peers in your industry. In that case, it may point to inefficiencies in your manufacturing or lost opportunities in terms of realisable sales price vis-à-vis the value you are delivering to your customers. Net profit margin Net profit is arrived at by deducting all company expenses (excluding the cost of goods sold) from gross profit. Net profit margin is the ratio of the net profit that is generated as a percentage of revenue. It indicates how much of the revenue you earn is actual profit. Here is the formula: Net profit margin = net profit/total revenue x 100 Net profit margins vary by business size and industry. As a rule of thumb, a 10% net profit margin is considered average, a 20% margin is considered good, and a 5% margin is considered low. A consistent net profit margin aligned with sales growth is reflective of a successful scale-up. Significant fluctuations in net profit margin while a company is growing is often symptomatic of deficient processes and systems capable of supporting sustainable growth. Cash headroom There is an old saying in business: “sales is vanity, profit is sanity, and cash is reality”. This is very much the case in a scaling business, where cash is the fuel for growth. I led the finance function of a dot-com company through the boom and bust of the early 2000s. It was my first taste of industry, and it provided a lasting and salutary lesson in the importance of cash. It was there that I learned the golden rule: “s/he who has the gold makes the rules”. Cash headroom refers to the difference between a business’s required monthly cash resources and the available cash resources. For example: assume a business must pay out £1,000 per month to cover overheads and expenses. If, after payments from customers, it has £5,000 in the bank, the business has cash headroom of five months. To put it another way, if there are no further customer orders, there is sufficient cash in the bank to cover five months of committed overheads and expenses. In my previous business, we targeted a business KPI of six months’ cash headroom. Anything more would trigger a conversation about where to better deploy the surplus cash. Anything less triggered a deeper look at the reasons why. Are orders declining? Are customer payments late? Have we seen a general increase in costs? Employee net promoter score (eNPS) If people are the most important asset in business, then leadership should protect and nurture that asset. To do this, you need to know how happy your team is and how engaged they are with your business. Good business leaders want their people to bounce into their workplaces, to bring high energy levels and a keen desire to provide amazing service to customers. A good leader wants to provide fulfilling, meaningful, vision-aligned work to the people they employ. One of the world’s leading experts on customer and employee loyalty is Fred Reichheld, the founder of Bain & Company’s loyalty practice. Fred created the Net Promoter System (NPS) in 2003 and since then, it has been used by a range of leading companies such as Apple Retail, Philips, Charles Schwab, Allianz, American Express and Intuit to generate extraordinary results. In essence, Fred’s work laid bare the link between loyalty and profits. eNPS measures employees’ willingness to recommend the organisation to others as a great place to work. It indicates engagement levels, motivation, and intent to remain with the company. It also uncovers the likes and dislikes of employees as they pertain to the company. How do you calculate it? The genius of eNPS lies in its simplicity. In an era of survey fatigue, it provides an incredibly easy and efficient way to survey employees. First, they are asked one quantitative-based question: “How much would you recommend working here to a friend or colleague?” The employee uses an 11-point scale from zero (not at all likely) to ten (extremely likely). Follow this up with an open-ended question: “Why do you feel this way?” Those who score between zero and six are detractors. They are unhappy, disengaged, and could be looking for roles elsewhere. Those who score seven or eight are passives. They don’t love working for you, but nor are they entirely disengaged. Those who score nine or ten are promoters. They love their work and won’t hesitate to tell everyone. The eNPS score for a period – typically a month – is calculated by subtracting the percentage of detractors from promoters, omitting the passives from the calculation. The score is then displayed as a number rather than a percentage. eNPS: a worked example There are ten employee responses in ‘Improve Your Workplace Inc.’: 3, 4, 5, 6, 8, 8, 8, 9, 10, 10. This equates to: • Four detractors (3, 4, 5, 6) = 40% • Three passives (8, 8, 8) • Three promoters (9, 10, 10) = 30% The calculation: 30% – 40% = -10 What is a good score? Jennifer Willy, Editor at Etia.com, says that anything above zero is generally acceptable: “Different companies and organisations have different standards and benchmarks to measure their performances. But generally, a score between 10 and 30 is considered good while anything near 50 is excellent.” Why is eNPS important? A State of the Global Workforce report published by Gallup in 2017 showed that 85% of employees worldwide are either not engaged with their work or are actively disengaged. Disengaged staff are less productive and are more likely to make mistakes. Worse, negative attitudes can contaminate an otherwise positive workplace culture. Conversely, employees engaged in their work are more productive and tend to positively influence their teammates. Consequently, employee retention rates will improve, and your team will produce better results for your clients. To put it simply, happy staff means happy clients. Customer net promoter score (cNPS) Successful scalers are obsessive about delivering value to customers. They are consciously tuned into why they do what they do and how that impacts their customers’ lives or businesses. Assessing the customer’s engagement with you is critical. It helps guide and inform loyalty initiatives and overall brand-building, and it forms the third area of focus in the Magic Diamond of Performance. How do you calculate it? cNPS is calculated the same way as eNPS. It is defined as the willingness of customers to recommend a company’s products or services to others. Like eNPS, customers are asked a single question: to rate on an 11-point scale (zero to ten) the likelihood of recommending the company or brand to a friend or colleague. Based on their rating, customers are classified into three categories: detractors, passives, and promoters. As with eNPS, cNPS is found by subtracting the percentage of detractors from the percentage of promoters. The result will be a number between -100 and +100. A cNPS score above zero is considered good, as it indicates that your audience is more loyal than not, and anything above 20 is considered favourable. Bain & Co., which pioneered this methodology, suggest that above 50 is excellent and above 80 is world-class. These are general guidelines, however. A good cNPS will depend on the industry and country in which the business operates. Sustainability (aligned to purpose) MCI’s purpose is as simple as it is profound: “when people come together, magic happens”. This purpose permeates every part of the business and is the slide-rule for all decisions. The company may have pivoted several times in its evolution, but that core purpose – bringing people together to build communities and create experiences – has remained. Sebastien explains that with growth came a consciousness of the company’s impact on the world. As MCI’s reach became global, it began to understand that it could accelerate change and promote a more sustainable and inclusive society. Anchored by its purpose, the company’s goal is to encourage an active culture of care and responsibility, backed up by concrete actions. This forms the last area of focus in the Magic Diamond of Performance. Why is sustainability important? A view common in SMEs is that sustainability issues are for governments and larger corporates, as smaller entities are simply too busy wrestling with the day-to-day demands of the business. Sebastien, however, sees sustainability as an enabler of company growth. “I don’t think we have a single under-25-year-old candidate that hasn’t asked us about the sustainability programme. I don’t even think it’s an option for any business. You just have to have an answer when the question is asked.” Sebastien is not alone in this view. Marga Hoek, author of The Trillion Dollar Shift, puts it like this: “Business for good is good for business”. What do you measure? Sebastien’s mantra is “think big, start small, scale fast”. It’s all about learning as you go. MCI used the UN Sustainable Development Goals (SDGs) to guide their sustainability initiatives, picking a small number of the entire 17 to make a start. “We give a lot to the community as a business – doing volunteer work, helping kids, working on cleaning projects… and then, over time, we became more sophisticated. Now, we have a large community of what we call sustainability leaders. They cover a range of areas – environmental, social, diversity, inclusion. Belonging is a big topic right now. I give them a budget, I give them approval, and I rely on them to give me recommendations. They communicate to the company and engage the people.” MCI’s sustainability journey, which started with a single small step, has become a hugely impactful sustainability strategy based on four SDG-aligned pillars: people, planet, profit and governance. For example, under the ‘planet’ pillar, the company successfully reduced its carbon footprint by 20% in 2020. And as Sebastien points out, the most sustainable companies are the least wasteful. Waste is tangible in some industries, but how do you reduce waste in a knowledge-based company? In my previous business, we put our pre-sales function under the microscope and found that only 7% of sales leads converted into sales orders at our worst. That’s 93% wasted effort in customer calls, follow-ups, budget quotations, design drawings etc. So we zeroed in on our customer conversion ratio and, over time, increased our conversion rate to 20% – not by generating new leads, but by becoming more efficient in processing the leads we already had. Have fun with this aspect of the Magic Diamond of Performance. You don’t need headline-grabbing initiatives or noble sustainability targets, not at the start at least. Instead, look for an area of your business where you generate waste and aim to reduce it. In so doing, you will leverage your people’s time and creativity. In time, this process will compound to greater employee engagement and productivity, customer advocacy, and an improved bottom line. Conclusion Sarah Kennedy is Vice-President of Global Marketing at Adobe Experience Cloud. She says: “The companies that will excel long-term are the ones that know it’s not just about shareholder value… it’s also about focusing on the customer and employee experience, and how those, in turn, contribute to society”. If you’ve found yourself drowning in the vast sea of performance measurement options, then the Magic Diamond of Performance could be the lifeboat you and your business need. Brendan McGurgan FCA is Co-Founder of Simple Scaling, a company dedicated to inspiring, connecting and enabling ambitious leaders of SMEs to scale with purpose.