After writing this blog post on the Glencore IPO, a friend got in touch. Let’s just call her “Mel in IT” because she used to program databases and excel spreadsheets at a company I worked at. And she used to run Glencore.
She reminded me of what happened, how she came to be running a company called Glencore. She wasn’t actually one of the billionaire bosses of the global commodity trading company headquartered in Zug, Switzerland which IPO’ed with a 1,600 page prospectus. Instead, she was an IT contractor, working for Sony Playstation and had bought an “off the shelf” company. The name just happened to be Glencore. And someone called Kensington International (a subsidiary of Elliot Associates, the hedge fund that buys distressed Government debt) was confused and was suing her Glencore, thinking she was the other Glencore and the Republic of Congo. The full story is told in this book. Oil, Democracy, and Development in Africa – John R. Heilbrunn
Briefly: Elliot / Kensington International had bought Congo Government’s debt, and was suing to get money back. When an individual or SME owes money banks can pressure to repay. It is rather harder to get a corrupt African Government to honour their debt obligations. One thing that international creditors can do is use the court system to seize the government’s overseas assets (for instance oil tankers). Glencore Energy operated a supertanker that a Congolese shell company had used to sell £22m of oil to BP. Elliot / Kensington International wanted that money…and they thought that my friend had it.
They said that she owed them $92m
She received a letter, which her house mate signed for recorded delivery, to say that she owed $92m. The difference between the original £22m and $92m they thought that she owed, was partly currency and partly accrued interest apparently. The next day she replied to the lawyers representing Elliot / Kensington International with an email, saying that she was an IT contractor and she probably there had been some kind of mistake.
Now if she could just sign a Non Disclosure Agreement they would leave her alone.
EXCEPT she had sent an email to her friends the previous night saying “Sorry guys, I can’t come to the pub tonight, I’m being sued for $92m for some oil in an oil tanker that I don’t know anything about.”
How could she sign a NDA if she had already disclosed to her friends the contents of the letter? So the letters kept coming. First she went to Citizens Advice Bureau, who said that they didn’t normally deal with this sort of thing, but she shouldn’t make or sign any false statements. Someone put her in touch with a lawyer friend, who offered to help her out…for £300 per hour. Her father helpfully suggested that they could swap the oil for Guinness and he would build a storage facility in her back garden. Finally, she went to her employer, Sony Playstation, who said “You are not an employee, you are a contractor. We are not allowed to give you legal advice.”
In the end a trip to the Supreme Court of Justice sorted it out. She never signed the NDA, which is why I can tell this story. She asked me to come up with an obscure name for her IT contracting company…and I suggested something Icelandic. How about Glosoli, based on this Sigmur Ros song ….so she went with that.
In case you don’t believe me…here is one of the letters she received.
It wasn’t Glencore’s fault that she chose a similar name. Back then no one had heard of Glencore, it didn’t IPO till 3-4 years later. So, if you are an IT contractor be careful to google the name of the company that you register.
But I wonder if there is a wider point: the changing relationship between the company and the employee. More and more companies don’t want employees, they want contractors. And they don’t want to protect their employees, offer them security and instead shift risk on to the individual. In return how do employees react? They don’t trust their managers. They feel no loyalty to their organisation, because they know that loyalty will not be repaid.
The Guardian reported that Deliveroo calls takeaway delivery couriers “independent suppliers” – self-employed workers with few employment rights – rather than as employees, workers, staff or team members.
This isn’t just the “gig” economy. There is a note at the back of Michael Lewis’ book Flash Boys, explaining that employees at US investment banks have become far more cynical about the behaviour of management. The employees at large banks are far more willing to talk to journalists, so long as they can remain anonymous. Even as the same investment banks invest large sums of money in Public Relations and lobbying in an attempt to “shape” the story. When I worked at banks they had lots of tools to measure productivity, how many phone calls to clients, how many client presentations, number of research reports published etc. And they would pressure you to make more and more phone calls (even though most fund managers didn’t pick up the phone, and went straight through to voicemail). Trying to speak to someone “live” who rarely picked up the phone, this didn’t seem very productive to me.
At the moment there is a lot of economic analysis on the reasons why productivity has stalled. For instance this speech by Andy Haldane at the Bank of England. For the last 10 years productivity has been falling in the UK…this isn’t supposed to happen, and no one really knows why. One suggestion is that because the greatest falls have been in accounting, banking, utilities, management consulting and legal services productivity was previously overstated. I think of these sectors like the Golgafrinchan Ark Fleet Ship B from Hitchhikers’ Guide to the Galaxy. These sectors never were very productive, they just seemed to be because economists could see that bankers, lawyers and other intermediaries were making lots of money for not doing very much. After all if you can earn £240m in fees for floating a $60bn company whose share price then falls from 520p to a trough at 73p (before recovering) that’s great. Well done Citigroup, Morgan Stanley and Credit Suisse (not forgetting Bank of America Merrill Lynch, BNP Paribas, and co-bookrunners Barclays Capital, Société Générale, UBS. Liberum were also involved.)
That’s how economists measure productivity.
Of course the major beneficiaries of this were the people at the top of the pyramid, the management. At the same time as productivity is moribund, the ratio between FTSE 100 CEO pay versus average employee pay has jumped to 129:1, compared with a ratio of 48:1 in 1995 (according to the High Pay Commission). So management of companies are being rewarded for making their staff less productive.
So what do I buy? What do I sell? It seems to me that “gig” economy companies like Uber, AirBNB, Deliveroo etc aren’t using technology to help people become more productive. I never thought “wow, minicab drivers make so much excess profit, I really want to get into driving a cab and make lots of money”. People tend to be price sensitive about minicabs, hotels, fast food. The gig economy companies have just found an innovative way of passing risks and costs on to their
employees “independent suppliers”. These gig economy companies are the equivalent of intermediaries pre-financial crisis (banks were also heavy users of “contractors” and never gave even their full time employees much job security). They have positioned their platforms so that they can make lots of money without doing very much. None of these “gig economy” companies are publicly quoted (Saudi Arabia, and a couple of Russian billionaires seems to own some of Uber) – at some point they will probably want to IPO. I will avoid because I reckon their share price performance following any IPO will be worse than Glencore.