IF Forum: Hausfeld
Intelligence Forum’s lunchtime meeting on 4 November 2021 was chaired by Harry Corbett and hosted by Tom Bolster, a partner who specialises in competition disputes, at law firm Hausfeld.
Tom told us that Hausfeld’s London operation started 10 years ago, with just six lawyers. Now over seventy specialise in group claimant actions – perhaps better known as “class actions” in the USA - covering a broad range of clients and sectors ranging from environmental, consumer to big tech. For example the firm even represents forty British gymnastics who have suffered both physical and psychological abuse.
Our first speaker was Paul Lester CBE, a Non-Executive Chairman of a number of private equity backed businesses including McCarthy Stone (retirement developments ), Readypower ( rail engineering services) Marley ( Tile manufacturing ) ,Firstport residential property management and Appello (Technology- enabled care services). He is also Chairman of Signia Wealth (private investment) and Essentra plc (manufacturer of plastic injection moulded, vinyl dip moulded and metal components, secondary packaging and cigarette filter supplier)
Paul raised three pressing issues for businesses; Inflation, Environmental Social and Governance (ESG), and COVID.
Both McCarthy and Stone (M&S) and Essentra are facing significant supply issues for everything from microchips to elevators, and building materials to transportation, and this has fuelled rising prices. Added to this the companies face serious labour shortages. For years, M&S had trained much of its own Eastern European labour and invested in apprenticeship programmes, but since COVID lockdowns, many don't want to return to a country that post-Brexit “doesn't want” them.
The driver shortage and the increase in economic growth worldwide has created significant inflation in all parts of the supply chain, everywhere. Labour wage increases of 4% to 5% have been needed in M&S and Essentra just to retain employees. For other types of business it has been more. Wincanton, for example, is considering 15% to 20% increases in driver salaries simply to retain staff. Staff retention is high on the agenda for M&S. It has delivered a “well-being plan” to about 2/3 of its workforce, including drivers and other specialist workers. The focus has been on healthcare, and individual employee consultation to tailor working hours to suit their circumstances to avoid them “jumping ship”.
All of this will invariably contribute to higher inflation, and Paul believes that as a result interest rates will start rising in December to levels of 1% to 2% by the end of 2022. This cost will be manageable, he believes and will be offset by higher inflation.
Paul highlighted the importance of Environmental, Social, and Governance (“ESG”) policies but noted that while 98% of public companies have them, only 60% of private companies do so. He stressed the importance of remedying this for industries such as landfill in particular.
ESG is not only an issue for socially conscious investors but also employees. He told us that a recent survey found that 85% of employees are concerned about how their employer deals with environmental issues, and some will select potential employers based on ESG criteria. However, while many companies are taking action, he despaired that the year 2030 and 2050 targets aspired to by COP26 are virtually impossible to meet and are as a result no more than “hot air”.
COVID, he said, had been the catalyst that rapidly enabled people to work from home, and this has enabled more women with children to return to the workplace. The culture of work has changed, too with meetings taking place on Zoom... and it has not been uncommon for family life to cross a participant’s screen!
During the discussion that followed Earl Atlee noted that he’d given a speech in the House of Lords 20 yrs. ago concerning the shortage of truck drivers within the indigenous UK population. This problem has been masked hitherto, he said, by the availability of EU drivers, and will not be resolved quickly.While HGV training and testing might only take 6-10 weeks, drivers need up to 3 years to gain the experience required on larger HGV for a certificate of competence.
Our next speaker was “serial entrepreneur” Peter McDermott, "Head Gardener" or Managing Director of You Garden, which he founded in 2012. Peter has spent almost 30 years in the horticultural industry, spending much of this time getting his hands dirty and actually growing things for a living.
The horticultural industry has boomed enormously during COVID, and You Garden now operates in all parts of the UK (excluding NI). By its very nature, he said, it “serves up ESG on a plate”.
After the sale of his previous business which saw him at home “getting in his wife’s space”, Peter started You Garden. The business has grown dramatically over the past 10 years reaching Annual Sales of approx. £50m, with EBITDA of 15% and a CAGR of 40% between 2015 and 2019 (50% between 2015 and 2020 due to COVID).
Pre Brexit his business had been split 50/50 between the EU and the UK. Despite preparing well, Brexit had been a “shambles”. It was, he said, a national embarrassment that businesses were left in the position that they had been. They had been given no building blocks for the Brexit transition, and he’d had to educate his business in every possible version of the potential Brexit transition paperwork.
He expects You Garden to face substantial headwinds as high inflation comes through. For example, one of his suppliers, Yodel, has recently agreed to an 18% pay raise for its drivers - both to match the market and as a retention incentive. Prices have risen in every part of his supply chain from catalogues to cardboard packaging, and this will inevitably result in higher prices for consumers next year. In fact he believes that we are hurtling towards “super painful inflation”. In the short term his margin, being a percentage of sales, will remain relatively constant or even increase. However, prices will reach a point at which consumers can no longer afford his products, and then he fears that the business will hit a wall.
Peter, too, has had to work hard to retain staff. He has now to compete with the likes of Amazon, which with year round internet demand, is paying over the odds for labour at its warehouse close to You Garden. Although people like to be outdoors and he does find that a lot of transient labour does return from year to year, this is in itself not enough, so incentive schemes such attendance bonuses, and "recommend a friend' schemes have been implemented. Working from home is not a flexibility that a large part of his business can offer, as many of its processes, of necessity, happen outdoors or in the packing shed. Some back office jobs have, however, adapted.
Despite the labour shortages he doesn’t fully understand why he cannot recruit native UK people to work in his business, and despite seeking 25 apprentices on the Kickstart scheme, there have been no applicants. Even now, he says, the bulk of his workforce are not UK nationals and come from Europe, and.
He believes that part of the reason is that “if you pay people to do nothing - through Furlough, for example, they will”. And in this respect that scheme has been a failure.
In summary, he said, that labour is You Garden’s main headwind, and called for Government to implement rapid action to bring in foreign workers and recalibrate the welfare approach such that it cannot be betternotto work.
John Richard Attlee, 3rd Earl Attlee, is a Lord Temporal and the grandson of the Labour Prime Minister Clement Attlee. He inherited his title after his father’s death and entered the House of Lords as a crossbencher in 1992. He joined the Conservative Party in 1997 and served as a spokesman for transport and as an Opposition whip. Following the 2010 general election he was appointed a Government whip in the House of Lords, continuing until he left government in 2014. A member of the Territorial Army, he undertook a tour with British Direct Aid in Bosnia during 1993-94, and ran its operation in Rwanda for most of 1995, before serving in Bosnia during 1997–1998, and in Iraq in the spring of 2003. He is also an HGV driver.
Earl Atlee shared his proposals for prison reform which, he believes is needed because
· Despite considerable public expenditure, the penal system does not achieve the desired effect, and rates of re-offending are high.
· There is high level of relatively minor offending which causes avoidable distress and expense for law-abiding society.
· The drug, gang and knife culture causes deep public concern.
· It is morally wrong for the state to repeatedly incarcerate young offenders without addressing the causes of their behaviour.
As of June 2021, the UK had a total prison population of approx. 87,000 people of whom 12,000 (14%) were aged 18 to 24 yrs. The UK’s incarceration rate of 133 per 100,000 of population, is one of the highest in Europe (France 100; Germany 70) and compares with 630 in USA; 325 in Russia; 248 in South Africa. There is a very high turnover of prison staff and organised crime controls a lot of what occurs within the cells. The suicide rate in May 2021 was about one person lost every week.
He believes that reform would yield the greatest benefit by focussing on prolific young offenders (“PMO’s”), who have often had little stability in their home life and are often illiterate and/or innumerate.
While he accepts that any reforms should not lose sight of the needs to take offenders off the streets, provide deterrent and a measure of retribution, he believes that rehabilitation, designed to prevent reoffending is essential.
He pointed out that the low levels of literacy and numeracy and limited workplace skillsamongst PMO’s means that after release they are ill equipped to engage in legitimate economic activity.
He recognised that past attempts at prison reform had failed. For example, in the 1970’s and 80’s Home Secretary, Willie Whitelaw introduced the “Short Sharp Shock” initiative, where inmates were given a burst of Army-type discipline in detention centres. This had failed, he said, because it had been a stick, rather than a carrot approach - nothing had been done to prepare for life beyond detention.
To address these issues Earl Atlee has proposed to the House of Lords that a new sentence, “Detained for Training at Her Majesty’s Pleasure” (“DFT”) - be made available to the courts to deal with male PMO’s.
Rather than awarding a determinant sentence, release from DFT would be dependent upon reaching the required standard of literacy and numeracy, and having attained competence in a number of useful and relevant work-related skills.
While he expects the required performance level to be achievable within three to eight months, Earl Atlee recognised, however, that there would have to be a legal cap on the maximum time that can be served.
Key elements of the training would take place in remote rural locations in order to be isolated from criminal influences and mobile phone signals. Remoteness would provide the necessary security, not prison walls.
DFT would be undertaken in three phases
Phase 1 – Basic Compliance Training designed to instil hope, pride, and discipline in order that greater risks can be taken in later phases. Only when Phase 1 is passed will trainees be permitted to move on to others.
Phase 2 – DFT Training: all DFT trainees on this phase would have to achieve basic skills such as: i) First aid at work certificate. ii) Forklift truck training ticket. iii) Basic Construction Skills Certificate Scheme qualification to allow access to a construction site, and a selection of other desirable qualifications that are relatively easy to train for.
This phase would include outward bound training coupled with exercises, and to pass out trainees would have to meet a required (and achievable) standard (which might vary according to the offence) of literacy and numeracy in addition to achieving the basic skill requirements. More serious offences would require higher standards and higher performance on more demanding exercises.
Phase 3- Gradual Release. Earl Attlee believes the current release procedure to be seriously defective. Often prisoners are released with £46 in their pocket into “No Fixed Accommodation” and sometimes on a Friday or bank holiday, so there is no immediate support network. As a consequence they fall back into bad ways. Release from a DFT sentence would be a gradual process. He envisaged a glide path, with extensive use of “release on temporary license” for increasingly long periods. He anticipated that by the time a DFT trainee is finally released he would have secured employment, or employment on a probationary basis.
Questioners were supportive of Earl Atlee’s proposals, agreeing that Government should invest rehabilitation schemes for young offenders. Some questioned whether high reoffending rates were linked to high unemployment levels and whether conscription had, in its time, resulted in lower levels of juvenile crime.