Page last updated at 01:06 GMT, Monday, 23 November 2009

CBI says collaboration 'will bring recovery'

By Jorn Madslien
Business reporter, BBC News

The CBI director general Richard Lambert
The CBI's Richard Lambert: speaking on behalf of 240,000 UK businesses

The search is on for a way out of recession as the business body CBI gathers for its annual conference.

CBI director general Richard Lambert insists it is time to re-focus on the contributions made by its members; the UK's vast army of small and medium sized enterprises.

"Financial engineering is yesterday's story," Mr Lambert says, insisting that "what we now need is a more balanced, less risky pathway to growth".

"The short term returns may be lower, but the long term rewards for management success will be a lot more sustainable and secure." he insists.
As an engine for growth, UK industry is in better health than many would have expected, according to John Connolly, chief executive of consultancy firm Deloitte UK.

"We can recognise that many businesses have proven resilient to the effects of the downturn: profitability has taken a knock but the impact has been less pronounced than might have been expected," he says.

"Corporate insolvencies are running at significantly lower levels than the recession of the early 1990s and unemployment, whilst still growing, is not as high as some people feared."

Finance for firms

Mr Lambert and the CBI's views are very much in line with the prevailing public mood.

Workers making Minis in Oxford
Lenders have turned away from manufacturers, says Richard Lambert

"The new world will be less about complex financial transactions," Mr Lambert says, "more about collaboration, partnership, and longer-term relationships with a wide group of stakeholders."

His call for closer cooperation involving customers, suppliers, employees, universities, as well as industry and its shareholders, is aimed to mark a divide from a recent past where those invested in business would insist on instant results rather than offering support for managers eager to grow their companies over longer periods of time.

"The increasing focus on short-term shareholder value had a dramatic effect on the driving forces of British capitalism," Mr Lambert says.

"Managers focused an increasing proportion of time and effort on their balance sheets, and were criticised if they weren't sufficiently aggressive."

Mr Lambert also points to how investors and lenders have turned away from manufacturers over the last decade or two to instead focus on commercial real estate.

"Between 1986 and 2008, manufacturing's share of lending to non-financial companies fell from 29% to just 5% while the real estate share rose from 11% to 36%," he observes.

"The more you borrowed, it seemed, the richer you became."

Broader finance solutions

"After a big devaluation [of the pound sterling] and with massive infrastructure investments required in this country, we have the chance of a manufacturing revival here in the next decade," Mr Lambert believes.

But UK industry cannot go it alone, he points out. The CBI is eager to reduce industry's reliance on "a few very big players in London and Edinburgh" by introducing a broader spectrum of financial support for manufacturers.

People standing outside a Jobcentre Plus
The CBI predicts unemployment will remain elevated for some time yet

"Might it be a good idea to encourage new forms of institutions to finance the growth of small and medium sized enterprises, through equity and debt?" asks Mr Lambert.

"That's what the old Industrial and Commercial Finance Corporation did successfully for 50 years after the war: why not reinvent it?

"Why not make it easier for companies to raise money locally, perhaps through new regional banking and investment institutions?"

Wealth generators

In the years ahead, companies will come to realize to a greater extent than previously that they depend on each other, Mr Lambert points out.

"Firms looking to reduce risk and acknowledge their interdependence are seeking more collaborative ways of working through partnerships and joint ventures," he says.

Even rivals might cooperate at times, and large firms should look after smaller ones.

"Perhaps we will see a flourishing of supply chain finance - in which firms with the largest, most solid balance sheets help finance their smaller suppliers or customers," says Mr Lambert.

The CBI is convinced UK industry will emerge from the recession leaner and more competitive, but warns that it is not offering a quick fix.

Unemployment is expected to remain "elevated for an extended period", and the CBI expects it to be a painful transition that could take many years to complete.

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