[GRTV] Why a four day week is good; Fears about markets

Perpetual Guardian founder Andrew Barnes talks about why a four-day week is good for businesses and his fears markets are repeating the mistakes that lead to the last downturn.

Tuesday, August 20th 2019, 9:07AM

Joining me now is Andrew Barnes. Andrew is the founder of the Four-Day Week and also the founder of Perpetual Guardian in New Zealand. So, look, thanks for coming in. I know you spend a lot of time overseas, so it's good to see you here.

Andrew: Good to see you, too.

I'd like to start with the Four-Day Week. What triggered you to go down this track?

Well, I'm pretty dangerous when I'm on planes. And so I was on a plane, and I was reading an economist article, and it said that the Brits were only productive for two and a half hours a day, and if you were Canadian, you were only productive for one and a half hours a day. And I thought, that's interesting. And then I thought, well actually does that apply to my business? And I then thought, it probably does.

You know you come to work, you have a cup of coffee, you have a chat, you do some emails, maybe a bit of social media, read the paper, then you get down to work. Somebody taps you on the shoulder, and says, "can you help me with this?" So you get interrupted, then you're trying to catch up with the kids, crisis at home, whatever it is. There's lots and lots of things during the day that mean that you're not that productive.

And so my assumption was that if that was right, and you were only productive for about two and a half hours a day, you only have to find 45 minutes of additional productivity each day for four days to get the same productivity as you would get for five.

Does it change the behavior then? That there's less of this unproductive time?

That's exactly right. But what we're doing is we say to our staff, it's what we call the 100/80/100 rule. We pay you a 100% of your salary. You only have to work 80% of the time, so four normal days, not four longer days, provided you give us a 100% of the productivity. The output that we have agreed between us.

So that's the key thing is to actually be very clear on what the outputs are.

Absolutely. And so when you go into what we call our productivity policy, you opt in. We have agreed productivity outcomes. And so actually then it suddenly becomes quite an interesting psychological play because it's done on a team basis.

So it's not done an individual one.

You opt in individually. The team goals are set.

Actually, if you want that day, you realize that, a) you've got to put in, but secondly, if that slacker next to you is on Facebook, you're going, "Hang on, mate. Get off because if you don't deliver the productivity, we all lose our day."

Okay. So it makes each other accountable, so it puts the competitive sort of ...

Well, not so much competitive. What it does is it makes people really think that this is a compact between me and them. I'm saying, "Look, I recognize that the way we work today is not right. I'm going to give you a day, or give you a day back. In return, you've got to give me the productivity."
And so that's how this works. It's quite a mature conversation between employee employer.

Does it mean there's a greater requirement on HR to keep on top of what people are doing?

No. It's self-policing.

So does it have a novelty factor which you might think will wear off over time?

Well, interestingly, people will say to me this, and I said, "Well, actually the very first experiment that proved that shortening a working week would increase productivity dates from 1917." And it was a British munitions factory manufacturing shells for the Western Front, and it was working seven days a week, long hours, and they dropped the working week from seven days to six days, and production went up and the quality of output went up.
So we've known about this for an awful long time. It's just that it's not conventional wisdom.

So in financial services, how does that work where you're always got customer interactions going on because a customer doesn't want to say, "They're only here four days a week?"

Well, yeah, but Perpetual Guardian to all intents and purposes is a financial services company. We have retail branches, 16 retail branches, the length and breadth of New Zealand, so we have to be open conventional hours. So it's not everybody takes a Friday off or a Monday off. Each of the teams decides who's going to get what day each week. And the idea is that we have to be open the same length of hours that we would normally be open.

Customer service has to be the same high standard as we would expect. That's part of the criteria for this project. So you're just saying to the staff, "How would you do it? How would you make sure that we continue to deliver outstanding service." So if we can do it, frankly, every financial institution in the country can do it.

So then we overlay that... And I'm interested in this because you do a lot of digital innovations, and that's been a big part of your business. So by going to a four-day week does that then... You know we talk about artificial intelligence and machine learning, and all these things helping productivity. Does that encourage more of that to happen?

Well, interestingly, so far, all we've seen is our productivity within the day improve, and in fact overall productivity go up, just from changes in behaviors, how people behave.

But the next stage, of course, is that as you bring in new technology, that gives us an opportunity actually to further improve the service. Actually, I think it gives us an opportunity to extend hours bizarrely. Because once people start to say, "I would rather work 3:00 in the afternoon to 8:00 at night. I can say, "Well, sure, that works for me. I'm looking for productivity." So over time, actually I think this changes the way we work. And what we're trying to do... And I think this is the key point. Gig enables any business to do that. But the downside of gig if you're an employee is, a) you have no sick pay, you have no holiday pay, you have no superannuation. You have nobody investing in your future. It's just literally you're employed for that job, and I think that's a really bad thing.

Whereas what I'm doing is I'm trying to give my staff the flexibility they need, but with those hard fought for protections still in place. So they've got the sick pay, they've got the holiday pay, they've got the investment in their future. And I'm very passionate about this. That if we don't change our legislation to enable companies to operate flexibly, we will get gig, and that's a very high price for society to pay.

And the flexibility's just becoming a bigger and bigger issue in the employment space from what I can see.

That's exactly right. But funnily enough, it's often being misread. I think it's a long con because basically people say, "It's a gig. I work when I want." No, you don't. You make yourself available to work. The guy who owns the gig decides whether or not you get it.

And if you don't work when they want, over time you will get poorer and poorer shifts. You'll gradually drop down the list of people they're giving the gig to, so at the end of the day, you actually have to work when they want. Not when you want.

Oh, it's fascinating. And now to change the topic totally. We were having a discussion the other day, and you were concerned that a lot of these bad behaviors which came up in the last correction are starting to surface again. What are you seeing?

Well, for example, and I will try not to name names, but look, I'm aware of some of these secondary lenders that were going initially in peer-to-peer space, and frankly that model's not really worked, so now they've gone to a wholesale model. And in some cases, it's some of the deferred payment programs that you see in shops pretty well the length and breadth of New Zealand now.

Then what you find is that a bank is lending the money to that entity to make those... Well, in the case of deferred purchase, they're not loans because apparently they're not credit because apparently there's no interest. Right? Which of itself is a bit ridiculous.

But what you're seeing is then a bank effectively lending at a wholesale rate to an institution that's lending out unsecured to individuals where if you look at their business model, they're making their profit on the ones that are defaulting. So a large number of people are already defaulting on these loans.

Now, when you look at things like the CDOs that really brought down the banking system in 2007-2008, what was that? That was institutions lending wholesale to a bank that then lent it out to a whole bunch of individuals on the basis that a portfolio was nice and safe. So this is garbage. As I think the great line from The Big Short, "It's shit, wrapped in shit, in cat shit."

So how far down the track do you think we are with this? And do you think it's going to head to another correction?

Yeah, I do. The only reason why we haven't had a problem at the moment is that interest rates are so low. Right?

So if you look at a dynamic where a wholesale rate is coming in something over bill rate, maybe 1% or 2% margin, you're talking about 3% maybe 4% in terms of interest rate. If you're lending at 12%, you're making that margin. If a quarter of those are then going bust, and you're offsetting those, that's going to eat into your margin, but you are still making a decent profit margin. Now, if interest rates rise, the default rate on this side isn't going to go up by 1% or 2%, it's going to go up by 10%, 20%, 30%. And what happens is that instantly will mean that you'll drop below the funding point. You won't have the margin, and the whole thing will come undone.

So the trigger will be rising interest rates.

Rising interest rates or the economy rapidly going into some sort of recession. People losing jobs where effectively they can't make ends meet. And then this is all discretionary loans now. So once upon a time in the... if you will in 2007-2008, it was housing. Now, it's all unsecured personal lending because I want to buy that shirt or that car. Now, you might have run an argument you don't default on your mortgage. Not sure you don't default on that T-shirt. You know?

That's exactly it. It's interesting how we go in cycles, and we never learn isn't it?

Yeah, it is.

I mean I'm old enough now to have... And I had the misfortune that when I joined the finance industry, I generally joined a department that was cleaning up after the last time the industry had crashed. So I'd gone through a cleaning up after a property crash, a shipping crash, mid-corporate lending crash, equity crash, Japanese retreat from Australia crash. And the next one, I think then that was a dot-com crash, and then of course we have GFC. I think I've missed one.

But it's the same cycle, just repeats.

So we never learn.

We never learn.

Oh, well. Anyway, well watch your space and see what happens. Well, thank you very much for your time. That was really interesting. Cheers.

Thank you.

Watch the interview here.

Tags: Andrew Barnes GRTV Perpetual Guardian