Earlier this week Brian Darby on VSB carried some unattributed comments from a senior executive at one of the major international companies. This individual was highlighting the current difficulties of operating out of Bermuda. The tone of the discussion was not positive and raised some serious concerns about the cost and challenges our businesses face.
While I don't have a transcript of the comments, he or she raised the following issues as problematic and getting worse (in no particular order):
- Work Permit difficulties (relaxing in Key employee speculated to be in response to complaints by the industry)
- Key Employee restrictions
- poorly motivated Bermudian employees
- housing costs
- constant bashing of international companies in the press and Parliament for political gain
- on the subject of Independence the individual said: "Don't get me started". Could they have been any more clear than that?
The individual prefaced these comments saying that the positive reason (there's only one really) for operating out of Bermuda (favourable tax environment) remain and is compelling, but that companies are quietly downsizing their Bermuda presence and that this will continue.
Now, I'll start by congratulating VSB and Bryan Darby in particular for getting this story, albeit unattributed and not doing what VSB is notorious for - reading from one of the local papers with very little acknowledgement of the print media as having done the report. VSB is on the money with this story and we'd do well to take notice.
As a follow-up story Labour Minister Randy Horton was quoted as dismissing the criticism and saying that this isn't the feedback he gets from the business community. Bermuda is an attractive place to operate out of he maintained.
Mr. Horton, while saying what I'd expect, would be wise not to dismiss the concerns of this individual. I imagine Bryan Darby was hanging out with someone at a cocktail party and after a few drinks things loosened up and as always, the truth starts to come out.
I'd also suggest that the industry would be better served in telling Mr. Horton the truth and not softening their message when dealing with him in person, which I'm sure is what is going on. Dancing around the issues serves no purpose. When speaking on the record or at public events, neither the Minister nor the business community are going to be quite as blunt as they will at a cocktail party but this does no-one any good.
Bermuda is, as has been pointed out a lot lately, a "one trick pony". The two pillars of our economy are down to one. Tourism isn't the major contributor to our economy that it once was and we've become overly dependent, both in terms of jobs and revenue, on international business to drive us.
So, what is our response as Bermudians and Bermudian policy makers to this dependence? Attack it and make it much harder for them to operate. Sound familiar? Hmmm, how do we think we killed tourism? We did that quite successfully with multiple strikes and protesting new hotel developments for political points (David Allen leading a march down South Shore anyone?).
We have to remove our economic drivers from the political domain.
We as Bermudians have a bad habit of thinking that people will always come here to do business and we can put whatever restrictions and hassle we want on them without impact. We also thought that tourists would always come here.
Well, as someone who works in the Reinsurance industry, I can attest to the fact that many of the companies here are quietly moving their jobs to other more hospitable and hungry places. Dublin, the Caymans, other islands, back to the US and London are becoming more attractive every day to the leaders of these companies. These countries want our jobs and the associated economic benefit. The tax advantage remains, but until our politicians set the tone for the community to follow I worry that we're on a downward spiral.
Yes the companies will continue to set up here for the time being but if we're shipping the professional jobs to other areas we are doing a number of very damaging things for our island:
1) The jobs that will move won't be the CEOs and CFO's and underwriters but the entry level professional jobs that put you on a track to those positions. Who'll suffer from that? Bermudians who will find they can't work their way into the industry and thus will never reach the positions they aspire to.
2) At the same time we're making other areas better competitors by forcing out smart employees who could be mentoring our young Bermudians. Instead they're training up young Dubliners while our Bermudians get offered jobs as receptionists and personal assistants.
3) The tax advantage is a major boost to Bermuda but if the expenses get too high, coupled with the reality that an organisation can't get the people they want to produce a profit, they'll go elsewhere. Remember the tax benefit is no good if you're not making money and it takes good employees to do that. At the minimum they'll reduce the presence here to a holding company level and use accounting to get the benefit.
4) If number 3 takes place we'll become what the US accuse of us being - simply a tax shelter moving around dollars rather than a thriving industry providing valuable services from our shores. Then we'll get hit really hard as John Kerry has promised.
There are obvious other drawbacks that I could mention but I'm highlighting the Bermudian trait of killing the goose that laid the golden egg and then wondering where it all suddenly went. Like tourism it won't be sudden but one day everyone will wake up and realise that we've done it again!
One of my common criticisms of the PLP Government has been a lack of planning and vision in their policy making. This government is reactive and willing to use anything for short term political gain. Unfortunately short term political gain soon turns into long term economic damage.
The key employee restriction is a prime example of a policy put in place for electioneering purposes but that has many more far reaching implications.
I always knew it was a hollow policy and that Lister put it in place to drum up a few votes (and Grant Gibbons sadly took the bait). The PLP needed something to point to as an example of protecting Bermudian jobs, when in fact it does the exact opposite by driving them to other places (look at ACE's recent layoffs and the Bank of Bermuda moving their IT department to Scotland several years ago). As soon as the 2003 election was a done deal the PLP predictably backed away from this ill-advised policy, although it remains in place. Both the Premier and Randy Horton have indicated it will be applied much more loosely. What a surprise! They won't be needing it for another 5 years when it will either be resurrected or something else hastily thrown together in its place.
It's not only electioneering however. It also speaks to a fundamental lack of understanding in the PLP of how to run a businesses and how the industry functions here.
Apart from a few exceptions, PLP Parliamentarians are completely ignorant of the nuances and requirements of running a business, let alone a major international corporation. At it's core this stems from their labour background. Most in the PLP see employees as simply performing a set of predefined and easily repeatable tasks. Employees perform functions that anyone can be retrained to do and changing employees has no discernable impact on a business.
Well, that works in the PLP labour blue collar world to a certain extent but it is kryptonite to our financial services industry. Serious and valuable employees, the kind we want our Bermudians to be, bring revenue to the table when they are hired in this business. Reinsurance, insurance and the broker industry are relationship driven. Multi-million dollar accounts follow the individuals more than they do the company.
So if you decide that the 6 years for Employee A are up and force them out (to pointlessly replace them with another foreigner) they'll take their $100 Million dollars of premium with them to a competitor. That's the fundamental distinction. Employees bring revenue with them and take it when they leave.
This is why the key employee policy undermines the ability to run a succcessful business in Bermuda. Rather than lose the employee the company may shift them to Dublin, or not have them here at all. That only hurts Bermudians.
Our immigration policies don't acknowledge that and as a result are fundamentally threatening the profitability of our international companies.
I don't sense an interest in understanding how the industry works from our Government and I certainly don't see any signs that the exploitation of our international businesses for political gain will stop anytime soon. The PLP have presented no vision or long range planning as to how to keep Bermuda at the forefront of this industry.
In fact, using our only economic engine as a political whipping boy has created an envrionment of hostility and distrust towards an industry which gives back to Bermuda an incredible amount (that they really don't have to).
Unless we're prepared for the idea of Bermuda with no international companies and an anemic tourism industry, things have to change.
To a certain extent it may be too late. The decline may have already started.