Business failure blame culture must stop

A BUSINESS rescue, recovery and restructuring specialist is urging the wider business community not to view the owners of ‘failed’ firms with prejudice.

Peter Sargent, a partner at Begbies Traynor’s Halifax office, said all too often owners of such businesses are viewed as criminals both by their peers and the public at large.

However, he argues that this is rarely the case and that the recession so far has thrown up very few rogues, rather unfortunate businessmen who have proved to be the victims of bad advice, over optimism or circumstance beyond their control.

“It is certainly true that fraud does tend to have a heightened profile in troubled economic times,” he said.

“This is not only because there is usually a growth in fraud during a downturn as pressures mount on personal finances, but also because increased corporate vigilance and greater scrutiny leads to more fraud being uncovered.

“For example, the recession of the early ‘90s recession saw the collapse of BCCI and the plundering of pension funds by Robert Maxwell exposed. Similarly, one-time Wall Street high flyer Bernard Madoff, a former chairman of the Nasdaq stock market, is currently at the centre of an alleged $50bn probe, claimed to be the world’s biggest scam.”

Mr Sargent said that such headline grabbing stories were a million miles away from the everyday struggles of hard-pressed retail, property and manufacturing businesses in the region, which are simply fighting for survival.

“For the most part those running the many businesses facing insolvency and the one-man bands on the brink of bankruptcy, have tried their best, but it simply hasn’t proved to be enough in the current challenging times,” Mr Sargent continued.

“Most, for whatever reason, got it wrong. After all, how many forecasters and economic sages predicted this hundred year storm – recession and banking collapse at the same time? Private equity boss Jon Moulton and maybe a handful of others.

“Many companies which have become insolvent were simply unable to cope with the rapidity of the sales slump. Those firms which had geared up for higher volumes, still believing the good times were rolling, suffered a double whammy.”

Bashing those who have failed seems to be a British habit. According to Mr Sargent failed entrepreneurs are treated differently in the US.

He continued: “There is an expectation and acceptance in the States that entrepreneurs, by their very nature, are likely to have a few failures behind them and to have learnt from the experience. It shows they are prepared to embrace risk – after all, risk is at the heart of capitalism. Whereas in the UK, we are quick to assail risk takers as soon as anything goes awry.

“Yet there are all sorts of reason for ‘failure’. It could be due to youth, inexperience, over-optimism or simply bad luck. The business executives concerned may have been well respected professionals with a strong track record who had devoted their life to building up a business from scratch only to see it disappear in the current financial fallout. Despite the trauma they have suffered, they may still find themselves marginalised and condemned.”

Mr Sargent said it’s also a waste of time trying to pin down the culprits behind the recent economic crisis.

“Much time and many column inches have been squandered on trying to find the culprits responsible for our current predicament. The once golden boy bankers are now considered to be thieves and vagabonds by the press and public alike.

“They have apologised and admitted some responsibility for the present mess. However, the important point is not to allocate blame, but rather to learn from past mistakes; we will still need the country’s best business brains to help us rebuild. A thriving financial services sector remains vital to moving the country forward and out of recession.”

He also argues that business failure is down to a lack of bank lending.

“Today, it is claimed that the continuation of the downturn is partly due to our beleaguered banks refusing to lend,” Mr Sargent added.

“However, my experience has found few firms are going down because they lack access to funds and in many cases banks loans are being refused by banks because the companies’ economic position is too risky.

“There are apartment schemes which are not worth completing because asset values have fallen so far. It would cost more to finish them than the homes are now worth. So should the banks be lending good money after bad? Surely, it was a toxic mixture of irresponsible borrowing and lending which was one of the main causes of the global recession in the first place.”

Instead of wasting energy on recriminations and bemoaning the current situation, Mr Sargent suggests that beleaguered executives would do better to turn their attention to battening down the hatches and ensuring their firms survive the ensuing storm.

“As ever, stringent financial controls are critical – you are only as good as the information you have, make sure yours is as up-to-date as possible to enable you to monitor business performance effectively and adapt operations accordingly. Keep costs to a minimum, raise client service levels to ensure you retain business and do whatever you can to bring in new work, however difficult that may be.

“Over the last year, as we have witnessed the near collapse of the international financial markets and the slowing of the global economy, too much time has been spent looking for scapegoats. It’s about time we accepted that mistakes were made and that we all played our part in them – borrowers as much as lenders – let’s shoulder collective responsibility for the situation and turn our attention to trying to sort it out.

“The current devastation provides an opportunity for a complete review of all aspects of our financial system – risk, the trading of financial instruments, hedge funds, short selling, regulation and so on. It is important that we focus on the positive impetus for change this brings. Let’s move on from the traditional blame culture prevalent in the UK and use the mistakes of the past in a constructive way to help us to build a more resilient economy.”