Comment: Punish bad practice, but beware of stifling risk

THE financial crash has had many consequences, not least the thirst for revenge on those who perpetrated what some regard as nothing less than criminal behaviour.
Terry Murden. Picture: TSPLTerry Murden. Picture: TSPL
Terry Murden. Picture: TSPL

Last week the Chancellor outlined plans to introduce sanctions against “reckless” behaviour, measures to improve corporate governance and new rules allowing for bonuses to be clawed back.

These are laudable aims, but they are also suggestive of politicians playing to the gallery. Punishing greedy bankers is popular, but is not necessarily good for the economy, nor is such behaviour easy to prove.

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While clawbacks and bonus caps are relatively simple to implement, it would be more difficult to enforce a rule on recklessness because it requires a definition of the difference between misconduct and an ambitious strategy that simply goes wrong. Failure may have terrible repercussions for all concerned, but it is not a crime and in framing a law around recklessness the government must be careful not to stifle risk.

Vince Cable, the Business Secretary, has been amongst the biggest cheer leaders for sretribution against bad bankers and yesterday extended that sentiment across the corporate world in a consultation document.

Central to his thoughts is a need to restore trust in business which he believes is possible by tighter supervision and greater transparency in areas such as share ownership and benefits. He also tackles the risk issue by acknowledging that what he calls “honest failure” should not be punished.

However, his proposed changes would result in negligent directors being held personally liable for the debts of a failed company. This attempts to deal with the age-old problem of directors walking away from out-of-pocket creditors and starting again with total impunity, though it seems to run counter to the notion of limited liability.

Cable also concedes that failure is not an indication of misconduct but in trying to build greater protection from misbehaviour he must avoid inadvertently suffocating or even outlawing some legitimate practices. David Cumming, head of UK equities at Standard Life Investments, yesterday warned of a McCarthyesque style pursuit of the banking industry. Lots of companies go bust, he said, but not all directors of (those) companies are going to be negligent.

Dobbies departures end Barnes era under Tesco

THE sudden departure of two executives of Dobbies Garden Centres will be a cause for some discussion.

James Barnes, one of the more familiar faces among the Edinburgh business community, has become synonymous with the business, more so because his father acquired the company five years before James joined. James led the management buyout and took the company to the Alternative Investment Market, raising its profile and establishing Dobbies as a major player in the expanding gardening sector. So popular was the business that in 2007 it was subject to a sometimes bitter takeover battle. Sir Tom Hunter saw hopes of combining it with his Wyevale chain scuppered by the intervention of Tesco, in its pomp and able to outgun one of Scotland’s wealthiest men.

But in spite of healthy returns, there are suspicions that the roll-out of stores has not gone to plan. It aimed to have 100 by the end of this decade but currently has 32 against 29 two years ago. At that rate it will have less than half its target.