ABSTRACT
Other less scientific approaches to this question are perhaps easier to comprehend. There seems to be a consensus38 that most failures are the result of bad management, although in a small minority of cases, the business has been the victim of bad luck such that even the most competent of management could not have survived (clearly, competent management will succeed in riding out unforeseen events which completely defeat less competently managed businesses). Another frequent problem is inadequate or inappropriate initial capitalisation of the business. The Cork Committee observed39 that in all insolvencies of substance, a crucial element contributing to the collapse is the wilful, or at least grossly negligent, failure of the insolvent to have kept proper books of account, or a refusal to inspect them or to believe what they reveal or what he or she is told about them. Proper accounting systems will provide for accurate cashflow forecasts and project projections, adequate provision for contingencies, accurate and up-to-date costing systems, proper systems of credit control and checks against theft and other fraud.40 Lingard identified three areas as being of particular importance; inefficient production (which includes technical problems, inefficient procedures, poor labour relations, poor stock control and overstaffing), lack of skilful marketing and absence of stringent financial control. Argenti also focused on the lack of adequate accounting information whilst also identifying structural defects (such as one-man rule, an unbalanced top team, a lack of management depth and a weak finance function). Swords notes that the R3 surveys shifted over the 10 year period from 1991 from regarding loss of markets as the main cause of failure to attributing most failures to poor management; management failure encompasses failures in strategic and change management as well as failures in financial control. Swords also observed that the conclusion in the 9th Survey was that it appeared in many cases that management was failing either to acquire the necessary skills to lead the business or to understand the need for the business to change; he also noted that, anecdotally, insolvency practitioners reported a concern that managers in larger firms, where the money at risk was not their own, appeared less concerned about external factors and the need to react to change in the business than those who both owned and ran the business.
