tag:theconversation.com,2011:/au/topics/administration-16167/articlesAdministration – The Conversation2023-08-08T13:42:46Ztag:theconversation.com,2011:article/2111612023-08-08T13:42:46Z2023-08-08T13:42:46ZWilko is the latest shop to be edged out by competition but it doesn’t have to mean the end for the budget retailer<figure><img src="https://images.theconversation.com/files/541707/original/file-20230808-25-voz4jb.jpg?ixlib=rb-1.1.0&rect=54%2C48%2C4000%2C2974&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A Wilko branch in Kingston, Surrey.</span> <span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/kingston-surrey-uk-march-2023-shop-2280497075">Abdul N Quraishi - Abs/Shutterstock</a></span></figcaption></figure><p>By selling pick ‘n’ mix, stationery, garden tools and bird boxes, Wilko has spent <a href="https://www.wilko.com/en-uk/corporate/our-history">the last 90 years</a> transforming from a one-store business into one of the UK’s major budget retail players. It now has <a href="https://uk.style.yahoo.com/list-wilko-stores-close-retailer-110635636.html?guccounter=1&guce_referrer=aHR0cHM6Ly93d3cuZ29vZ2xlLmNvbS8&guce_referrer_sig=AQAAAK3HWr0ZFmy82Gqbc4XcmRBzKRsZecgOYZhp8ckmsrAEkeeXj78loWi5j5Ku8tzOrcbuyBmlHjaEYhMXLXJm1zL5UEKRF_cwa4vAgdKz6rMeGEpD667Do_rCpRHnC_4cAG7eEs1eqcZJimKn4idSIaKL_7UwcomxZj02zInKj7X1#:%7E:text=So%20far%2C%20a%20rival%20discount,through%20a%20company%20voluntary%20arrangement.">around 400 stores</a>, but it has also become the latest high street shop to face serious financial troubles.<br>
The decline of Wilko has been gradual and <a href="https://www.ft.com/content/d548b6ea-e4bd-4427-baae-eacae255a8d4">predicted</a>. It reported <a href="https://find-and-update.company-information.service.gov.uk/company/00365335/filing-history">losses over the last four years</a>, and closed <a href="https://www.theguardian.com/business/2022/jan/10/wilko-to-close-up-to-15-stores-england-wales-high-street">15 stores</a> last year after attempts to restructure the business.</p>
<p>More changes to its business will now be needed, including <a href="https://www.independent.co.uk/news/business/wilko-closure-stores-jobs-where-b2387701.html">further store closures</a> and job losses as the company files for <a href="https://www.insolvencydirect.bis.gov.uk/freedomofinformationtechnical/technicalmanual/ch49-60/chapter%2056-1/Part%201/Part%201.htm">administration</a>. This doesn’t mean failure - yet. </p>
<p>Rather, this procedure will see Wilko’s financial future examined by insolvency specialists from accountancy firms who will assess if the company can be rescued as a going concern (PwC is reported to have been <a href="https://www.theguardian.com/business/2023/aug/03/budget-retailer-wilko-makes-administration-move-risking-12000-jobs">lined up for the job</a> after helping Wilko try to find a buyer in recent months).</p>
<p>It could reportedly take <a href="https://www.thetimes.co.uk/article/inside-wilkos-demise-and-why-a-rescue-could-cost-70m-g0bfm3qjp">£70 million</a> to rescue the company. Potential buyers include rival discount retailers and private equity firms that specialise in turning around struggling businesses. </p>
<p>The problems the chain has faced have not been unique to Wilko. When <a href="https://www.theguardian.com/business/2008/nov/26/woolworths-administration-high-street-retailers">Woolworths</a> entered administration in 2008, all 807 of its stores were eventually closed, resulting in 27,000 job losses. Like Wilko, Woolworths was a fixture on the high street for almost 100 years, but it fell victim to a significant spike in competition fuelled by other budget retailers – including Wilko. Now, it looks like Wilko is set to suffer the same fate.</p>
<p>This is a form of “<a href="https://www.e-elgar.com/shop/gbp/the-interpretation-and-value-of-corporate-rescue-9781839101397.html">creative destruction</a>” – when companies are naturally replaced by new, more efficient competitors over time. Woolworths replaced the need to shop at multiple smaller businesses, and then Wilko swooped in to take Woolworths’ core market share. Now, if it fails, Wilko could be replaced by other more streamlined businesses.</p>
<p>Just as the success of Wilko played its part in the demise of Woolworths, other budget retailers have expanded into Wilko’s core territory. Wilko’s decline has been more gradual, but The Range, Home Bargains, Poundland and B&M, as well as traditional supermarkets such as Tesco and Asda, have continued to increase their presence on Wilko’s patch. In particular, this includes DIY supplies, bathroom products and household wares. </p>
<p>Combined with the continued growth of internet companies such as Amazon, this competition has left Wilko without a unique selling point. Also, rising prices such as the UK has seen over the past year and a half forces people to cut spending but also undermines <a href="https://www.forbes.com/sites/jennmcmillen/2023/01/09/7-consumer-loyalty-trends-that-will-shape-retail-in-2023/">customer loyalty</a> as people shop around for the best bargains.</p>
<figure class="align-center ">
<img alt="Quiet cobbled street with blackboard in the foreground that says 'Closed' with an image of a virus." src="https://images.theconversation.com/files/541711/original/file-20230808-25-brvy37.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/541711/original/file-20230808-25-brvy37.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/541711/original/file-20230808-25-brvy37.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/541711/original/file-20230808-25-brvy37.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/541711/original/file-20230808-25-brvy37.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/541711/original/file-20230808-25-brvy37.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/541711/original/file-20230808-25-brvy37.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Many retailers lost business during the COVID pandemic.</span>
<span class="attribution"><span class="source">Corona Borealis Studio/Shutterstock</span></span>
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</figure>
<h2>Retail headwinds</h2>
<p>Of course, retailers have faced multiple challenges in recent years. The <a href="https://www.ons.gov.uk/economy/grossvalueaddedgva/articles/effectsofthecoronaviruscovid19pandemiconhighcontactindustries/2022-05-06">coronavirus pandemic</a> certainly did not help the retail sector, but some businesses were more adversely affected than others. Wilko, as a traditional store that relied on foot traffic, has previously said it experienced a <a href="https://www.theguardian.com/business/2022/jan/10/wilko-to-close-up-to-15-stores-england-wales-high-street">40% fall</a> in visitor numbers after the March 2020 lockdown. </p>
<p>Government <a href="https://www.gov.uk/government/collections/financial-support-for-businesses-during-coronavirus-covid-19">financial assistance</a>, which included business rates relief, tax holidays, and restrictions on landlord’s ability to call rents, provided some temporary relief. But once this assistance ended, Wilko was exposed to the post-pandemic world, which has seen its fair share of retail casualties since the start of the pandemic. </p>
<p>The demise of <a href="https://www.theguardian.com/business/2020/dec/01/debenhams-close-stores-jobs-department-store-jd-sports">Debenhams</a> shocked the high street in December 2020, as did the failure of the <a href="https://www.bbc.co.uk/news/business-55139369">Arcadia Group</a> (which included major high street brands like Topshop, Topman, Miss Selfridge, Dorothy Perkins, Evans and Burton) the month before. </p>
<p>In general, companies that have failed to address the cost of living crisis by cutting prices or offering better deals when compared to their competitors are struggling to survive. We saw this with the collapse of online furniture retailer Made.com last year. High street and online powerhouse Next bought the <a href="https://www.reuters.com/markets/deals/uks-next-buy-madecom-furniture-retailer-enters-administration-2022-11-09/">brand and website</a> in November 2022.</p>
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Read more:
<a href="https://theconversation.com/how-made-com-went-from-a-pandemic-era-business-superstar-to-a-failed-company-in-just-18-months-194323">How Made.com went from a pandemic-era business superstar to a failed company in just 18 months</a>
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<h2>Rethinking the future</h2>
<p>Wilko undoubtedly faces a dire situation, but unlike recent retail failures, it does have a future – it could just be in a different form. Sometimes brands are bought, which can cover intellectual property such as website domain and brand name, but not the stores or employees, as Next did with Made.com or <a href="https://www.ft.com/content/015699a2-bbb0-4fc5-a4f8-47028de35ba9">Asos did with Topshop</a>. </p>
<p>In other cases, the struggling company might reinvent itself, although this requires extensive restructuring, and may only prolong the misery. The latter was the fate of former high-street giants <a href="https://www.theguardian.com/business/2016/apr/25/bhs-heading-for-administration-as-rescue-deal-fails">BHS</a> and <a href="https://www.thisismoney.co.uk/money/markets/article-9147665/The-30-retailers-failed-2020.html#:%7E:text=the%20brand%20name-,Debenhams,-Department%20store%20chain">Debenhams</a>, and more recently the greeting cards retailer <a href="https://www.bbc.co.uk/news/business-66421173">Clintons</a>, who now plans to shut around 20% of its shops in an effort to stay in business.</p>
<p>In the case of Wilko, unfortunately this situation is likely to lead to the closure of many stores, and a reduction in staff and the range of products it sells. But it could also lead to new initiatives such as <a href="https://www.retailgazette.co.uk/blog/2022/11/wilko-trading/">developing its online presence</a> further and expanding its delivery options. </p>
<p>Change always risks alienating certain loyal customers, but in economic times like these, brands like Wilko need to put survival above all else.</p><img src="https://counter.theconversation.com/content/211161/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Wood does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>New competition often displaces older, less efficient business models but companies can survive these shifts.John Wood, Lecturer in Law, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1943232022-11-22T09:59:28Z2022-11-22T09:59:28ZHow Made.com went from a pandemic-era business superstar to a failed company in just 18 months<p>Formed in 2011, Made.com offered affordable high-end furniture online with the ambition to one day <a href="https://www.retail-week.com/home-and-diy/madecom-bids-to-rival-ikea-with-expansion-into-germany-/5076030.article?authent=1">rival Swedish furniture giant Ikea</a>. Fast forward 11 years and the British brand, which excelled during the pandemic and was valued last year at <a href="https://www.ft.com/content/fda46bfa-dd6a-40ac-a277-8089a65c7d80">£775 million</a>, has collapsed. </p>
<p>A last-ditch attempt to rescue the company by a former owner of Made.com was <a href="https://www.bbc.co.uk/news/business-63542386">rejected</a>, showing that even rising stars aren’t immune to the spiralling costs of living and doing business. This comes at a difficult time for the retail industry, with British clothing company <a href="https://www.theguardian.com/business/2022/nov/14/joules-to-appoint-administrators-fashion-retailer-stores">Joules</a> also collapsing recently.</p>
<p>In 2020, Made.com <a href="https://www.bbc.co.uk/news/business-57494549">sales hit £315 million</a>, a 30% increase from the previous year, as COVID-era lockdowns saw people spruce up their surroundings with online purchases. A further 63% sales boost over the first three months of 2021 convinced the company to list its shares on the London Stock Exchange in June 2021. At this time, the idea that the company could fail just 18 months later was inconceivable. So, what went wrong?</p>
<p>By 2022, the <a href="https://www.theguardian.com/business/2022/sep/23/madecom-plans-to-cut-a-third-of-staff-as-it-seeks-buyer-or-investment">supply chain difficulties</a> experienced by many businesses as the global economy rushed to reopen after pandemic-era lockdowns had reportedly left some customers waiting months for their orders. While some cancelled out of frustration, orders also fell as the <a href="https://www.ft.com/content/40137940-0e21-46a1-9102-5958ff99ba40">cost-of-living crisis</a> discouraged people from buying large items like furniture.</p>
<p>This <a href="https://www.ft.com/content/6484d5a1-c13f-4632-b718-3f978a7bd06c">sharp decline in sales</a> left Made.com with a lot of money tied up in unsold stock. With no immediate answer to its problems, the company was forced to stop taking orders and find a buyer. After this tactic failed, it entered administration on November 9.</p>
<h2>What is ‘administration’?</h2>
<p>To protect a troubled company from further decline, it can appoint administrators to place the company into administration. This is a corporate procedure that differs from bankruptcy which, in the UK, applies only to individuals. Once a company is placed into administration, the next steps will be to find a way to rescue it from total collapse.</p>
<p>In practice, it is often only aspects of the business that are rescued in this kind of situation. In Made.com’s case, UK retailer <a href="https://www.telegraph.co.uk/business/2022/11/09/next-buys-madecom-administration/">Next</a> has bought the furniture company’s intellectual property (its furniture designs), domain names and brand name for £3.4 million. </p>
<p>Other assets such as its warehouse inventory, which includes sofas, sideboards, beds and soft furnishings, will be sold to <a href="https://www.bbc.co.uk/news/uk-england-nottinghamshire-63637161">other buyers</a> to raise cash to pay back the company creditors. While asset rich, the business model of Made.com came unstuck as <a href="https://theconversation.com/five-problems-that-could-slow-supplies-of-food-computers-cars-and-other-goods-this-winter-189331">supply chains became less reliable</a> in recent years, which meant it simply could not deliver to customers in a timely manner.</p>
<figure class="align-center ">
<img alt="Screenshot of the Made.com website homepage taken on November 9 2022 that says: Goodbye from MADE and thank you." src="https://images.theconversation.com/files/495668/original/file-20221116-2576-us26yv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/495668/original/file-20221116-2576-us26yv.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=276&fit=crop&dpr=1 600w, https://images.theconversation.com/files/495668/original/file-20221116-2576-us26yv.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=276&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/495668/original/file-20221116-2576-us26yv.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=276&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/495668/original/file-20221116-2576-us26yv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=347&fit=crop&dpr=1 754w, https://images.theconversation.com/files/495668/original/file-20221116-2576-us26yv.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=347&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/495668/original/file-20221116-2576-us26yv.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=347&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">A screenshot of the Made.com website homepage on November 9 2022, the day it entered administration.</span>
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</figure>
<p>Unfortunately, even this rescue could result in hundreds of job losses and bring uncertainty to Made.com suppliers in the UK and abroad. And for customers, around <a href="https://www.theguardian.com/business/2022/nov/09/madecom-enters-administration-putting-about-500-jobs-at-risk">12,000 UK orders</a> are thought to be outstanding with no refunds offered. It may be possible for customers to rely on <a href="https://www.which.co.uk/consumer-rights/regulation/section-75-of-the-consumer-credit-act-aZCUb9i8Kwfa">section 75</a> of the Consumer Credit Act 1974 and make a claim against their credit provider, if they bought an item for more than £100 on a credit card which hasn’t arrived before <a href="https://www.bbc.co.uk/news/business-63641830">November 25</a>.</p>
<h2>When rescue isn’t an option</h2>
<p>There are a number of ways other than administration in which a company can be rescued from failure – but some options will only work in certain circumstances. For example, a firm could enter into a <a href="https://www.gov.uk/company-voluntary-arrangements">company voluntary arrangement</a> with its creditors, but this means it still has to pay creditors (albeit a reduced amount) if they agree to the proposal. Alternatively, management could propose a <a href="https://www.thegazette.co.uk/insolvency/content/103936">restructuring plan</a>, but the company must be able to continue operating as well as being able to afford what is a costly process.</p>
<p>Even when a rescue is possible, it could significantly change a company – for example, downsizing the business, cutting staff or implementing a more limited business model. Rescues also tend to rely on securing additional finance (Made.com <a href="https://www.telegraph.co.uk/business/2022/10/26/madecom-comes-apart-seams-inflation-drives-sofa-retailer-brink/">failed to obtain</a> such funding) and in some cases the approval of certain creditors. </p>
<p>While an offer to rescue Made.com was made by the former owner, the proposal was likely declined by creditors hoping that a better result existed elsewhere. Unfortunately, this did not lead to the rescue of the company but instead its break-up.</p>
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<img alt="Person holding cellphone with website of British e-commerce company Made.com Group plc on screen with logo." src="https://images.theconversation.com/files/496214/original/file-20221118-16-6lhrnf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/496214/original/file-20221118-16-6lhrnf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=450&fit=crop&dpr=1 600w, https://images.theconversation.com/files/496214/original/file-20221118-16-6lhrnf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=450&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/496214/original/file-20221118-16-6lhrnf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=450&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/496214/original/file-20221118-16-6lhrnf.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=566&fit=crop&dpr=1 754w, https://images.theconversation.com/files/496214/original/file-20221118-16-6lhrnf.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=566&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/496214/original/file-20221118-16-6lhrnf.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=566&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Made.com’s homepage before it went into administration.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/stuttgart-germany-07232022-person-holding-cellphone-2184591445">T. Schneider / Shutterstock</a></span>
</figcaption>
</figure>
<p>Efforts to address corporate failure during COVID-19 resulted in the <a href="https://www.legislation.gov.uk/ukpga/2020/12/contents/enacted">Corporate Insolvency and Governance Act 2020</a>. This provided new measures to assist rescue strategies, such as a standalone moratorium that temporarily stops creditor action against the company so it can devise a plan to survive. And as well as the new restructuring mechanism mentioned above, the act also prevents “<a href="https://www.bdo.co.uk/en-gb/insights/advisory/business-restructuring/the-prohibition-of-ipso-facto-clauses-what-suppliers-and-insurers-need-to-know">ipso facto</a>” clauses that suppliers were previously able to use to terminate contracts upon insolvency.</p>
<p>Despite some positive <a href="https://www.gov.uk/government/publications/corporate-insolvency-and-governance-act-2020-interim-report-march-2022/corporate-insolvency-and-governance-act-2020-interim-report-march-2022">findings</a>, however, these measures all remain relatively untested. This is mostly because of other initiatives the UK government introduced to ease the impact of the pandemic, such as <a href="https://www.gov.uk/guidance/apply-for-a-coronavirus-bounce-back-loan">bounce back loans</a> and the <a href="https://www.gov.uk/government/collections/coronavirus-job-retention-scheme">furlough scheme</a>. </p>
<p>The act’s measures, specifically the moratorium and the restructuring plan, are also subject to certain criteria. If rescue is not viable then the chosen procedure would not be approved by either the insolvency practitioner (with the moratorium) or the courts (with a restructuring plan).</p>
<h2>Retail and the rising cost of living</h2>
<p>These new government measures could be particularly important in the months to come. Made.com is not alone in struggling following the end of lockdown restrictions and the emergence of the cost-of-living crisis. </p>
<p>Online retail sales peaked during the height of the pandemic and have been on a <a href="https://www.ons.gov.uk/businessindustryandtrade/retailindustry/bulletins/retailsales/may2022">downward trend</a> since. Online retailers <a href="https://www.telegraph.co.uk/business/2022/10/19/asos-launches-survival-plan-swings-32m-loss/">Asos</a> and <a href="https://www.theguardian.com/business/2022/sep/28/boohoo-issues-profit-and-sales-warning-as-market-value-slumps-87-in-year">Boohoo</a> have also experienced sharp falls in their share prices this year. Even high-street stalwarts like <a href="https://www.theguardian.com/business/2022/nov/09/m-and-s-faces-gathering-storm-as-joint-venture-with-ocado-makes-loss-marks-and-spencer">Marks & Spencer</a> are seeing the effects of the rising costs on their profits. </p>
<p>While not all companies will meet the same fate as Made.com, these tough trading conditions caused by the cost-of-living crisis are, according to the <a href="https://www.bankofengland.co.uk/monetary-policy-report/2022/august-2022">Bank of England</a>, likely to continue for UK retailers until mid-2023 at the earliest.</p><img src="https://counter.theconversation.com/content/194323/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Wood does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Supply chain difficulties and rising costs have forced Made.com into administrationJohn Wood, Lecturer in Law, Lancaster UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1747622022-01-27T13:29:23Z2022-01-27T13:29:23ZHow real is ‘Abbott Elementary?’ A former Philadelphia school teacher weighs in<figure><img src="https://images.theconversation.com/files/442038/original/file-20220121-17-1hz41y3.jpg?ixlib=rb-1.1.0&rect=26%2C0%2C3000%2C1962&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">'Abbott Elementary' takes place in the Philadelphia school district. </span> <span class="attribution"><a class="source" href="https://www.dgepress.com/abc/shows/abbott-elementary/photos/">ABC/Gilles Mingasson</a></span></figcaption></figure><p><em>ABC’s mockumentary <a href="https://abc.com/shows/abbott-elementary">“Abbott Elementary”</a> follows a group of dedicated teachers who work at a Philadelphia school. The show takes a comedic approach toward issues in inner city schools. Here, <a href="https://www.lynnettemawhinney.com/">Lynnette Mawhinney</a>, a former Philadelphia schoolteacher who is now an associate professor of Urban Education at Rutgers University - Newark, weighs in on whether the show accurately portrays the realities of educators in today’s schools.</em></p>
<h2>Is this show realistic in showing the challenges of urban schools?</h2>
<p>Yes, this show humorously speaks to the real-life experiences of teachers. The <a href="https://abc.com/shows/abbott-elementary/episode-guide/season-01/03-wishlist">pilot episode</a> begins with the main character, Ms. Janine Teagues, discussing how she is one of three teachers left from an initial group of 20 teachers hired the year before. This speaks to the issue of <a href="https://www.rutgersuniversitypress.org/there-has-to-be-a-better-way/9780813595276">teacher turnover</a>, a problem that costs schools an <a href="https://eric.ed.gov/?id=ED498001">estimated US$7.34 billion annually</a>. These costs come from the <a href="https://doi.org/10.3102/0013189X17735812">problems</a> that schools – and in particular, urban schools – have in keeping teachers on staff as they either move to other schools or leave the profession. Once a teacher leaves, school districts have to spend money to attract, hire and develop new teachers.</p>
<p>As I show in my book, “<a href="https://www.rutgersuniversitypress.org/there-has-to-be-a-better-way/9780813595276">There Has to be a Better Way: Lessons from Former Urban Teachers</a>,” urban teachers leave the profession due to exhaustion, disillusionment and conflicts with administration. In particular, teachers of color leave urban schools due to racial microaggressions.</p>
<p>“Abbott Elementary” also deals with themes of insufficient resources for teachers and students, as well as misappropriation of school funds. Journalist Dale Russakoff’s book, <a href="https://www.worldcat.org/title/prize-whos-in-charge-of-americas-schools/oclc/915774457">“The Prize: Who’s in Charge of America’s Schools”</a>, details how a <a href="https://www.vox.com/future-perfect/2019/7/3/18629810/mark-zuckerberg-cory-booker-newark-schools">$100 million gift</a> from Mark Zuckerberg to Newark Public Schools in 2010 was grossly misappropriated by upper administration to consultants and <a href="https://theconversation.com/lessons-from-newark-why-school-reforms-will-not-work-without-addressing-poverty-48212">rarely did the money serve the schools themselves</a>. </p>
<p>Nevertheless, as shown in <a href="https://abc.com/shows/abbott-elementary/episode-guide/season-01/03-wishlist">episodes one and three</a> of “Abbott Elementary,” urban teachers know how to make a way and get what they need for their classrooms – whether it’s through social media platforms, crowdfunding campaigns, or, to use street lingo, they know someone who can “get the hookup.” For example, when I taught high school in Philly through the early 2000s, I was the laptop “hookup” at my school. I had a family member who worked in corporate business where I would get their old laptops so students could use them in school. Ms. Thomas, down the hall, used to be the “hookup” for books to help stock teachers’ classroom libraries. </p>
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<img alt="A Black woman sits on a hospital bed." src="https://images.theconversation.com/files/442459/original/file-20220125-23-1d2c6n2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/442459/original/file-20220125-23-1d2c6n2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/442459/original/file-20220125-23-1d2c6n2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/442459/original/file-20220125-23-1d2c6n2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/442459/original/file-20220125-23-1d2c6n2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/442459/original/file-20220125-23-1d2c6n2.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/442459/original/file-20220125-23-1d2c6n2.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Teachers sometimes suffer from burnout due to their job duties.</span>
<span class="attribution"><a class="source" href="https://www.dgepress.com/abc/shows/abbott-elementary/photos/">ABC/Raymond Liu</a></span>
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<p>Another theme is how novice teachers can forget to practice self-care and <a href="https://journals.charlotte.edu/urbaned/article/view/907">burn out</a> quickly. In <a href="https://abc.com/shows/abbott-elementary/episode-guide/season-01/03-wishlist">episode two</a>, Janine skips multiple meals and goes above and beyond for the school but ends up sick. Her senior colleague, Ms. Melissa Schemmenti, reminds her, “We care so much, we refuse to burn out. If we burn out, who’s here for those kids? That’s why you gotta take care of yourself.” In this instance, I think the show tackles subtle issues for novice teachers that are not often known to the general public.</p>
<h2>What does this show mean to the teaching profession?</h2>
<p>In my view, the show represents a rare portrayal of Black teachers. The reality is that <a href="https://eric.ed.gov/?id=ED571989">82% of U.S. teachers</a> are white compared to the 18% who are teachers of color. Although <a href="https://nces.ed.gov/programs/raceindicators/spotlight_a.asp">white women</a> make up a majority of elementary teachers in the United States, there are teachers of color and male educators who break this mold. </p>
<p>The presence of <a href="https://www.washingtonpost.com/education/2020/08/29/why-black-teachers-matter-black-white-kids-book-excerpt/">Black teachers is important for all students</a>, especially Black students. Research shows that Black boys in the third through fifth grades are almost <a href="https://www.nber.org/papers/w25254">40% less likely to drop out of school</a> and <a href="https://www.brookings.edu/blog/brown-center-chalkboard/2021/10/11/how-does-student-teacher-matching-affect-suspensions-for-students-of-color/">less likely to be suspended</a> if they have a Black teacher between third and fifth grade. Shows like “Abbott Elementary” will hopefully help to change media perceptions of elementary teachers and rebuild an interest for prospective teachers. </p>
<h2>Does it have the potential to educate people on the challenges in urban education?</h2>
<p>Yes, this show could be used as important discussion points for teacher education programs, policymakers, and the general public. The <a href="https://abc.com/shows/abbott-elementary/episode-guide/season-01/03-wishlist">first few episodes</a> of “Abbott Elementary” certainly portray the challenges of underfunded schools and the mismanagement of funds. </p>
<p>But I would argue that “Abbott Elementary” also highlights the beauty found in urban education. As Ms. Barbara Howard, one of the veteran teachers, states, “we talk about what they [the students] do have, not about what they don’t.” This advice comes after Janine keeps fixating about the classroom materials Barbara doesn’t have. Meaning, “Abbott Elementary” can be used to educate on how dedicated teachers find the beauty in urban spaces.</p>
<p><a href="https://abc.com/shows/abbott-elementary/episode-guide/season-01/03-wishlist">Episode two</a> demonstrates the beauty of how relationships are built between parents and teachers in order to best support students. Urban education should not always be seen in a negative light. I think that the show balances its humor with a <a href="https://doi.org/10.1080/00131725.2017.1353323">positive lens</a> that is much needed in educating others about urban schools. </p>
<p>[<em>Over 140,000 readers rely on The Conversation’s newsletters to understand the world.</em> <a href="https://memberservices.theconversation.com/newsletters/?source=inline-140ksignup">Sign up today</a>.]</p><img src="https://counter.theconversation.com/content/174762/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lynnette Mawhinney does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>In ABC’s ‘Abbott Elementary,’ Philadelphia schoolteachers go above and beyond for their students – just like real-life urban schoolteachers do every day, says one scholar.Lynnette Mawhinney, Department Chair and Associate Professor of Urban Education, Rutgers University - NewarkLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1557442021-03-10T19:07:37Z2021-03-10T19:07:37ZHard bump ahead? Drop in insolvencies and bankruptcies is a ticking time bomb<p>The vast arsenal of fiscal, monetary and legal measures used by Australian governments to offset the COVID-induced economic crisis have worked well. They did not prevent a recession (popularly defined as two quarters of negative GDP growth) but things could have been much worse.</p>
<p>What is particularly interesting is that the expected consequences have not shown up in the official statistics for financial distress – insolvent companies entering administration and individuals declaring bankruptcy. </p>
<p>Indeed, a misleading impression of 2020 being one of “economic good times” could be gained from the statistics. </p>
<p>The big question is whether these statistics show government relief measures have averted economic pain or simply deferred it. As measures are wound down and withdrawn, will the private sector be willing and able to pick up the resulting slack?</p>
<h2>Companies entering administration</h2>
<p>There are, of course, “lies, damn lies, and statistics”. The figures hide what is likely to be actually happening in terms of financial distress.</p>
<p>Impacts on businesses and individuals have been quite varied. Some large corporations have come through in good shape, much better than might have been imagined. But the tourism, hospitality, entertainment and higher education sectors have taken significant hits and face an uncertain and drawn-out recovery.</p>
<p>The following graphic, <a href="https://download.asic.gov.au/media/5946060/asic-insolvency-statistics-series-1-published-february-2021.xlsx">using data</a> from the Australian Securities and Investments Commission, shows the number of companies entering external administration (quarterly from 2010 to 2020). </p>
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<p>Notable is the decline in business collapses in 2020 – the opposite of what one would expect in a time of economic stress. </p>
<p>A number of policy actions contributed to this. </p>
<p>The most obvious contributors to keeping failing businesses alive were JobKeeper payments as well as changes increasing “<a href="https://asic.gov.au/about-asic/news-centre/articles/directors-duties-in-the-context-of-covid-19/">safe-harbour protections</a>” to reduce the risk of prosecution for trading while insolvent. These changes also reduced the ability of creditors to speedily force a debtor company into insolvency.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/government-will-reform-insolvency-system-to-improve-distressed-small-businesses-survival-chances-146774">Government will reform insolvency system to improve distressed small businesses' survival chances</a>
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<p>In many cases it is quite possible these simply put off that day to some time in 2021.</p>
<h2>Individuals declaring bankruptcy</h2>
<p>At the personal level, which includes owners of small unincorporated businesses, a similar pattern can be seen. </p>
<p>The next graph uses data from the <a href="https://www.afsa.gov.au/about-us/statistics/quarterly-personal-insolvency-statistics">Australian Financial Security Authority</a>. It shows the number of individuals entering into insolvency (bankruptcy, debt agreements etc) on a quarterly basis. The latest data is for the September quarter of 2020. The number had fallen to about half of what it had been prior to 2020.</p>
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<a href="https://images.theconversation.com/files/388447/original/file-20210309-15-1y6u804.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Graphic showing personal insolvencies in Australia 2011 to 2020." src="https://images.theconversation.com/files/388447/original/file-20210309-15-1y6u804.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/388447/original/file-20210309-15-1y6u804.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=406&fit=crop&dpr=1 600w, https://images.theconversation.com/files/388447/original/file-20210309-15-1y6u804.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=406&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/388447/original/file-20210309-15-1y6u804.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=406&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/388447/original/file-20210309-15-1y6u804.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=511&fit=crop&dpr=1 754w, https://images.theconversation.com/files/388447/original/file-20210309-15-1y6u804.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=511&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/388447/original/file-20210309-15-1y6u804.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=511&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<p>Notably, the number of personal insolvencies began falling in early 2018. There is no obvious single explanation for this trend, though good economic conditions and low interest rates are probably part of the story. </p>
<p>The further decline in 2020 (in contrast to expectations of an increase) is most likely due to legislative changes introduced in March 2020 and extended in September 2020. These include increasing the size of debt owed before a creditor can initiate action from A$5,000 to A$20,000, and allowing debtors six months (rather than 21 days) to respond to creditor demands. Mortgage repayment deferrals by banks also would have helped.</p>
<h2>A difficult balancing act</h2>
<p>What to make of these unexpected declines in official indicators of financial distress when economic conditions have surely increased the reality?</p>
<p>The more optimistic interpretation is that various government support measures have prevented both business and individuals sliding into insolvency. </p>
<p>The less optimistic interpretation is the measures have simply deferred the final outcome – with the statistics soon to show a bounce in business failures and personal insolvencies.</p>
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<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/were-facing-an-insolvency-tsunami-with-luck-these-changes-will-avert-the-worst-of-it-146833">We're facing an insolvency tsunami. With luck, these changes will avert the worst of it</a>
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<p>There is no point keeping “zombie” businesses alive, nor in dissuading heavily indebted individuals from taking action under insolvency arrangements that can give them a fresh start. </p>
<p>But finding the right balance of continuing support for recoverable cases while terminating it for others (and limiting the hardship caused by failure) is a difficult and challenging task for our economic masters.</p><img src="https://counter.theconversation.com/content/155744/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Kevin Davis does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>From some statistics 2020 looks like economic good times. Have relief measures averted economic pain or simply deferred it?Kevin Davis, Emeritus Professor of Finance, The University of MelbourneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1555792021-02-19T13:40:44Z2021-02-19T13:40:44ZWhen companies go bust, the law does little to help suppliers get repaid – here’s a possible solution<p>Insolvency is stalking many UK businesses in the wake of coronavirus and Brexit. This has been particularly visible in retail, with <a href="https://www.retailresearch.org/whos-gone-bust-retail.html">2021 already seeing</a> stationery chain Paperchase in administration and former high-street leaders Debenhams and Topshop <a href="https://theconversation.com/future-of-high-streets-how-to-prevent-our-city-centres-from-turning-into-ghost-towns-154108">being mopped up</a> by online upstarts Boohoo and Asos. </p>
<p>Meanwhile, pubs and restaurants are <a href="https://www.theguardian.com/uk-news/2021/feb/18/budget-to-provide-fresh-covid-rescue-package-as-tax-rises-deferred">lobbying hard</a> to be allowed to open sooner rather than later, while Chancellor Rishi Sunak is signalling that the March budget will give more support to businesses and workers. </p>
<p>But when the support measures <a href="https://www.gov.uk/coronavirus/business-support">finally stop</a>, we can expect an <a href="https://www.accountancyage.com/2020/12/01/tsunami-of-insolvencies-likely-as-retail-faces-collapse/">insolvency tsunami</a>. According to a <a href="https://www.begbies-traynorgroup.com/news/business-health-statistics/news/firm-news/630000-uk-businesses-now-in-significant-financial-distress-as-new-lockdown-comes-into-effect">recent report</a>, the number of UK businesses in “significant distress” rose 27% year on year in the final quarter of 2020 to 630,000, with increases across all sectors. </p>
<p>Business collapses will obviously be painful for a lot of people involved. But thanks to the law that governs insolvency, some stakeholders in these companies will come off a lot worse than others. </p>
<h2>The battle for priority</h2>
<p>Perhaps the best example of the imbalance in insolvencies is on planet football. <a href="https://www.r3.org.uk/stream.asp?stream=true&eid=22099&node=190&checksum=141F3D891B3A4811F289ED8BE69BF679">Nearly half</a> of clubs in top four tiers of the English leagues have gone through an insolvency since 1992.</p>
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<a href="https://images.theconversation.com/files/385030/original/file-20210218-23-1hq1t1f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="Punctured football on grass" src="https://images.theconversation.com/files/385030/original/file-20210218-23-1hq1t1f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/385030/original/file-20210218-23-1hq1t1f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=685&fit=crop&dpr=1 600w, https://images.theconversation.com/files/385030/original/file-20210218-23-1hq1t1f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=685&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/385030/original/file-20210218-23-1hq1t1f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=685&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/385030/original/file-20210218-23-1hq1t1f.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=860&fit=crop&dpr=1 754w, https://images.theconversation.com/files/385030/original/file-20210218-23-1hq1t1f.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=860&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/385030/original/file-20210218-23-1hq1t1f.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=860&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
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<span class="caption">Millionaires get paid first.</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/deflated-soccer-ball-1053297158">Javier Crespo</a></span>
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<p>When a club enters administration, for example, the “<a href="https://www.brabners.com/blogs/effect-football-creditors-rule-staff-wages-event-efl-clubs-insolvency">football creditor rule</a>” kicks in. This gives certain creditors priority status in getting their money back, including players, clubs and the football league authorities. It can lead to perverse outcomes: for instance, a multi-millionaire footballer might get paid ahead of a cleaner who is paid by an outside cleaning company that is owed money by the club.</p>
<p>The league authorities maintain that this rule exists for the financial integrity of the league. But it clearly creates losers, too. </p>
<p>In the insolvency world, this is known as the “waterfall” because value trickles down a pre-determined hierarchy of all the groups of creditors. Jockeying for position is the name of the game. </p>
<p>Once insolvency practitioners have been paid, the law prioritises “secured creditors” over all others. These are creditors who have lent money in exchange for collateral – usually in the form of a mortgage over property or plant or machinery. These are known as fixed charges, and these creditors will normally be banks. They have manoeuvred into this priority position in the hierarchy over many decades. </p>
<p>Next comes “preferential creditors”, whose <a href="https://www.legislation.gov.uk/ukpga/1986/45/part/IV/chapter/VIII/crossheading/preferential-debts">status has been granted</a> by parliament. This includes employees, who can claim outstanding holiday pay and some unpaid wages. <a href="https://www.r3.org.uk/press-policy-and-research/r3-blog/more/29492/page/1/royal-assent-for-the-finance-bill-but-r3-s-opposition-to-crown-preference-continues/">Very controversially</a>, tax authorities were also <a href="https://www.gov.uk/government/publications/introduction-of-changes-to-protect-your-tax-in-insolvency/introduction-of-changes-to-protect-your-tax-in-insolvency">recently re-added</a> to the list of preferential creditors after an absence of two decades. </p>
<p><strong>The hierarchy of creditors</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/385036/original/file-20210218-20-td0ewv.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/385036/original/file-20210218-20-td0ewv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/385036/original/file-20210218-20-td0ewv.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=186&fit=crop&dpr=1 600w, https://images.theconversation.com/files/385036/original/file-20210218-20-td0ewv.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=186&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/385036/original/file-20210218-20-td0ewv.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=186&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/385036/original/file-20210218-20-td0ewv.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=233&fit=crop&dpr=1 754w, https://images.theconversation.com/files/385036/original/file-20210218-20-td0ewv.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=233&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/385036/original/file-20210218-20-td0ewv.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=233&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption"></span>
</figcaption>
</figure>
<p>After preferential creditors comes another type of bank lending in exchange for collateral, known as floating charges. These loans are secured against things like stock and raw materials, but could include any asset. Last comes “unsecured creditors”, which refers to the likes of customers and suppliers. This could be customers who have ordered a coat that is being tailor made, or suppliers who sell bread to a sandwich shop. </p>
<p>Some unsecured creditors do manage to increase what they can recover in insolvencies. Some suppliers take out credit insurance. Others <a href="https://www.oxfordreference.com/view/10.1093/oi/authority.20110803100416557">cleverly use</a> contractual provisions that mean that they continue to own goods until their customer pays for them. </p>
<p>Some customers who have become creditors of failed companies have been protected by the law of trusts in the past. This means that the money they use to purchase a sofa, or a Christmas hamper, is specially reserved for them in a dedicated bank account. Those funds go straight back to the consumers, bypassing the insolvency process. We have seen this with <a href="https://youtu.be/wCr_HJWBiTA">Christmas savings clubs</a> and some <a href="https://www.kingschambers.com/assets/images/news/meh_article.pdf">home-furnishing companies</a>. </p>
<h2>The crumbs</h2>
<p>Various studies have shown that <a href="https://webarchive.nationalarchives.gov.uk/20140402172033/http://oft.gov.uk/shared_oft/reports/Insolvency/oft1245">unsecured creditors get</a> lamentably little in an insolvency. Forty years ago, the emeritus Oxford law professor Roy Goode <a href="https://www.qmul.ac.uk/ccls/media/ccls/docs/research/TCLR-1-Fundamental-Concepts-of-Commercial-Law-The-Development-of-Transnational-Commercial-Law-Reviews.pdf">questioned</a> whether the law was too favourable to secured creditors. As far back as 1897 Lord Macnaghten, one of the most senior judges of the era, <a href="https://www.nytimes.com/1913/02/18/archives/englands-great-judge-dead-lord-macnaghten-was-the-most-eminent.html">expressed</a> “some sympathy for unsecured creditors”. </p>
<p>That sympathy was well placed, then and now – particularly in view of coronavirus and Brexit. This is despite numerous attempts to improve their lot, such as the <a href="https://uk.practicallaw.thomsonreuters.com/Cosi/SignOn?redirectId=rt_b1a92c71-f889-4767-8756-c2b5043a0f6a">“prescribed part” rules</a>. These entitle unsecured creditors to a small proportion of whatever the floating-charge creditors are able to extract from an insolvency process – though it only applies to floating charges agreed from September 15 2003, which leaves quite a large proportion of them. </p>
<p>Should the system be reformed? This depends on your position in the waterfall. Banks would say their priority ranking is necessary to allow them to provide the lending required for economic growth. Tax authorities and employees would also say they deserve their preferential treatment as they did not become creditors by choice. </p>
<p>Unsecured creditors would probably say we need to do more to help them. The relevant legislation around the “prescribed part” was <a href="https://www.legislation.gov.uk/uksi/2020/211/contents/made">recently amended</a> to increase the portion of value in each insolvency reserved just for these creditors. This was a step in the right direction, and it could be further reformed in certain ways to give these creditors a slightly greater share of the pie, including extending the entitlement to floating charges pre-2003. </p>
<p>To help these creditors more than that, business associations such as the Institute of Directors could take more responsibility for educating smaller businesses about the ways in which some haul themselves up the hierarchy by using contractual provisions over who owns the goods they supply. These businesses might also protect themselves in the same way as Christmas clubs by requiring the customers they supply to ring-fence the money they owe before it is settled. These solutions may not be perfect, but as ways of improving the bargaining position of unsecured creditors, they are worth considering.</p><img src="https://counter.theconversation.com/content/155579/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>John Tribe does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Under insolvency law, there’s an order in which creditors get paid from whatever is left of a company.John Tribe, Senior Lecturer in Law, University of LiverpoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1468332020-09-28T00:48:58Z2020-09-28T00:48:58ZWe’re facing an insolvency tsunami. With luck, these changes will avert the worst of it<figure><img src="https://images.theconversation.com/files/360151/original/file-20200927-24-bx6l1q.jpg?ixlib=rb-1.1.0&rect=554%2C198%2C2600%2C1379&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">
</span> <span class="attribution"><span class="source">Supamotion/Shutterstock</span></span></figcaption></figure><p>Ahead of the budget, the government has announced new rules that will allow small businesses at risk of collapse to continue to work out their problems instead of appointing an administrator.</p>
<p>They are needed because of an avalanche of insolvencies awaiting the end of an effective moratorium on bankruptcies (a so-called “regulatory shield”) that expires at the <a href="https://ministers.treasury.gov.au/ministers/josh-frydenberg-2018/media-releases/extension-temporary-relief-financially-distressed">end of December</a>.</p>
<p>Since it was introduced in March the number of companies entering external administration has been unusually low compared to earlier years (at a time of unusually bad conditions) suggesting a buildup of zombie companies waiting to die.</p>
<hr>
<p><strong>Number of companies entering external administration</strong></p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=307&fit=crop&dpr=1 600w, https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=307&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=307&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=386&fit=crop&dpr=1 754w, https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=386&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/360148/original/file-20200927-18-82272w.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=386&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Twelve months to each week (red) versus previous twelve months.</span>
<span class="attribution"><a class="source" href="https://asic.gov.au/regulatory-resources/find-a-document/statistics/insolvency-statistics/insolvency-statistics-series-1b-notification-of-companies-entering-external-administration-weekly-update/">ASIC</a></span>
</figcaption>
</figure>
<hr>
<p>The new rules will allow insolvent small businesses with liabilities of less than A$1 million to keep trading under the eye of a <a href="https://ministers.treasury.gov.au/sites/ministers.treasury.gov.au/files/2020-09/Insolvency-Reforms-fact-sheet.pdf">small business restructuring practitioner</a> for 20 days while they develop a restructuring plan to put to creditors rather than surrender control to an external administrator.</p>
<p>If half the creditors by value endorse the plan it will be approved and the business can continue under its present ownership with assistance from the restructuring practitioner. If not, it can be put out of its life quickly under a proposed simplified liquidation process.</p>
<h2>Existing laws give directors little leeway</h2>
<p>Under the current insolvent trading law, directors are expected to immediately stop the trading when they know or have reasonable grounds to suspect the company is insolvent. Directors who “give it a go” and try to trade their way out of financial difficulty face severe legal consequences: personal liability, a fine of up to <a href="https://www.asic.gov.au/about-asic/asic-investigations-and-enforcement/fines-and-penalties/">$1.11 million per offence</a> or a prison sentence of up to 15 years in extreme cases.</p>
<p>The only way to avoid these penalties is to quickly place the company in the hands of the administrator who temporarily manages the business until the company’s creditors make a decision on the company’s fate.</p>
<p>Its a regime not particularly suited to small businesses. </p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/australia-needs-new-insolvency-laws-to-encourage-small-businesses-84776">Australia needs new insolvency laws to encourage small businesses</a>
</strong>
</em>
</p>
<hr>
<p>The proposed new rules can be seen as a tacit admission of the failure to the “<a href="https://www.bdo.com.au/en-au/accounting-news/accounting-news-may-2018/safe-harbour-insolvency-reforms">safe harbour</a>” law reform of 2017. Applicable to all companies irrespective of size, it protects directors from personal liability for debts incurred by an insolvent company if they took a course of action “reasonably likely to lead to a better outcome” for the company and its creditors than administration or liquidation.</p>
<p>Anecdotal evidence suggests it is largely shunned by small businesses in part because of its uncapped cost. The fees of small business restructuring practitioners will be capped.</p>
<h2>The new laws will create breathing space</h2>
<p>The new rules are based on <a href="https://www.investopedia.com/terms/c/chapter11.asp">Chapter 11</a> of the United States Bankruptcy Code, with important differences.</p>
<p>The US law applies to all Companies, not just to those with debts of less than $1 million. And it gives the court an oversight role.</p>
<p>The absence of judicial supervision in what’s proposed for Australia is a double-edged sword. Court involvement generally means delays and high costs.</p>
<hr>
<p>
<em>
<strong>
Read more:
<a href="https://theconversation.com/government-will-reform-insolvency-system-to-improve-distressed-small-businesses-survival-chances-146774">Government will reform insolvency system to improve distressed small businesses' survival chances</a>
</strong>
</em>
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<hr>
<p>On the other hand, it provides a valuable check against abuses – such as the deliberate liquidation and rebirth of “<a href="https://www.dissolve.com.au/information-centre/what-is-a-phoenix-company/">phoenix companies</a>” in order to avoid paying debts.</p>
<p>In Australia, that’ll be the role of the small business restructuring practitioner.</p>
<h2>It’s not yet clear how they’ll work</h2>
<p>It won’t be a panacea for small businesses. They will be required to lodge any outstanding tax returns and pay any employee entitlements before a plan can be put to creditors.</p>
<p>In the current circumstances many small businsses will not be able to comply.</p>
<p>There’s much we don’t yet know about what’s proposed. The government’s briefing says time and cost savings will be achieved through “<a href="https://ministers.treasury.gov.au/sites/ministers.treasury.gov.au/files/2020-09/Insolvency-Reforms-fact-sheet.pdf">reduced investigative requirements</a>”. It is unclear to what the extent the liquidator’s wide investigative powers into reasons for business failures will be curtailed. </p>
<p>The changes are likely to have profound implications for many stakeholders, including creditors, employees and the general community. </p>
<p>It is important that the government consults properly before the new rules are put to parliament in time for their introduction on January 1.</p><img src="https://counter.theconversation.com/content/146833/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anil Hargovan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The new rules will allow insolvent small businesses to keep trading rather than go straight into administration.Anil Hargovan, Associate Professor, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1391772020-06-02T12:22:08Z2020-06-02T12:22:08ZAttack of zombie companies: don’t let them eat bailouts that are vital to restore the economy<figure><img src="https://images.theconversation.com/files/337029/original/file-20200522-124851-fw185l.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">shutterstock</span> </figcaption></figure><p>Governments are all deciding which struggling companies to help out in the COVID-19 pandemic. Among the many looking for help, some have a strange deathly pallor. </p>
<p>This is nothing to do with whether they trade in sectors whose futures look very uncertain – though many do. For years, these companies have been struggling to pay the interest on their large debts, let alone the principal, despite the long period of very low interest rates. Some were on their way to failure. The buoyant economy before coronavirus kept them just about stumbling along. </p>
<p>There are many of these zombies in our midst, and whatever public money they receive means less available for firms that were healthy before the pandemic. Morgan Stanley <a href="https://www.ft.com/content/cc31fe38-8adb-11ea-9dcb-fe6871f4145a">estimates that</a> as many as 16% of US companies are zombies, while there are plenty in <a href="https://asia.nikkei.com/Spotlight/Datawatch/Asia-s-zombies-concentrated-in-India-Indonesia-and-South-Korea">Asia</a> and <a href="https://www.finanzen.ch/nachrichten/konjunktur/euler-hermes-auf-unternehmen-rollt-wegen-corona-pleitewelle-zu-1029186352">Europe</a> too. </p>
<h2>Bad medicine</h2>
<p>Various countries <a href="https://www.ft.com/content/26af5520-6793-11ea-800d-da70cff6e4d3">have given financial aid</a> to the private sector in recent months, including extending credit and grants to companies. More aid is likely on the way. As more and more companies run into trouble, governments will have to decide when and how to step in. </p>
<p>Even in better times during the last three years, <a href="https://www.uscourts.gov/news/2019/04/22/bankruptcy-filings-continue-decline">US bankruptcies averaged</a> 23,000 firms per year. Some of them may have failed because of zombie firms, since <a href="https://oecdecoscope.blog/2017/12/06/zombie-firms-and-weak-productivity-what-role-for-policy/">research suggests</a> they crowd out credit from other candidates even in the best of times. </p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/337033/original/file-20200522-124860-pydv9a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/337033/original/file-20200522-124860-pydv9a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/337033/original/file-20200522-124860-pydv9a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=803&fit=crop&dpr=1 600w, https://images.theconversation.com/files/337033/original/file-20200522-124860-pydv9a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=803&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/337033/original/file-20200522-124860-pydv9a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=803&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/337033/original/file-20200522-124860-pydv9a.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=1009&fit=crop&dpr=1 754w, https://images.theconversation.com/files/337033/original/file-20200522-124860-pydv9a.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=1009&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/337033/original/file-20200522-124860-pydv9a.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=1009&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Joseph Schumpeter: life through death.</span>
<span class="attribution"><a class="source" href="https://en.wikipedia.org/wiki/Joseph_Schumpeter#/media/File:Joseph_Schumpeter_ekonomialaria.jpg">Wikimedia</a></span>
</figcaption>
</figure>
<p>In normal circumstances, however, business failures are actually good for society – tragic as they are for business owners and their employees. The victims are able to take risks and try new things, without which there can’t be progress. This “creative destruction”, as the Austrian economist Joseph Schumpeter <a href="https://www.nytimes.com/2000/06/10/your-money/IHT-half-a-century-later-economists-creative-destruction-theory-is.html">described it</a>, is a necessary part of capitalism. Governments and central bankers rightly fight the effects of recessions on citizens – this year’s cash payments to American workers <a href="https://www.brownadvisory.com/us/cares-act-first-look#:%7E:text=The%20CARES%20Act%20provides%20almost,affect%20businesses%20and%20individuals%2C%20and">would be an example</a> – but recessions are often necessary corrections to over-exuberance in business. </p>
<p>So while the pandemic is very unusual, in one sense we must view it like any recession. For this reason, governments don’t need to worry about the business failure rate but about the excess failure rate – for example, US bankruptcies <a href="https://tradingeconomics.com/united-states/bankruptcies">hit around</a> 60,000 firms in 2010, so that may be a useful yardstick this time around. </p>
<h2>Zombie handling</h2>
<p>The US government, among others, has left itself open to propping up zombies by <a href="https://www.clearygottlieb.com/news-and-insights/publication-listing/president-signs-cares-act-emergency-relief-provided-to-businesses-and-consumers">offering emergency relief</a> to all struggling businesses, regardless of their financial picture before the pandemic. <a href="https://www.ft.com/content/0467d0e1-6814-4cc4-ad4b-e25c80169466">The rush</a> of American small businesses to access funding illustrates how quickly money can move in the wrong direction. It demonstrates the need to think out the rules carefully in advance. </p>
<p>It would have been smarter to focus on mechanisms that choose between struggling businesses. Whereas under the emergency relief programme, banks lend to any business knowing the government will cover the debts, one option for the future is to just to stimulate bank lending and let banks choose who to lend to. This way they have skin in the game and the weak can be allowed to fail. </p>
<p>Another option would be to let vulnerable companies work themselves out in the normal bankruptcy reorganisation process (Chapter 11 in the US, administration <a href="https://www.thegazette.co.uk/all-notices/content/100263/">in the UK</a>). For example, the biggest US airlines <a href="https://www.bloombergquint.com/onweb/u-s-airlines-spent-96-of-free-cash-flow-on-buybacks-chart">spent almost all</a> their free cash flow on share buybacks over the last decade, sometimes going heavily into debt to do so. This benefited their shareholders and bondholders, so it’s appropriate that they take the hits. Once a company has been reorganised, government aid could then be made available to prop up the “good” parts that remain. </p>
<p>Some will argue that certain firms are too big to fail. Japan resisted letting their big companies die in the “lost decade” of the 1990s, but when it did the economy improved. South Korea had a <a href="https://www.economist.com/business/1999/08/19/the-death-of-daewoo">similar experience</a> with Daewoo. </p>
<p><a href="https://milestalk.com/virgins-airlines-on-brink-of-collapse-branson-offers-necker-island-as-loan-collateral/">Some have tried to make</a> the same argument about Virgin Atlantic being too big to fail today. A look at the financials suggests the UK government was likely correct to <a href="https://simpleflying.com/virgin-atlantic-interest/">initially reject</a> its request for £500 million in state aid, especially as Virgin had not tried to seek investments from other sources. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/339153/original/file-20200602-133892-1q0v66.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/339153/original/file-20200602-133892-1q0v66.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/339153/original/file-20200602-133892-1q0v66.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/339153/original/file-20200602-133892-1q0v66.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/339153/original/file-20200602-133892-1q0v66.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/339153/original/file-20200602-133892-1q0v66.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/339153/original/file-20200602-133892-1q0v66.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/339153/original/file-20200602-133892-1q0v66.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Too big to fail?</span>
<span class="attribution"><a class="source" href="https://www.shutterstock.com/image-photo/manchester-united-kingdom-april-21st-2018-1077136793">Craig Russell</a></span>
</figcaption>
</figure>
<p>The airline <a href="https://www.ft.com/content/fe163e1a-5b7e-11e9-9dde-7aedca0a081a">lost money</a> in 2017 and 2019 and warned a year ago that it would not make a profit for at least another two years because of Brexit and high fuel costs. Owner Richard Branson is now trying to put together private funding of around £450 million on the basis that he can then reapply for government assistance. He shouldn’t be given that assistance. In any case, it <a href="https://www.theguardian.com/business/2020/may/11/richard-branson-to-sell-500m-worth-of-virgin-galactic-shares">may be unnecessary</a> if he sells some of his other business interests. </p>
<p>One country that has some protection against zombie firms is Germany. Before a company can receive funding from state-owned German bank KfW, the authorities <a href="https://www.dertreasurer.de/news/finanzen-bilanzen/kfw-coronahilfen-die-4-wichtigsten-punkte-fuer-treasurer-2013021/">must be satisfied</a> that it was in solid shape before the crisis. This could be a useful model for other countries. </p>
<p>In short, the best way to help the economy is either to let zombie companies resurrect themselves through the bankruptcy process or just return to the grave. Yes, there will be economic pain if these companies fail – including job losses. But rather than providing government aid to these zombies, it might be better directed at their former employees. For example, the Swiss government <a href="https://www.swissinfo.ch/eng/covid-19_coronavirus--the-situation-in-switzerland/45592192">is putting</a> more money into unemployment insurance. Feeding zombies will just make the recovery longer and slower, crowding out more worthy enterprises and wasting resources.</p><img src="https://counter.theconversation.com/content/139177/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Robert Earle is the owner of Alea IE, LLC, an economics consultancy firm in San Francisco.</span></em></p><p class="fine-print"><em><span>Jung Park and Karl Schmedders do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>They stumble around, baying for assistance, hoping to drink the lifeblood of other companies’ financial aid.Robert Earle, Lecturer in Management, University of ZurichJung Park, Research Fellow in Data Science, International Institute for Management Development (IMD)Karl Schmedders, Professor of Finance, International Institute for Management Development (IMD)Licensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1085602018-12-11T11:41:38Z2018-12-11T11:41:38ZTrump presidency’s personnel turmoil stands in stark contrast to the ‘nice guy’ administration of George H. W. Bush<figure><img src="https://images.theconversation.com/files/249817/original/file-20181210-76977-1q60qmr.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Bush with his team in 1991.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Obit-George-HW-Bush/86c44ce8800c40f4999f05313d04416a/27/0">AP Photo/Ron Edmonds</a></span></figcaption></figure><p>John Kelly’s <a href="https://www.nytimes.com/2018/12/08/us/politics/john-kelly-chief-staff-trump.html">resignation as White House chief of staff</a> makes him the latest in a long line of senior officials to leave the Trump administration.</p>
<p>That brings <a href="https://www.brookings.edu/research/tracking-turnover-in-the-trump-administration/">turnover of senior staff</a> at the White House – excluding cabinet-level positions – to 62 percent, which is higher than the past six presidents at the same point in their administrations, according to the Brookings Institution. In addition, no fewer than nine secretaries out of 24 have vacated their cabinet positions. </p>
<p>If Trump has the highest churn of recent presidents, who had the lowest? George H. W. Bush, who died on Nov. 30. His administration had just 25 percent turnover of senior White House staff in the first two years of his presidency. In addition, <a href="https://minnesota.cbslocal.com/2018/10/09/good-question-president-donald-trump-cabinet-turnover/">not a single cabinet member</a> left during that period. </p>
<p>The late Stanford political scientist Alexander George and I wrote about <a href="https://cdn.theconversation.com/static_files/files/388/George_and_George_Presidency.pdf?1544474630">Bush’s management style</a> as part of the 1998 book “<a href="https://trove.nla.gov.au/work/24612862?selectedversion=NBD13554241">Presidential Personality and Performance</a>.”</p>
<p>Our analysis of presidents from FDR to Bill Clinton showed that Bush was notable not only for his own foreign policy expertise but for his kinder, gentler approach to managing his team, which led to exceptional collegiality among his staff. And I believe many of his foreign policy achievements came as a result.</p>
<h2>Impulse control</h2>
<p>Given the high turnover among team Trump, you don’t have to look hard to see the impact on America’s foreign policy over the past two years. </p>
<p>Impulsive shifts have been common, such as on policy towards North Korea, when Trump flipped from <a href="https://www.axios.com/trump-meeting-with-north-korea-aff14fb0-a5cb-403d-8e2d-35ef8a5500fd.html">threatening</a> “fire and fury like the world has never seen” to <a href="https://www.nytimes.com/2018/08/10/us/politics/north-korea-denuclearize-peace-treaty.html">saying</a> the regime is “no longer a threat” after a summit with the country’s leader – even though little changed. </p>
<p>Other policies were poorly prepared, inadequately coordinated or bungled when they were rolled out. For example, the <a href="https://theconversation.com/us/topics/trump-travel-ban-35583">travel ban</a>, which initially attempted to block visitors from seven Muslim-majority countries, caused chaos when it was announced <a href="https://www.washingtonpost.com/graphics/politics/trump-travel-ban-process/?noredirect=on">with little discussion</a> among government agencies. And the administration’s <a href="https://theconversation.com/us-zero-tolerance-immigration-policy-still-violating-fundamental-human-rights-laws-98615">zero tolerance immigration policy</a> led to a massive outcry after thousands of children were separated from their parents at the U.S.-Mexico border. </p>
<p><a href="https://www.pbs.org/newshour/show/leaks-infighting-plaguing-trumps-presidency">In-fighting</a> among advisers and senior staff has been particularly intense, <a href="https://www.simonandschuster.com/books/Fear/Bob-Woodward/9781501175510">vicious</a> and regularly leaked to the media. In fact, according to conservative Trump critic David Frum, no administration has ever been so <a href="https://www.harpercollins.com/9780062796738/trumpocracy/">prone to leaks</a>. </p>
<p>In terms of turnover, the raw stat alone doesn’t fully convey the extent of the problem. In just two years, Trump has had three national security advisers, two White House chiefs of staff, two secretaries of State, two secretaries of Homeland Security and two CIA directors. He’s also had two FBI directors, two National Economic Council directors and soon will have two attorneys general. </p>
<p>It is important to note that while this pattern is certainly striking and concerning – an excessive churn of key officials can be disruptive – it is not unique. Similarly, most modern administrations suffer from internal conflict. </p>
<p>An exception was the first Bush administration. </p>
<h2>A kinder, gentler approach</h2>
<p>Bush’s national security and foreign policy team was notable not only for its substantial successes and effective policymaking but also for its loyalty, collegiality and relatively limited leaking. </p>
<p>As Bush biographer Jon Meacham <a href="https://www.penguinrandomhouse.com/books/112696/destiny-and-power-by-jon-meacham/9780812979473/">put it</a>, “The Bush foreign policy team operated with an extraordinary degree of harmony.” </p>
<p>In his entire term, Bush had only one national security adviser and one secretary of defense. His first secretary of state, James Baker, served three years before becoming White House chief of staff. </p>
<p>This harmonious team produced a <a href="https://millercenter.org/president/bush/foreign-affairs">string of major foreign policy achievements</a>. For example, he presided with prudence and a steady hand over a profoundly turbulent and potentially dangerous time in international affairs, namely the fall of the Berlin Wall and the end of the Cold War. </p>
<p>His team <a href="https://www.armscontrol.org/print/2556">negotiated major reductions</a> in nuclear arms, brought a <a href="https://www.gsb.stanford.edu/faculty-research/books/germany-unified-europe-transformed-study-statecraft">reunified Germany</a> into NATO over the objections of Russia and European allies and <a href="https://www.theatlantic.com/politics/archive/2001/10/why-bush-senior-didnt-blow-it-in-the-gulf-war/377568/">built a broad international coalition</a> to eject Saddam Hussein from Kuwait.</p>
<p>What were the secrets of Bush’s success in leading his national security team? Based on <a href="https://scholar.google.com/citations?user=cLgReHcAAAAJ&hl=en&oi=ao">my own research</a> on presidential management styles, <a href="https://doi.org/10.1111/j.1741-5705.2002.tb00003.x">managing conflict</a> in foreign policymaking and <a href="https://www.macmillanihe.com/page/detail/Understanding-Public-Leadership/?K=9780230205529">other research on leadership</a>, a number of factors stand out. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/249819/original/file-20181210-76956-95oq6t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/249819/original/file-20181210-76956-95oq6t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=418&fit=crop&dpr=1 600w, https://images.theconversation.com/files/249819/original/file-20181210-76956-95oq6t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=418&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/249819/original/file-20181210-76956-95oq6t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=418&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/249819/original/file-20181210-76956-95oq6t.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=526&fit=crop&dpr=1 754w, https://images.theconversation.com/files/249819/original/file-20181210-76956-95oq6t.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=526&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/249819/original/file-20181210-76956-95oq6t.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=526&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Bush shakes hands with soldiers gathered at a Saudi air base on Nov. 22, 1990.</span>
<span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Watchf-AP-I-SAU-APHS173334-Bush-Saudi-Arabia/bc80c9701dae49cbaea3523f417304a3/53/0">AP Photo/Bob Daugherty</a></span>
</figcaption>
</figure>
<h2>Experience and expertise</h2>
<p>George H. W. Bush’s career progression – which presidential scholar Tom Preston views as a key variable affecting Bush’s foreign policy <a href="https://cup.columbia.edu/book/the-president-and-his-inner-circle/9780231116213">performance</a> – prepared him unusually well for the presidency, and especially for leading national security and foreign policymaking.</p>
<p>He <a href="https://www.penguinrandomhouse.com/books/112696/destiny-and-power-by-jon-meacham/9780812979473/">served as a naval aviator</a> during World War II, ran an oil company in Texas, served a term in Congress, was an envoy to China, spent a year as CIA director in the Ford administration and worked as Ronald Reagan’s vice president for eight years, all before being elected president in 1988.</p>
<p>Bush was knowledgeable about the issues and comfortable engaging in rough-and-tumble policy debates with his advisers inside and outside of government, as well as with foreign leaders. <a href="https://cdn.theconversation.com/static_files/files/388/George_and_George_Presidency.pdf?1544474630">He respected</a> and was respected by his advisers.</p>
<h2>Network and chemistry</h2>
<p>Bush developed and maintained a vast social network accumulated throughout his career, built the old-fashioned way through personal relationships. And he drew heavily on this network when <a href="https://www.penguinrandomhouse.com/books/112696/destiny-and-power-by-jon-meacham/9780812979473/">he recruited his foreign policy team</a>. </p>
<p>In other words, not only was he able to tap people who were highly experienced, well-regarded and competent for key positions, he also had prior personal relationships with many of them. <a href="https://cdn.theconversation.com/static_files/files/388/George_and_George_Presidency.pdf?1544474630">They were both</a> experts and “buddies.” Bush and James Baker shared a relationship that lasted the rest of their lives, with the latter <a href="https://www.bbc.com/news/world-europe-46454064">visiting his friend</a> on his deathbed. </p>
<p>These personal ties facilitated candid and critical exchange of information and views, which in turn contributed to effective exploration and solving of national security and foreign policy problems. </p>
<h2>Collegiality among the principals</h2>
<p>Bush expected his advisers to work together as a team. Competition and policy advocacy would be moderated by norms of collegial behavior and deference to his <a href="https://trove.nla.gov.au/work/24612862?selectedversion=NBD13554241">presidential prerogative to make the final calls</a>.</p>
<p>Advisers were encouraged to develop and maintain good working relationships not only with the president but with each other and to refrain from toxic forms of bureaucratic political maneuvering and manipulation <a href="https://www.press.umich.edu/2209879/beyond_groupthink">not uncommon in Washington</a>.
As described in the <a href="https://history.state.gov/departmenthistory/short-history/baker">official State Department history</a>, “Although intense policy differences occurred, a collegial approach to foreign policymaking was the norm, especially in the ‘breakfast group’ [that] met weekly to iron out problems that could not be resolved through the bureaucratic channels.” </p>
<p>The <a href="https://www.jstor.org/stable/207088?seq=3#metadata_info_tab_contents">professionalism</a> and generally collaborative approach of this team has been <a href="https://cup.columbia.edu/book/the-president-and-his-inner-circle/9780231116213">noted by many scholars</a>. </p>
<p>In addition, open debate was encouraged before a decision was made – but after that, support was expected and <a href="https://cdn.theconversation.com/static_files/files/388/George_and_George_Presidency.pdf?1544474630">generally received</a>. Those who came out on the losing side of a debate received reassurance that they still had the president’s confidence. </p>
<h2>Gentle leadership and loyalty</h2>
<p>In his <a href="https://millercenter.org/the-presidency/presidential-speeches/january-20-1989-inaugural-address">inaugural address in 1989</a>, George Herbert Walker Bush famously defined the goal “to make kinder the face of the nation and gentler the face of the world.”</p>
<p>There are those who believe that nice guys finish last. However, the legacy, leadership style and foreign policy achievements of Bush strongly suggest otherwise.</p><img src="https://counter.theconversation.com/content/108560/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Eric Stern has previously worked as a subcontractor for and received honoraria from the Federal Emergency Management Agency.</span></em></p>The significant churn in the Trump administration has caused confusion in foreign policymaking. In contrast, Bush’s presidency was marked by collegiality, which contributed to many successes.Eric Stern, Professor of Political Science, College Emergency Preparedness, Homeland Security and Cybersecurity, University at Albany, State University of New YorkLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1031902018-09-14T10:35:15Z2018-09-14T10:35:15ZImmigrant detention in the US: 4 essential reads<p>More children are being held in immigrant detention centers in the U.S. than ever previously recorded, according to <a href="https://www.nytimes.com/2018/09/12/us/migrant-children-detention.html">The New York Times</a>.</p>
<p>The number of immigrant children in detention has risen to about 12,800, the Times reports, a significant increase from 2,400 in 2017. Here are 4 stories from our archive that will help readers understand some central issues around immigrant detention:</p>
<h2>1. Legal challenges</h2>
<p>Since President Donald Trump took office, there have been numerous legal challenges to his administration’s policies on immigration, including on immigrant and child detention. In July, <a href="https://www.washingtonpost.com/news/morning-mix/wp/2018/07/31/trump-administration-must-seek-consent-before-giving-drugs-to-migrant-children-judge-rules/?noredirect=on&utm_term=.62df9e8baa04">a federal court ruled</a> that detention centers could no longer give drugs to treat psychiatric symptoms to children without the consent of a parent or guardian. </p>
<p>Immigration scholar <a href="https://theconversation.com/profiles/kevin-johnson-322147">Kevin Johnson</a> writes about several cases in U.S. history that set legal precedents in disputes over detaining immigrants and protecting their rights. For example, a class action lawsuit filed by immigrants in detention in the 1980s argued that moving detainees away from major urban areas deprived them of a right to counsel. The court <a href="https://theconversation.com/history-shows-trump-will-face-legal-challenges-to-detaining-immigrants-72247">agreed and ruled in their favor</a>.</p>
<p>Johnson writes: “The long history of detention has an equally long history of legal challenges. These are likely to continue in the Trump administration, which has made detention a cornerstone of its immigration enforcement plan.”</p>
<h2>2. Standards for children and families</h2>
<p>One case in particular stands out as more relevant to today’s debate about detaining children and families. The Flores case was filed in 1985 and led to what’s known as the “Flores settlement.” This contract between the government and the plaintiffs set standards for holding children and families in detention, which courts continue to use today.</p>
<p>For example, the agreement says that the government must release immigrant children after 20 days of detention.</p>
<p>In a separate analysis, <a href="https://theconversation.com/profiles/kevin-johnson-322147">Johnson</a> <a href="https://theconversation.com/lawyers-defending-immigrant-children-in-detention-are-relying-on-a-court-case-from-the-80s-100918">explains the case</a> and why it has had such a lasting impact.</p>
<h2>3. Who’s to blame?</h2>
<p>Critics have blamed the Trump administration for the inhumane detention of immigrant children. However, public policy professor Susan M. Sterett argues that the contractors who provide the detention facilities <a href="https://theconversation.com/why-its-hard-to-hold-contractors-accountable-for-the-suffering-of-immigrant-children-99186">are also to blame</a> for suffering children.</p>
<p>Although government contracting is not new, the contracts themselves rarely garner attention from the public. There are many reasons why the government uses contracting services. In this case, it is likely because the contractors can act more quickly than the government to provide housing for detained children, Sterett writes.</p>
<p>“[The government] hands nonprofit groups, for-profit businesses and local governments US$1 billion a year or more to house nearly 12,000 children. This money is dispensed through government contracts that do not always gain much public attention,” Sterett writes. </p>
<h2>4. Echoes from the past</h2>
<p>This episode in U.S. history is not unique. In the 1990s, thousands of Haitians fleeing violence started the journey toward the U.S. to seek safety. Presidents George H.W. Bush and Bill Clinton responded by authorizing their capture and indefinite detention at a military base at Guantanamo Bay in Cuba.</p>
<p>Scholar <a href="https://theconversation.com/profiles/a-naomi-paik-501533">A. Naomi Paik</a> writes about <a href="https://theconversation.com/us-turned-away-thousands-of-haitian-asylum-seekers-and-detained-hundreds-more-in-the-90s-98611">conditions on the base</a>: “Under the stress of imprisonment with no end in sight, some refugees fell into despair. The most dire cases purposely hurt themselves or attempted suicide. Children also endured the camp conditions that nearly broke grown adults.”</p>
<p>As information emerges about conditions in today’s detention centers, the parallels to the past may be instructive.</p>
<p><em>Editor’s note: This story is a roundup of articles from The Conversation’s archives.</em></p><img src="https://counter.theconversation.com/content/103190/count.gif" alt="The Conversation" width="1" height="1" />
A record number of immigrant children are being detained in the US. Here’s what you need to know.Danielle Douez, Associate Editor, Politics + SocietyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/847762017-09-28T19:06:09Z2017-09-28T19:06:09ZAustralia needs new insolvency laws to encourage small businesses<figure><img src="https://images.theconversation.com/files/187952/original/file-20170928-1460-1hv2krt.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Banks aren't sure they will recover their money if SMEs fail.</span> <span class="attribution"><span class="source">Shutterstock</span></span></figcaption></figure><p>The Ten Network’s recent experience of <a href="https://theconversation.com/ten-networks-problems-are-history-repeating-79420">voluntary administration</a> and subsequent <a href="https://theconversation.com/the-impact-of-cbss-takeover-of-ten-is-much-larger-than-just-one-network-83095">rescue by CBS</a> demonstrates how insolvency law works for large Australian companies. But <a href="http://www.abs.gov.au/ausstats/abs@.nsf/0/C575766838376FA0CA2573E1000E3F2F?Opendocument">97% of Australian businesses</a> are small or medium size enterprises (SMEs), and they face a system that isn’t designed for them.</p>
<p><a href="http://www.huffingtonpost.com.au/2015/09/28/small-business-failure_n_8187166.html">60% of small businesses</a> cease trading within the first three years of operating. While not all close due to business failure, those that do tend to face an awkward insolvency regime that fails to meet their needs in the same way it does Network Ten.</p>
<p>The lack of an adequate insolvency regime for SMEs inhibits innovation and growth within our economy. It adds yet more complexity to the already difficult process of structuring a small business. Further, it <a href="https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2016/12/31/Tackling-Small-and-Medium-Enterprise-Problem-Loans-in-Europe-42614">inceases the cost of funding</a>. Lenders know that recovering their money can be onerous if not impossible, so they impose higher costs of borrowing. </p>
<h2>Australia’s insolvency regime</h2>
<p>Australian insolvency law is divided into two streams, each governed by a separate piece of legislation. </p>
<p>The <a href="https://www.legislation.gov.au/Details/C2017C00312">Corporations Act</a> deals with the insolvency of incorporated organisations, and the <a href="https://www.legislation.gov.au/Series/C1966A00033">Bankruptcy Act</a> addresses the insolvency of people and unincorporated bodies (such as sole traders and partnerships). </p>
<p>Both schemes are aimed at providing an equal, fair and orderly process for the resolution of financial affairs. But a large part of the Corporations Act procedure has been developed with the complexity of a large corporation in mind. For example, there are <a href="https://www.imf.org/en/Publications/Staff-Discussion-Notes/Issues/2016/12/31/Tackling-Small-and-Medium-Enterprise-Problem-Loans-in-Europe-42614">extensive provisions</a> that allow the resolution of disputes between creditors that are only likely to arise in well-resourced commercial entities. </p>
<p>The Bankruptcy Act, by contrast, takes account of the social and community dimensions of personal bankruptcy. This legislation seeks to <a href="https://www.afsa.gov.au/insolvency/i-cant-pay-my-debts/what-are-consequences-bankruptcy">supervise the activities of the bankrupted person</a> for an extended period of time to encourage their rehabilitation.</p>
<p>SME’s awkwardly straddle the gap between these parallel pieces of legislation. Some SMEs are incorporated, and so fall under the Corporations Act. SMEs that are not incorporated are treated under the Bankruptcy Act as one aspect of the personal bankruptcy of the business owner. But of course, SMEs are neither people nor large corporations. </p>
<h2>How insolvency works</h2>
<p>Legislation governing corporate insolvency is founded on the assumption that there will be significant assets to be divided among many creditors. Broadly speaking, creditors are ranked and there are sophisticated and detailed provisions for their treatment. If Ten would have proceeded to liquidation, creditors would have been <a href="http://www.abc.net.au/news/2017-06-26/channel-ten-may-yet-be-saved-from-receivership/8653522">broadly grouped into three tiers</a> and paid amounts well into the tens of millions.</p>
<p>One type of creditor is a “<a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ppsa2009356/s12.html">secured creditor</a>”. Banks, for example, will often require that <a href="http://www.smh.com.au/business/cbd/costs-keep-adding-up-for-bruce-gordon-and-lachlan-murdochs-ten-bid-20170917-gyj7ka.html">loans for the purchase of business equipment</a> are secured against that equipment. In the event of default, the bank takes ownership of the equipment in place of the debt, if they can’t be paid out. </p>
<p>Unsecured creditors, on the other hand, do not have an “interest” over anything. If a company goes into liquidation, an unsecured creditor will only be paid if there are sufficient funds left after the secured creditors have been paid, and the cost of the process has been covered. There is no guarantee that unsecured creditors will be paid. Most often, they are only paid a portion of what they are owed.</p>
<h2>The unique challenges of SME insolvency</h2>
<p>When it comes to SMEs, there is little or no value available to lower-ranking, unsecured creditors in an SME insolvency estate. At the same time, higher-ranking, secured creditors tend to have effective methods of enforcing their interest outside the insolvency process. For instance they could individually sue the debtor to recover money owed. As a consequence, creditors are rarely interested in overseeing or pursing an SME insolvency process. This means the system is not often used and creditors with smaller claims go unpaid.</p>
<p>Even if creditors do want to use the insolvency process, it is likely the SME’s assets are insufficient to cover the cost of employing an insolvency practitioner and the required judicial oversight. </p>
<p>This problem is made worse because SMEs <a href="http://idealog.co.nz/venture/2016/08/failed-not-finished-dealing-social-stogma-entreprenuerial-failure">often wait too long</a> to file for insolvency, owing to their lack of commercial experience or the social stigma of a failing business. Instead, debts continue to grow well beyond the point of insolvency, and responsibility falls on creditors to deal with the issue. </p>
<p>There are further difficulties depending on whether the SME is incorporated. Incorporated SMEs are frequently financed by a combination of corporate debt, taken on by the SME, and the personal debt of the business owner. This may result in complex and tedious dual insolvency proceedings: one for the bankruptcy of the owner and the other for the business. </p>
<p>Unincorporated SMEs, in turn, suffer from two stumbling blocks. First, the personal bankruptcy scheme has not been created to preserve the SME or encourage its turnaround. Second, personal bankruptcy proceedings require specific evidence that the person has committed an “<a href="http://www.austlii.edu.au/cgi-bin/viewdoc/au/legis/cth/consol_act/ba1966142/s40.html">act of bankruptcy</a>”, such as not complying with the terms of a bankruptcy notice in the previous six months.</p>
<p>This hurdle makes the process far more time-consuming than the corporate scheme. It is also more difficult for creditors to succeed in recovering their investment and, by extension, prevents them from efficiently reallocating it. There is a real danger that this will deter creditors and <a href="http://documents.worldbank.org/curated/en/973331494264489956/Report-on-the-treatment-of-MSME-insolvency">raise the cost of capital at first instance</a>.</p>
<h2>What can we do about it?</h2>
<p>The best way to meet the needs of SMEs would be to create a tailored scheme that sits between the corporate and personal regimes, as has been done in <a href="http://www.uncitral.org/uncitral/en/data/whats_new/2017_05_presentations.html">Japan and Korea</a>. These regimes focus on speeding up the proceedings, moving the process out of court where possible and reducing the costs involved. </p>
<p>However, as the legislation in these two countries notes, there can be marked differences between small and medium-sized businesses that all fall under the SME banner. Therefore, what is needed is a flexible system made up of a core process, together with a large array of additional tools that may be invoked.</p>
<p>Designing such a scheme remains no easy feat. However, at its core, such a scheme would ideally allow business owners to commence the insolvency process and remain in control throughout. The process would sift through businesses to identify those that remain viable, and produce cost-effective means for their preservation.</p>
<p>Non-viable businesses would be swiftly disposed of, using pre-designed liquidation plans where possible and relying on court processes and professionals only where absolutely necessary. Creditors would therefore receive the highest return possible, and importantly, honest and cooperative business owners would be quickly freed from their failed business and able to return to economic life.</p><img src="https://counter.theconversation.com/content/84776/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>The authors do not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and have disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Australia’s insolvency laws inhibit growth and innovation. They weren’t designed for small business, which make up 97% of all businesses.Kevin B Sobel-Read, Lecturer in Law and Anthropologist, University of NewcastleMadeleine MacKenzie, Research assistant, Newcastle Law School, University of NewcastleLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/749712017-03-22T23:37:46Z2017-03-22T23:37:46ZNostalgia for war: does the Lebanese state function worse today than it did during civil war?<figure><img src="https://images.theconversation.com/files/161876/original/image-20170321-5397-1gry61h.jpg?ixlib=rb-1.1.0&rect=0%2C67%2C924%2C590&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Armée libanaise, Beirut, 1982.</span> <span class="attribution"><a class="source" href="https://simple.wikipedia.org/wiki/1982_Lebanon_War#/media/File:Lebanese_Army,_Beirut,_Lebanon_1982.jpg">James Case/Wikimedia</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span></figcaption></figure><blockquote>
<p>“In the end it is perhaps one of the most striking aspects of the war: the Bank of Lebanon was able to hold on to all the gold it had… Nobody helped themselves to it.”</p>
</blockquote>
<p>This statement, from a now-retired top executive of the Central Bank of Lebanon interviewed for this research, recalled the almost legendary story of former bank governor <a href="http://articles.latimes.com/1989-03-12/news/mn-901_1_central-bank">Edmond Naïm</a>, who famously had slept on top of the gold kept in the vaults of the bank, refusing to leave the premises even though they were located in a combat zone.</p>
<p>This was 1987, in the middle of the civil war that <a href="http://www.merip.org/mer/mer162/primer-lebanons-15-year-war-1975-1990">raged</a> from 1975 to 1990. The largest gold reserve in the region was within the reach of the militia, only a few hundred metres from other plundered international banks, yet it remained untouched.</p>
<p>The banks and other Lebanese <a href="http://www.theses.fr/s91063">state administration positions during the war</a> resonate today with the problems faced by institutions in the country. Compared to the Lebanese <a href="http://www.dw.com/en/lebanon-the-next-failed-state/a-19066242">‘failed’ state</a> nowadays, during the war the machinery of state seemed to continue to function more or less despite the circumstances.</p>
<p>This story brings us back to a forgotten civil war, noticeably different from the current conflicts in Syria, Iraq or Yemen. It points out to the other side of a war: the above-mentioned governor and a particular ‘corps’, the senior civil servants, who endure ordeals of those who do not take arms.</p>
<h2>The forgotten clerks</h2>
<p>Preventing offices from being plundered to the point of spending the night in them, crossing battle lines to keep a ministry open, sending paycheques to both sides of Beirut, transforming homes into temporary offices: these are some of the stories I’ve been told by public servants who worked through the Lebanese civil war. </p>
<p>Dozens of former ministry directors, senior civil servants, diplomats or heads of various institutions, such as those working for Electricité du Liban (EDL), still speak at every possible opportunity about the moments when they were personally involved in the conflict.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/149281/original/image-20161208-31367-1mlfidw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/149281/original/image-20161208-31367-1mlfidw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=398&fit=crop&dpr=1 600w, https://images.theconversation.com/files/149281/original/image-20161208-31367-1mlfidw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=398&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/149281/original/image-20161208-31367-1mlfidw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=398&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/149281/original/image-20161208-31367-1mlfidw.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=501&fit=crop&dpr=1 754w, https://images.theconversation.com/files/149281/original/image-20161208-31367-1mlfidw.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=501&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/149281/original/image-20161208-31367-1mlfidw.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=501&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">Martyres Place in Beirut, 1982.</span>
<span class="attribution"><a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Such stories are in sharp contrast with what is going on in Lebanon today, which is often subsumed under a succinct line: ‘Ma fi dawle’ (‘The State does not exist’).</p>
<p>Yet listening to these former figures of the administration, the absence of the State has not always been ‘normal’ and the civil servants have not always been these symbols of a country in decline. Like Abdel Moneim Youssef, director of the company Ogero, nowadays systematically presented as <a href="http://www.beirutreport.com/2012/08/the-elusive-mr-youssef.html">‘the most corrupt man in the country’</a>.</p>
<p>Sometimes autonomous within a paralysed government, these senior civil servants have become, since 1975 and sometimes until now, the ‘state clerks’, the last to hold its reins on a daily basis and to have faith in its existence.</p>
<p>Not only the Central Bank of Lebanon (central for the survival of the budget and banking system), but also water, electricity, telephone lines, passport delivery, were under close scrutiny. </p>
<h2>Bureaucracy during conflict</h2>
<p>As heirs to the technocratic golden age of the years 1960-1970, Lebanon’s public servants made an attempt to preserve its achievements during the war. They were also striving to prepare for the aftermath of the conflict through dozens of rebuilding projects. </p>
<p>Some of them stood against the military order. One remembers with emotion the ‘Black Saturday’ in December 1975 <a href="http://www.sciencespo.fr/mass-violence-war-massacre-resistance/en/document/historiography-and-memory-lebanese-civil-war">when hundreds of Muslims were massacred in Beirut</a>: ‘That day, when we heard the news, the Christian employees came to the offices of the Muslim employees to protect them.’</p>
<p>Some paid the price of their involvement, such as Khalil Salem, director of the Ministry of Finance, <a href="http://civilsociety-centre.org/sir/khalil-salem-abducted-and-killed">who was murdered in 1976</a>. Others were threatened, such as Edmond Naïm at the Central Bank of Lebanon, and some chose to resign. </p>
<p>Those who remained became accustomed to the militia and found some arrangements to work despite them, or sometimes with them. A <em>modus vivendi</em> that served the interests of the militias who collectively drew a red line to preserve a minimal state.</p>
<p>It was a practical decision for the population, as well as a the result of international pressure to ensure a future for Lebanon. According to a former cadre from one militia, war was a ‘situation where we kept some control, some rules. Compared to Syria today, in Lebanon, destroying the State has never been an issue’. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/152551/original/image-20170112-16528-glrlo1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/152551/original/image-20170112-16528-glrlo1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/152551/original/image-20170112-16528-glrlo1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/152551/original/image-20170112-16528-glrlo1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/152551/original/image-20170112-16528-glrlo1.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/152551/original/image-20170112-16528-glrlo1.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/152551/original/image-20170112-16528-glrlo1.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">A night view of the waterfront towers in Zaitunay Bay, downtown Beirut and business district today.</span>
<span class="attribution"><a class="source" href="http://www.flickr.com/photos/husseinabdallah/11182732765/">Hussain Abdallah/Wikimedia</a>, <a class="license" href="http://creativecommons.org/licenses/by-sa/4.0/">CC BY-SA</a></span>
</figcaption>
</figure>
<p>Indeed, the Syrian civil servants who remained in war zones and whose salaries <a href="http://carnegie-mec.org/2015/07/08/assad-regime-s-hold-on-syrian-state-pub-60608">had been cut by Damascus</a> would probably be astonished to hear that the salaries of the Lebanese civil servants were paid with almost no interruption, in all regions of the country. In the same fashion, the case of the Bank of Lebanon is also striking compared to the <a href="https://www.alaraby.co.uk/english/news/2016/12/18/central-bank-move-hinders-yemen-wheat-imports-says-un">current situation in Yemen</a>.</p>
<h2>Nostalgia for war</h2>
<p>They perhaps number a hundred, those civilians and military personnel who held the reins of the Lebanese state at the highest level during the war, and all unanimously claim to have contributed to 'saving it’. For the most part they write their autobiographies or else share their memories, at the risk sometimes of falling into the trap of rewriting history in a legendary fashion. </p>
<p>While some remain living witnesses, serving the memory of their ministry, others exist in the shadow of their current directors general, and many were cast aside after the war. </p>
<p>‘In fact, I am like those displaced persons in war, only that I am a displaced person in the administration’, one engineer, who spent 30 years in a Lebanese institution, said in a tone between malice and bitterness. He was dismissed in the 1990s on the grounds that, as he put it, he ‘refused to let the public interest come after the political one’ at the time of rebuilding, which sanctioned the emergence of new political and administrative elites.</p>
<p>As this retired figure of the ministry of urban planning puts it: ‘In the end war has not been the worse thing. It is the aftermath of the war that made everything disappear.“ The most striking aspect of these forgotten actors is perhaps that there remains a strange feeling, close to nostalgia for war. </p>
<p>Lebanese people have been accustomed for years to a discourse of nostalgia in which the golden years of the 'Switzerland of the Middle East’ and president Fouad Chehab (1958-1964) are often central. For example, in 2014 <a href="https://eyeontheeast.org/2014/04/23/fouad-chehab-for-president/">electoral posters from 1958 were anonymously reprinted and posted widely in Beirut</a>, as a reminder of an era in stark contrast to Lebanon today.</p>
<p>In a more surprising way, this nostalgia more and more encompasses the civil war. Power blackouts and overflowing <a href="https://theconversation.com/lebanons-leaders-abandon-pragmatism-as-trash-fills-the-streets-46822">garbage in the streets</a> are sometimes cited as being <a href="http://www.middleeasteye.net/news/lebanon-s-rubbish-crisis-40-years-making-455710319">less common during the war than they are today</a>. While others point out that even in the middle of the civil war there was more hope for the country than there is today. Some are even unearthing <a href="http://weekly.ahram.org.eg/News/15891/19/Is-federalism-coming-to-Lebanon-.aspx">political projects of this era</a>. </p>
<p>Willingly or not, these civil servants are thus taking part in fostering an odd and ambiguous nostalgia. A vision of the past that reminds of many other <a href="https://www.ft.com/content/3df213f4-c119-11e6-81c2-f57d90f6741a">Arab</a> or <a href="http://www.nybooks.com/daily/2015/10/12/svetlana-alexievich-truth-many-voices/">non-Arab</a> nations.</p>
<hr>
<p><em>This article is published in collaboration with the academic project <a href="http://www.guerre-et-po.fr/presentation-du-projet/">"Guerre et Po”</a> (War & Politics).</em></p><img src="https://counter.theconversation.com/content/74971/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Pierre France ne travaille pas, ne conseille pas, ne possède pas de parts, ne reçoit pas de fonds d'une organisation qui pourrait tirer profit de cet article, et n'a déclaré aucune autre affiliation que son organisme de recherche.</span></em></p>Civil servants stand as forgotten actors of the Lebanon civil war, a historical case that has not been reproduced in more recent conflicts.Pierre France, Doctorant en science politique, Université Paris 1 Panthéon-SorbonneLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/631352016-08-12T09:34:56Z2016-08-12T09:34:56ZHow running companies for shareholders drives scandals like BHS<p>You might think the <a href="http://www.telegraph.co.uk/business/2016/04/26/how-much-has-sir-philip-green-made-from-bhs/">£423m</a> Philip Green made from British Home Stores, which is now under administration, is a one off. Unfortunately, it is not. It is just one of the outcomes of our <a href="https://theconversation.com/five-business-reforms-to-make-brexit-britain-a-fairer-society-62022">shareholder value-driven economy</a> that is backed by business “common sense” and required by company law. </p>
<p>Let me explain. <a href="http://www.legislation.gov.uk/ukpga/2006/46/section/172">Company law</a> requires directors to act in the interests of shareholders – it doesn’t require directors <a href="http://onlinelibrary.wiley.com/doi/10.1111/lest.12123/full">to preserve the company for the benefit of employees</a>, BHS or otherwise. In other words, the law requires Green as a director to act in the interests of himself and his wife, as two of the major shareholders. </p>
<p>But there are legal limits to what shareholders can claim. The law is clear that while shareholders own a right to revenue they don’t own the company’s assets – so in law they are not owners. And there are rules about paying dividends – the sum of money paid regularly by a company to its shareholders – from company assets. There are also rules about what counts as a “realised profit” for the purposes of distribution. But there are ways around this.</p>
<h2>How to make shareholder value</h2>
<p>The first step is to avoid the scrutiny applied to public companies by becoming a private company. After Green bought the shares in BHS plc from Storehouse plc in May 2000, one of his first acts as director was to <a href="https://s3-eu-west-1.amazonaws.com/document-api-images-prod/docs/NF2CP0Euc4xWDm9oq4cQCGfjbyRm5XOQ4gUh1ftYnEo/application-pdf?AWSAccessKeyId=ASIAJXHHBYPQL56OZIOQ&Expires=1469787473&Signature=Mv4lX4zqTwKb8rSACmRW%2BOGpVpY%3D&x-amz-security-token=FQoDYXdzEOj%2F%2F%2F%2F%2F%2F%2F%2F%2F%2FwEaDCik4G1xvxmGzAnuKSKcA1Fw7oUX9d6UfTBgIPOyafbF42NhbBDj3DBDXJRTy528Q6mJfDYkDqAYur4ujzEUu5tcA4j%2Bqa8Z%2BqxE%2B80OLxvAJKpwF7qFFp6HSYZLxSED1XRc2HKru%2BTa3MUHZiv2Hd2Fd2zmgy7vGpsAmQ1YKbz%2FcBu650UMQdHfQXmyvRg5Sjo3TCp2gx0fIvBaVGtdz8mswEm27p5DQAvQQgaQb2M8%2BjQF2i7FHiXc02F3HYLcw2Fo3GjkCz2QZXHZbVr6FSi4wAIpG%2BbMPzyBdHRKJSkZOFUJBTsmLWkrDtnei1CRiTU3lWP%2F9slQ3B5%2FpVgDLSlrYEWr3iescUtvLSZb6eAcrR5dsUx87J0pyJ0fOGsK%2BaytfZ4NQHBbRFOXvjsHVw0nPTFeiZJtGKStR0b6wiUUGP2mrfaZ7t8ywHdT5DC%2BMUxZuh6r6r1HP2%2FmDQJsSpSL8Wh3iItGszkmQ%2Fvoe5MtyiLff7dJTiX7qlZZO0kneFX2%2BT2z3%2BrQcdOEZ8DHEirPCSRbKnjlI%2B8uMjxdoG1iM9mSUHH6WfJQDzAojfvrvAU%3D">re-register</a> it as a private limited company. A 75% shareholder vote is all that is required to do this – which was easy enough given the Greens’ shareholdings. </p>
<p>Then there is a finessing around what counts as a “distributable profit” – in law, this is accumulated realised profit minus accumulated realised losses. But in practice it is fuzzier. </p>
<p>With BHS it went something like this. BHS shares <a href="http://news.bbc.co.uk/1/hi/business/691955.stm">cost Green £200m</a> in 2000, which was considerably less than the net assets of £388,086,000 shown in <a href="https://beta.companieshouse.gov.uk/company/00229606/filing-history?page=6">its accounts up to March 1999</a>. However BHS profits had been patchy and the company had an image problem so Green acquired it at a <a href="https://beta.companieshouse.gov.uk/company/00229606/filing-history?page=6">bargain price</a>. This bargain for the buyer is called “negative goodwill” and is shown as an asset on the company balance sheet – although it can also <a href="https://www.theguardian.com/business/2003/mar/04/supermarkets.mbas">be shown as profit</a> on the profit-and-loss account. </p>
<p>Negative goodwill enhanced BHS’s profit by more than £103m, and to further boost short-term profits, <a href="http://www.publications.parliament.uk/pa/cm201617/cmselect/cmworpen/54/5404.htm#_idTextAnchor008">Green sold BHS property worth £106m to Carmen Properties</a> – whose shares were owned by Tina Green. These were then leased back to BHS. These profits were cashed in as dividends: £166,535,000 in 2002 and £256,000,000 in 2004. As a result, <a href="http://www.publications.parliament.uk/pa/cm201617/cmselect/cmworpen/54/5404.htm#_idTextAnchor008">little money was used for the business or for pensions and the company was loaded with debt</a>.</p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/132399/original/image-20160728-12087-1wi6sr4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/132399/original/image-20160728-12087-1wi6sr4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/132399/original/image-20160728-12087-1wi6sr4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/132399/original/image-20160728-12087-1wi6sr4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/132399/original/image-20160728-12087-1wi6sr4.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/132399/original/image-20160728-12087-1wi6sr4.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/132399/original/image-20160728-12087-1wi6sr4.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
<figcaption>
<span class="caption">The BHS brand will disappear from high streets on August 20 with the closure of the chain’s final stores.</span>
<span class="attribution"><span class="source">Martin Christopher Parker/Shutterstock</span></span>
</figcaption>
</figure>
<p>By 2004, BHS debts totalled £373,870,000 and net assets were just £5,358,000. For the remaining years of its existence, BHS languished in debt. No more dividends were declared for the Green family but they were repaid a £28,975,000 bond and their companies charged BHS an estimated £124,000,000 in rents. </p>
<p>Huge dividends were also declared in other parts of Green’s retail empire. Green purchased the shares in Arcadia Group, which owns Topshop, through a Jersey-based company, Taveta, for £866,395,000 – a sum which was <a href="http://www.ft.com/cms/s/0/b49b1c5a-20a2-11d9-af19-00000e2511c8.html?ft_site=falcon&desktop=true#axzz4FchLsyMn">mostly borrowed from HBOS</a>. Green (as director) later transferred the shares to a newly formed company, Taveta Investments, for shares worth £2.3 billion, effectively revaluing the Arcadia shares – even though Taveta Investments was ultimately wholly owned by Taveta.</p>
<p>Taveta Investments then <a href="http://www.publications.parliament.uk/pa/cm201617/cmselect/cmworpen/54/54.pdf">declared a dividend of £1.3 billion for its shareholders</a> in 2005 – which ultimately went to the Greens as the shareholders of the parent company. By using Taveta Investments, Arcadia’s shares could then be revalued and owned by another company so that the increased value could be in some sense “realised” and qualify as dividends. </p>
<p>The revaluation obviously did not produce extra actual cash. But it did allow accountants <a href="http://www.pwc.co.uk/">PwC</a> to approve the dividends, even though they were funded by loans. <a href="http://www.telegraph.co.uk/finance/2898707/Green-sees-Arcadia-soar-to-2.3bn-in-two-years.html">Green described it as</a> “a technical move … approved by the courts, the Inland Revenue, our auditors Price Waterhouse Coopers, our lawyers Allen & Overy and our tax advisers, Deloitte”. </p>
<h2>Squaring morality and the law</h2>
<p>So was selling company assets and taking out loans to pay dividends wrong? While common sense screams yes – the law is not as clear and there is no suggestion that the Greens did anything illegal.</p>
<p>Private companies have much more freedom to transfer value to shareholders and need to disclose very little. Public companies that re-register as private companies are treated like small family concerns even where the business and the workforce are unchanged. In BHS’s case, the sale of assets and the taking of loans to fund dividends were a fatal drain on a business that employed more than 11,000 people. </p>
<p>On the other hand, negative goodwill does account for a bargain and a value for the company. The accounts were audited and they were signed off. Similarly, Arcadia’s shares had been revalued by a well-regarded firm – the accounts were upfront about these transactions and they were audited and signed off. And the directors successfully delivered returns for shareholders. Of course, they were the shareholders but that’s usual in private companies. </p>
<p>Green might have pushed the envelope a little – and how much he did will be key to establishing any possible liabilities or <a href="http://www.bbc.co.uk/news/business-36883780">disqualification as a company director</a>. However, what Green did for himself, company directors are doing for other shareholders all the time. Their remuneration and employability depends upon it. The pursuit of shareholder value destroys jobs, communities, innovation, investment and the long-term health of the economy, but as long it is a legal imperative, Green’s behaviour is just business as usual.</p><img src="https://counter.theconversation.com/content/63135/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Lorraine Talbot receives funding from the Leverhulme Trust</span></em></p>The pursuit of shareholder value destroys jobs, investment and the long term health of the economy, but as long it is legal Philip Green’s behaviour is just business as usual.Lorraine Talbot, Professor of Company Law in Context, University of YorkLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/583452016-04-25T14:44:26Z2016-04-25T14:44:26ZBritain’s ruthless High Street leaves no room for stragglers like BHS<p>Department store BHS has <a href="http://www.theguardian.com/business/2016/apr/25/bhs-heading-for-administration-as-rescue-deal-fails?CMP=share_btn_tw">gone into administration</a> after failing to find a buyer. It is a worrying time for more than 10,000 employees and could be viewed as another piece of evidence that the UK high street is in terminal decline. Retailers have been battered by the onslaught of changing consumer patterns, online retailing and out-of-town shopping. There are grains of truth in this, but at its core, this is a tale of a business being out-competed by smarter, nimbler rivals over a number of years.</p>
<p>BHS, formerly British Home Stores, became a town centre stalwart after opening its first shop in Brixton back in 1928. More recently, the brand has been struggling. Sir Philip Green bought it in 2000 for £200m but <a href="http://www.telegraph.co.uk/business/2016/03/12/green-doesnt-fly-the-bhs-plane-but-he-may-still-pay-for-pilot-er/">sold it last year</a> for £1 and wrote off some of its debt. That alone hints at longstanding and ongoing trading difficulties, exacerbated by a debt burden, including in its pension fund. A rent reduction agreed by landlords earlier this year has obviously not done the trick, again pointing to a problem with fundamentals.</p>
<p>For such a notable business this is quite a come down, but should it really surprise us? If we think about what BHS resembles, <a href="http://www.theguardian.com/uk/2000/jun/15/2">then C&A</a> and <a href="http://www.standard.co.uk/news/littlewoods-closes-stores-3200-jobs-to-go-7174828.html">Littlewoods</a> perhaps spring to mind. Both of these of course have gone from the High Street, as <a href="http://news.bbc.co.uk/1/hi/7811187.stm">has Woolworths</a> which was the original inspiration for British Home Stores. Many independent local department stores have also closed (such as <a href="http://www.bbc.co.uk/news/uk-scotland-tayside-central-35890292">McEwans of Perth</a>). BHS was, in many ways, occupying the same space in consumers’ minds as all these retailers – and even as rivals exited the market it could not trade sufficiently strongly to survive.</p>
<h2>Survivors, thrivers</h2>
<p>We could argue that BHS has become progressively less important to consumers, and to the towns where it operates. The sites its stores occupy are often central and sometimes externally grand physical spaces, but commercially they are underperforming and internally many of the stores are dated. For many consumers BHS does not really stand out or have an offer that makes it a desired destination. The brand has lost its way, as have some others before them, and failed to react to the competition.</p>
<p>So how have those other retailers got the recipe right? How have they eaten into the mainstream market, creating successful operations and challenging “legacy” retailers?</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/120018/original/image-20160425-22354-1yt2aiy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/120018/original/image-20160425-22354-1yt2aiy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/120018/original/image-20160425-22354-1yt2aiy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=481&fit=crop&dpr=1 600w, https://images.theconversation.com/files/120018/original/image-20160425-22354-1yt2aiy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=481&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/120018/original/image-20160425-22354-1yt2aiy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=481&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/120018/original/image-20160425-22354-1yt2aiy.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=604&fit=crop&dpr=1 754w, https://images.theconversation.com/files/120018/original/image-20160425-22354-1yt2aiy.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=604&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/120018/original/image-20160425-22354-1yt2aiy.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=604&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Competition time.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/cybercafe/9356413493/in/photolist-ffN4L2-pFLZzE-cHMeUj-7QfNGg-bizTSM-g4vqoD-2PGXog-8JQq3w-hnqK7q-FPQDY-hnqAQL-5HpgUV-hnqET5-auAmMs-47Dau9-ipDah3-nkeYNs-897pCG-AJaxT-dM7vJ8-2Zb9oX-4Zmqi9-pNuZm8-9DXcce-pTbaCv-4KPJ5f-2fbUR6-aPFrM4-d6fc4q-68ryiU-bVSgdL-bxFgqH-DJi2u-aJM8eX-6FWpkr-51wzTb-FYU2Q-6Jsmnw-5JRXr3-fimoaK-fimprB-314mtx-8xBiHS-8YkZay-82mdBw-6jxyMa-atdxR-bnc8Dk-dHmr97-pmvQKr">markheybo/Flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>The rise of the “fast fashion” chains such as Primark, Zara and H&M and discounters such as Matalan and TK Maxx have brought affordable and fashionable wear to the wider consumer market. Department stores such as John Lewis and Debenhams (and its “house of brands”) have reinvented themselves with clear, focused and attractive offers. The food retailers with their forays into non-food – for example Tesco, <a href="http://direct.asda.com/george/clothing/10,default,sc.html">ASDA</a> and Sainsburys, have all attracted consumers and sales. </p>
<p>And in home or lighting where BHS had a traditional strength, competitors have come up with a stronger offer, <a href="http://www.homebase.co.uk/">as with Homebase</a> or the specialist <a href="http://www.pagazzi.com/">Pagazzi Lighting</a>. Across the spectrum of the BHS range, other retailers have a more compelling and/or convenient offer and position this more clearly and strongly in the minds and the pockets of consumers. They are left with a crushing question: why go to BHS? Especially when there are so many alternatives nearby in shopping centres and high streets.</p>
<h2>Chanelling efforts</h2>
<p>The other major shift during this period has of course been the rapid and extensive development of omni-channel retailing though the innovation of online retailing and its synergy with physical stores in many cases. </p>
<p>Across all the competitors mentioned above, online shopping is a central and important component of the retail offer. In addition, other retailers have emerged from the online or catalogue arena to provide direct and focused competition: look at <a href="http://www.jdwilliams.co.uk/">JD Williams</a> or <a href="http://www.damart.co.uk/">Damart</a>. Others offered a strong brand, or a convincing offer and position, and pushed BHS further down in consumers’ thinking. The shop was seen as increasingly less relevant, less modern and less appropriate.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/120023/original/image-20160425-22375-1wqviwp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/120023/original/image-20160425-22375-1wqviwp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/120023/original/image-20160425-22375-1wqviwp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=397&fit=crop&dpr=1 600w, https://images.theconversation.com/files/120023/original/image-20160425-22375-1wqviwp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=397&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/120023/original/image-20160425-22375-1wqviwp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=397&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/120023/original/image-20160425-22375-1wqviwp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=499&fit=crop&dpr=1 754w, https://images.theconversation.com/files/120023/original/image-20160425-22375-1wqviwp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=499&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/120023/original/image-20160425-22375-1wqviwp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=499&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Not everyone can be first.</span>
<span class="attribution"><a class="source" href="http://www.shutterstock.com/cat.mhtml?country_code=GB&page_number=1&position=8&safesearch=1&search_language=en&search_source=search_form&search_type=keyword_search&searchterm=race%20losing&sort_method=popular&source=search&timestamp=1461587792&tracking_id=5mX6TVeQ-xGqgfuwbmwvTw&use_local_boost=1&version=llv1&page=1&inline=1256960">Shutterstock/Cindy Haggerty</a></span>
</figcaption>
</figure>
<p>The demise of BHS has been a long time in the making and is reflective of a business not adapting to the trends in its core marketplace and not having the investment it needed at the points when it could have made a difference. Where others invested in the stores, the brand, the online operations and modern systems to link and manage the business, BHS failed in this and fell behind. </p>
<p>The <a href="http://www.retail-week.com/topics/finance/analysis-the-top-10-fastest-growing-retailers-in-the-uk-in-2016/7005730.fullarticle">fastest growing retailers in the UK today</a> are identified by their omni-channel approach, innovative use of physical stores, clever deployment of emerging technologies and international strategies. Whether large or small, success comes from understanding and engaging consumers and meeting their needs; things that others were better at than BHS. </p>
<p>The potential end for BHS is not then a reflection of a dying high street but of a highly competitive and open British retail market which produces strong, focused competition, whether online, out-of-town or on the high street – and whether from British or international retailers. Many of these competitors are present in our major high streets and are trading strongly. BHS’s decline perhaps says more about the internal inabilities of management to alter course than it does about the desirability of some of our major high streets.</p><img src="https://counter.theconversation.com/content/58345/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Leigh Sparks is the Chair of Scotland's Towns Partnership.</span></em></p>When a High Street stalwart falls by the wayside, don’t rush to mourn the slow death of town centre shopping.Leigh Sparks, Professor of Retail Studies, Institute for Retail Studies, University of StirlingLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/576422016-04-12T20:11:54Z2016-04-12T20:11:54ZWas Clive Palmer a ‘shadow’ director of Queensland Nickel?<p>As Clive Palmer disputes his involvement in recent money-making decisions of Queensland Nickel, the administrators of the business <a href="http://www.abc.net.au/news/2016-04-12/clive-palmer-queensland-nickel-liquidation-administrators-credit/7318586">have released a report</a> which implicates Palmer as a “shadow” director. </p>
<p>The report, which recommends the business be placed in liquidation, asserts that directors in the company may have contravened sections of the Corporations Act and the report has been referred to the Australian Securities and Investment Commission (ASIC), with the possibility Palmer may have committed criminal offences.</p>
<p>The issue of whether Palmer can be defined as a “shadow” director in Queensland Nickel is important as it goes to his personal liability for the debts arising from trading while insolvent. Administrators state in the report Queensland Nickel became insolvent on November 29 and remained that way until their appointment in January this year. Sacked staff are owed A$73.9 million while unsecured creditors are owed A$151.2 million and party related creditors A$546 million.</p>
<p>Palmer has strenuously denied he was a director in the company, although he has admitted to being part of a committee that approved expenditures. He has also admitted to the use of email alias when communicating with the company, but denied it was used to disguise his involvement with Queensland Nickel.</p>
<p><a href="http://www.austlii.edu.au/au/cases/cth/FCAFC/2012/6.html">In the eyes of the law</a>, there is no difference between a director formally appointed, shadow director and a de facto director. A company director, whether formally appointed or not, has the duty to act in good faith; in the best interests of the company; to exercise care and diligence; and to avoid all conflicts of interests. </p>
<p>Australia’s insolvent trading laws, applicable to directors (including de facto or shadow directors), are widely regarded as one of <a href="http://www.supremecourt.wa.gov.au/_files/Insolvency_Practitioners_Assoc_National_Conference_28May09.pdf">the most stringent in the world</a>. As part of the deterrence regime, directors may incur civil or criminal liability. </p>
<p>Directors are potentially liable to a fine, a disqualification order leading to being banned from management and compensation orders for corporate loss. Criminal proceedings are reserved for offences linked to fraud and dishonesty and may lead to prison terms for up to five years. </p>
<p>So the stakes are high and it hinges upon the basic, but fundamental question – who is a company director?</p>
<p>The term “director” is defined under section 9 of <a href="http://www.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s588g.html">the Corporations Act</a> which defines a director as a person who:</p>
<blockquote>
<p>“is appointed to the position of a director; or unless the contrary intention appears, a person who is not validly appointed as a director if:
(i) they act in the position of a director (de facto director); or
(ii) the directors of the company or body are accustomed to act in accordance with the person’s instructions or wishes (shadow director)”</p>
</blockquote>
<p>Thus, a person may be a director even without any appointment to that position. The reason for such an expansive definition was given in the case of <a href="http://www.austlii.edu.au/au/cases/cth/FCAFC/2012/6.html">Grimaldi v Chameleon Mining NL</a>:</p>
<blockquote>
<p>“…contrived so as to enlarge the classes of persons concerned in the management and affairs of a company, upon whom legislative standards and liabilities ought to be imposed.”</p>
</blockquote>
<p>So the net for potential liability as a director is deliberately cast very wide.</p>
<p>In unlocking the definition of director, the Court in the Grimaldi case held that the definition applies as much to a person who is a true usurper of the functions of a director in a company. </p>
<p>By law, when considering whether someone is a director, the court considers whether the person has been acting in a role (or roles) within the company and performing functions that would usually be performed by a director of that company given its circumstances. It takes into account that the roles and functions performed will vary with the commercial context, operations and governance structure of the company. </p>
<p>This means the way in which Palmer ran his operations at Queensland Nickel may determine whether or not he is defined as a shadow director. The law shows that the critical focus in the case of Clive Palmer and Queensland Nickel is likely to be on his conduct in the company, not his title.</p>
<p>For a court to conclude that Clive Palmer’s involvement in Queensland Nickel falls within the following description of shadow director, <a href="http://swarb.co.uk/in-re-hydrodam-corby-limited-chd-1994/">it will have to show that:</a></p>
<blockquote>
<p>“He [or she] lurks in the shadows, sheltering behind others who, he [or she] claims, are the only directors of the company to the exclusion of himself [or herself].”</p>
</blockquote>
<p>If the evidence shows that an outside person, such as Clive Palmer, called the shots at Queensland Nickel and that management was accustomed to acting to his instructions and will, the court is more likely to decide he was a shadow director. Judicial precedent shows that there must be a causal connection between the instructions or the wish of the shadow director and others acting on it.</p><img src="https://counter.theconversation.com/content/57642/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Anil Hargovan does not work for, consult, own shares in or receive funding from any company or organisation that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Clive Palmer denies being a shadow director of Queensland Nickel, but in eyes of the law, it will be his involvement in business decisions that matters.Anil Hargovan, Associate Professor, UNSW SydneyLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/401262015-04-17T12:17:38Z2015-04-17T12:17:38ZDavid’s futile fight against the goliath of bureaucracy<figure><img src="https://images.theconversation.com/files/78240/original/image-20150416-5663-1h5hjz9.jpg?ixlib=rb-1.1.0&rect=273%2C26%2C972%2C584&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Faceless, but essential?</span> <span class="attribution"><a class="source" href="https://www.flickr.com/photos/boscdanjou/15871981605/in/photolist-qby4ag-88XxLU-6T2nEa-CuX2p-5kHjwb-5fVSyR-3Zx5Tq-8CgiUs-mRmDr-5uoE3M-6Mqjb7-qKGLGC-NHYjx-5eCncQ-ig7c5m-KFjAp-cXryQs-bt6pCk-bt6puc-bt6pjT-5b3SFi-qZg8v7-7Tj5DK-rd259R-rSfmQj-ouFabr-4wMqGv-9wu8iR-aBCcHC-bt6pc4-bt6p3c-bt6oUX-bt6oKZ-bt6oBz-bt6okx-bt6otD-8zrSm-argLEt-9oQgoE-4Mz56q-4D2Lg9-5RtJ5e-3cwCA-4Q58A-bET6Ju-7QCg54-5i8fSL-4gENe3-9iqcoF-dCk2b4">Bosc d'Anjou</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span></figcaption></figure><p>Five years ago a fresh-faced leader of the opposition stood on the stage at a TED conference in London speaking to a gathering of technologists and entrepreneurs. His promise was to deliver the <a href="http://www.ted.com/talks/david_cameron">next age of government</a>. David Cameron’s talk did not feature the words “austerity”, “immigration”, or “long-term economic plan”, but instead an optimistic vision of family, community, and smarter digital governance built on a technological revolution. Three months later Cameron was prime minister.</p>
<p>The speech was a key part of the Conservative party’s 2010 pre-election strategy to define a <a href="http://www.theguardian.com/commentisfree/2009/may/25/david-cameron-a-new-politics3">new form of politics</a> for a post-bureaucratic age. This was a <a href="https://books.google.com/ngrams/graph?content=post-bureaucratic+organization&year_start=1950&year_end=2008&corpus=15&smoothing=3&share=&direct_url=t1%3B%2Cpost%20-%20bureaucratic%20organization%3B%2Cc0">fashionable management concept</a> in US business schools in the 1990s during an aggressive period of merger and acquisition activity and a de-layering of private sector middle management. But the two decades of academic research which followed gave underwhelming conclusions that bureaucracy and direct managerial supervision had not, in fact, disappeared in firms or public sector agencies beyond anything other than <a href="http://onlinelibrary.wiley.com/doi/10.1111/1467-8551.00222/full">bureaucracy-lite</a>.</p>
<h2>Post-bureaucracy?</h2>
<p>Since at least the 1960s, bureaucracy has been an infamous idea in business and politics. In the political narrative, it has become an economic disease. The pathogen is the faceless “bureaucrat”; the pen pusher, jobsworth and pedant. A bean counter either drafting petty rules and regulations in a desperate attempt to hold power, or idling in committee meetings eating biscuits and drinking tea. </p>
<p>But in a service economy, where few people work in agriculture or heavy industry, discerning the difference between diseased-ridden bureaucracy and healthy bureaucracy is a significant challenge. The vast majority of the British public work within bureaucratic organisations.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/3ELnyoso6vI?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Cameron’s TED talk from 2010.</span></figcaption>
</figure>
<p>In his 2010 TED talk, Cameron suggested we were now able to live in that post-bureaucratic age thanks to an information revolution which had wrestled power away from central government and placed it in the hands of local people. But as soon as he became prime minister his message hardened into something more aggressive. In the 2011 <a href="http://www.theguardian.com/politics/2011/mar/06/david-cameron-civil-service-enemies">Conservative spring forum</a>, the first post-election opportunity to set out a concrete political philosophy, Cameron announced:</p>
<blockquote>
<p>We are going to be taking on the enemies of enterprise, the bureaucrats in government departments who concoct those ridiculous rules and regulations that make life impossible.</p>
</blockquote>
<h2>Adversarial politics</h2>
<p>The “enemies of enterprise” speech, which some described as an <a href="http://www.theguardian.com/commentisfree/2011/mar/13/david-mitchell-david-cameron-bureaucrats">evidence-averse Thatcherite ideological crusade</a>, has been the consistent message. The optimistic idea of the post-bureaucratic age has disappeared completely and the ambiguous bureaucratic enemy has resurfaced. In the recent leader debates on April 2, Cameron gave a vigorous response to probing about a wasteful top-down reorganisation of the NHS:</p>
<blockquote>
<p>Let me tell Ed Miliband what we did. We took 20,000 bureaucrats out of the NHS and put 9,000 doctors and 7,000 nurses in. Now he opposes those reforms, presumably he would like to rehire the bureaucrats, I want doctors with stethoscopes not bureaucrats with clipboards.</p>
</blockquote>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/ttaXxjIdrQA?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">NHS tackled during the April 2 Leaders Debate.</span></figcaption>
</figure>
<p>Recent <a href="https://theconversation.com/fact-check-are-there-more-nhs-doctors-and-nurses-than-before-the-coalition-39607">NHS Workforce statistics</a> do suggest that the abolishing of primary care trusts and related restructuring after 2010 led to a reduction of staff classified as “managers” or “senior managers” by around 20,000 across NHS England by 2014. However, this amounted to less than 2% of the NHS workforce.</p>
<p>The NHS is an extremely complex professional bureaucracy attempting to deliver some of the most challenging services in society. By some estimates the NHS is the seventh <a href="http://www.economist.com/blogs/dailychart/2011/09/employment?fsrc=scn/tw/te/dc/defending">largest employer in the world</a>, with a workforce of 1.3m structured around a division of labour of 350 different occupational roles. Less than 3% of the workforce is classified as managers.</p>
<h2>Little fat to trim</h2>
<p>Attempts to remove non-professional (non-clinical) employees, including managers, administrators and support staff, is <a href="http://www.theguardian.com/healthcare-network/2015/apr/09/nhs-managers-are-more-than-just-bureaucrats-with-clipboards">not very easy, or necessarily desirable</a> in professional bureaucracies like the NHS. More careful examination of recent <a href="http://www.hscic.gov.uk/workforce">NHS workforce data</a> suggests that the Conservative reforms attempted to remove non-clinical “bureaucrats” from other areas, such as clerical and administrators work, but after cuts were made in 2010 these had already sprung back by 2014. The pattern is very similar for other management roles, such as nurse managers. Research suggests that an increasing level of administration is being pushed on <a href="http://www.netscc.ac.uk/hsdr/files/project/SDO_FR_08-1808-246_V01.pdf">practitioner-managers</a>, largely nurses and doctors, who have strain from higher roles and less time for clinical care.</p>
<p>Moreover, the number of non-clinical managers is also creeping back up, with a full-time equivalent measure of management and senior management growing at a faster rate between 2013-14 than either doctors or nurses. As I write, there are more “manager” jobs available on <a href="http://www.jobs.nhs.uk">the NHS Jobs website</a> (based on a simple keyword search) than “doctor” clinical roles, suggesting that management bureaucrats will continue to rise. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/77926/original/image-20150414-24648-f0dw95.gif?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/77926/original/image-20150414-24648-f0dw95.gif?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/77926/original/image-20150414-24648-f0dw95.gif?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=405&fit=crop&dpr=1 600w, https://images.theconversation.com/files/77926/original/image-20150414-24648-f0dw95.gif?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=405&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/77926/original/image-20150414-24648-f0dw95.gif?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=405&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/77926/original/image-20150414-24648-f0dw95.gif?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=508&fit=crop&dpr=1 754w, https://images.theconversation.com/files/77926/original/image-20150414-24648-f0dw95.gif?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=508&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/77926/original/image-20150414-24648-f0dw95.gif?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=508&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">Administrative staff numbers in NHS, 2009-2014. Are we layering or de-layering?</span>
<span class="attribution"><span class="license">Author provided</span></span>
</figcaption>
</figure>
<h2>Wrestling with the NHS</h2>
<p>With the NHS being considered by the public to be the <a href="https://www.ipsos-mori.com/researchpublications/researcharchive/3508/NHS-leads-economy-and-immigration-as-top-votedeciding-issue.aspx#gallery%5Bm%5D/1/">most important issue facing Britain</a> going into the 2015 election campaign it is important that voters question the rhetoric about the management of public services. Both Labour and Conservative governments have attempted to reorganise vital public services, through mechanisms such as <a href="http://www.telegraph.co.uk/news/health/news/5524693/NHS-chief-tells-trusts-to-make-20bn-savings.html">restructuring pay scales</a> or experimenting with <a href="https://theconversation.com/first-privately-run-nhs-hospital-fails-the-marvellous-medicine-wasnt-so-great-after-all-36077">privately-run units</a>. The only proven remedy for meeting growing service pressures, as pointed out by Liberal Democrat leader Nick Clegg at the recent leader debate, is “hard cash”. Recently, the Conservatives have finally stopped talking about attacking the bureaucrats and have promised an extra £8 billion for the NHS by 2020. But in order to do this, and carry out their long-term economic plan of austerity, the attack on bureaucrats will need to move to other parts of the public sector.</p>
<p>There is little convincing evidence that we are moving to a post-bureaucratic age. The knowledge, rules, processes and relationships embedded within bureaucracies enable firms and public agencies to deliver reliable and consistent services; and this often leads to <a href="http://www.tandfonline.com/doi/full/10.1080/14719037.2014.895028#abstract">unavoidable inertia</a> in organisational structures. Still, most people would prefer a health service that privileges safety and reliability over enterprise and profit. The memory of <a href="http://www.telegraph.co.uk/finance/newsbysector/supportservices/10070425/Timeline-how-G4Ss-bungled-Olympics-security-contract-unfolded.html">G4S’ attempts to manage security during the London Olympics</a> will be fresh in people’s minds. And when Ian Duncan Smith announced the plan for “pension freedom day” recently he was quick to reassure the public that a substantial bureaucracy of pension advisers would be there to offer support to the public.</p>
<p>Cameron’s attack on the bureaucratic disease has a strange irony during an election campaign which is centred more on the “visible hand” of cautious economic management than an “invisible hand” of exuberant market forces. The political ideology of the right might not like the idea of faceless bureaucrats, but like them or not, the bureaucrats are here to stay.</p><img src="https://counter.theconversation.com/content/40126/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Mark Gatenby in the past has received funding from National Institute for Health Research SDO programme.</span></em></p>The backroom staff of our biggest bureaucracies are an easy political target, but making good on promises for cuts is harder than it looks.Mark Gatenby, Lecturer in Organisation Studies, University of SouthamptonLicensed as Creative Commons – attribution, no derivatives.