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Cameron and corporate duds

• Robert Peston
• 15 Jul 08, 11:07 AM

Are British managers in general sufficiently competent to be given the benefit of the doubt as and when their respective businesses run into trouble?

Even ten years ago, the answer would have been probably not...Back then, British-born managers were like their co-nationals in today's Premier League: workmanlike, functional, but rarely as skilled or classy as their overseas counterparts.

Since then, UK PLC has become a bit more like the Premier League, in that we've imported quite a battalion of highly paid talented execs from all over the globe...

But what about the Brits? Are they any more adept as managers than they were? My impression is that management standards have been raised very considerably. Today I rarely encounter an absolute dud running a big or small business. A decade ago, quite a big part of my life was lunching with corporate clots.

The relevance of this is that David Cameron has today made a to reform our bankruptcy law in a way that would give considerably more power to managers to protect their own jobs and the integrity of their businesses when they face difficulty keeping up the payments on debts.

That would have been a bit impetuous even a few years ago - because raising our economic game, improving our productivity, probably required the forces of creative destruction to blow relatively unchecked through the economy, laying waste to the long tail of poorly performing businesses.

It was probably good for the UK that our insolvency procedures were tilted a bit more than those of the US towards the extinction of overstretched firms.

However, although we may not yet be world business champs, we're much higher up the league table than we were. So I can see the argument, as we head into what may be a prolonged period of challenging economic conditions, for doing as the Tory leader suggests, and trying to put in place a new legal framework (modelled on America's Chapter 11 arrangements) that would allow managers of financially challenged businesses a little more breathing space to come up with a credible rescue plan.

In theory, this would be more than a job-protection scheme for execs: it could save some unnecessary redundancies and hardship lower down the corporate hierarchy.

But it would be wrong to assume that even for business, the benefits of such a reform would outweigh the costs. If the power of creditors to pull the rug were reduced, lenders might well put up the cost of providing credit to compensate for the additional risks they would be shouldering. And that could have a negative impact on the formation of new businesses and on investment by existing one.

So changing our insolvency procedures should not be done lightly. But among business leaders there is a sense that Cameron has come up with a decent idea at the right time (which is not what they say about all his policies, especially those on airport expansion and changes to the planning system).

UPDATE 11:49AM: I have two other concerns about the Cameron Chapter 11 proposals.

First, that in straitened times there is a risk that when a company freezes payments it can cause serious contagion to trade creditors and suppliers. So saving one business could inflict mortal damage on others.

Second that in certain sectors, protecting one business from creditors can be anti-competitive. Just look at the bloated US airline industry, where inefficient airlines in Chapter 11 have periodically had an unfair cost advantage over their more efficient rivals, thanks to the waiver in their obligation to pay what they owe.

So although what Cameron wants seems attractive, he won't find it easy to come up with a practical and workable proposal.

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