New is shiny, old is not. Innovation is the rage, conservation an afterthought. In business, a lot of dissipated energy goes into the frenetic chase to do something new, where a loving touch to something already out there could deliver so much more.
This gives us, for example, an obsession in policy on the start-up of new enterprises, rather than a concern for reducing the closure of existing firms. It is as if we have swallowed the distant myths of Joseph Schumpeter, that destruction, particularly if it hurts, must be good for the creative process.
In the UK, around 17,000 businesses fail each year. Within this number there are many companies that on economic grounds could be saved. A large number, forty four percent, are wound up because of poor management prior to insolvency. There is a pool therefore of up to 7,500 viable enterprises that are failing.
One way to do this is to look to the staff. Workers taking over an insolvent company to preserve their jobs and entitlements has emerged as a trend in a number of other countries. Appropriate enabling legislation exists in Spain, Sociadades Laborales (SAL), and Italy, the Marcora Law.
A new report, Saving Business, written for us by Anthony Jensen, based out of the University of Sydney, tells the story.
In a period of economic crisis in the 1980s, both countries enacted legislation in 1985 to support workers take over thousands of failing enterprises. Both countries based the legislation on encouraging workers to become entrepreneurs in saving their jobs by taking their entitlements, and three years projected social security payments, in a lump sum payment, and investing these in the new company. This was supported by government loans and advice.
The Marcora Law set up the Campagnia Finanzaria Industriale (CFI), a financial institution to support workers establish a workers cooperative, to take over the failed company. CFI also provided advice, finance and has the right of a seat on the board of the co-operative.
Both these programmes were suspended by the European Union (EU) in the 1990s. The reason given was they contravened European competition law. However after a redesign, they have both restarted. Professor Alberto Zevi in Italy reports that the Marcora Law is working well, with eleven buyouts assisted in recent months.
In France, over 700 businesses on the verge of closing down have been transformed into cooperatives between 1989 and 2010 (over 30 every year), thereby saving thousands of jobs.
Now, I am sure that there is a view that says ‘don’t go there. Let them fail. It is too difficult. Or we don’t want to be associated with their failures.’ I understand the view, but the UK has now to be more entrepreneurial.
Worker cooperative buyouts of insolvent businesses have been successfully carried out in many countries as measured by their longevity, job saving and job creation and performance impact. There are successful case studies in the UK: UBH International, Tower Colliery and a number of smaller buyouts in Wales. There have also been failures when best practice has been ignored namely a viable market, strong leadership, a homogeneous culture and ongoing advice.
Not every business can be saved. But success overseas points to the potential to save some.