Neil Greenaway: Putting on a brave face not always the best policy
Dec 8 2010 By Neil Greenaway
After the unwelcome news that the Rok Group has collapsed, unemployment in the Midlands was yet again in the headlines.
Rok, with offices in Birmingham, Stafford and Warwick, is now being broken up and disposed of by the administrators from Price Waterhouse. At least 1,800 employees have been made redundant from a total workforce of 3,800.
And yet, just a few short months ago the company reported that its services business was back on track and was confident of a successful turnaround thanks to a deal with Tesco and with the purchase of shares in the company by four of its directors.
Running a business, especially in these uncertain times, requires a mixture of confidence and pragmatism. Giving bad news to the markets can often result in a drop in the share price, but as long as the business is seen to be making the right moves, the market is ultimately sanguine about these events.
It seems that the folks at Rok took a different view. By doing whatever they could to put a good face on the situation, they made the eventual result look even more devastating.
Rather than unfolding over months, the eventual end to the business was swift. It happened over a few hours. The loss of confidence by all parties, shareholders, suppliers, staff and lenders was a burden that no business can bear.
There are many examples around of those that are surviving this sluggish economy.
Many of these businesses carefully manage their information; tempering good news with words of caution, making sure that all parties are fully informed of the situation and managing expectations. Above all, no surprises.
If there is one thing that frightens lenders most it is a surprise announcement. Businesses today must identify issues and problems and then get out in front of them. Manage the news rather than be a part of it.
Rok won’t be the last business to fail in this current cycle, but there are many lessons to be taken from this unfortunate event. Putting on a brave face might seem like the right thing to do, but simply wishing for something does not make it so.
A realistic assessment of the situation might not make the board happy in the short term, but is imperative if businesses are to survive to trade through the next cycle.
* Neil Greenaway is managing director of Clifton Asset Management
