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Who calls the shots?

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It appears that arrangements between suppliers and their customers is getting more and more coverage following the shambles being uncovered over Tesco's accounting for supplier incentives and the like. This has led to calls for accountants and auditors to be more careful over how profits or losses on these complex deals are reported.

To some degree this has similarities to those of us old enough to remember of the travel industry collapse of Court Line. However, it is not the complexity of these supplier relations which catches my brain today but the row between Wetherspoons and Heineken. Here it appears that a dispute between the two companies has led to Wetherspoons saying it will cease to sell Heineken's products. This is probably no idle threat as Wetherspoons already has form after a row about Guiness in Ireland. I am sure that there are many facets to the row including Heineken not wanting its brand devalued by Wetherspoons aggressive pricing but the straw that broke the back, we are told, is the request by Heineken for a personal guarantee from chief executive, John Hutson, for any monies owed. It is this that starts a train of thought.

It tends to be the large companies who call the shots with their suppliers and it is also the executives of those large companies who command huge pay packets but what is their exposure beyond the possibility of a smaller bonus or a few million less on their share options.In the private company where many owners make little more than their employees and certainly miles away from the rarefied heights of those running quoted companies such personal exposure is common place.

It is almost routine for financial institutions to require personal guarantees from directors of small companies for any borrowing in addition to wanting higher margins than those extended to large companies, most landlords will want guarantees or bonds on any lease and even some suppliers will ask for guarantees for extending credit.This means that for the small company limited liability as regards the director/owner is more a suffix to the business name rather than reality. It is not uncommon for the small business owner to have their entire livelihood exposed just for the benefit of running their business but with little anticipation of the level of reward paid to cossetted executives of large corporations.

It's much easier to take risks with someone else's money. This in particular was highlighted by our financial crisis and steps have been taken to limit the unfettered pay of bankers by making some of it potentially repayable is losses do arise.There are exceptions to all but I have worked with and observed executives both of large corporations and small and if I am honest there is little difference in the abilities of the good ones in both environments except when it comes to the levels of pay and personal exposure.

It is that personal exposure or lack of it which can sometimes lead to different decisions being made. Yes we have people who are risk takers but when personal risk is minimal the bar is moved. If a risk pays off we are applauded but for the small businessman if it fails it can be personal disaster.

I have seen many successful big business executives fail when trying to run their own private business but I've not seen many big businesses looking to the managers of successful smaller businesses to run them. I applaud Heineken for their request and equally understand its rejection but maybe we should see more big executives so challenged.

Jonathan Russell

Partner

ReesRussell

 

 

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