To the financial crisis of 10 years ago, I say thank you

We’re sorry, this feature is currently unavailable. We’re working to restore it. Please try again later.

Advertisement

This was published 5 years ago

Opinion

To the financial crisis of 10 years ago, I say thank you

By James Perry

The whole process of borrowing money from HBOS in 2007 and 2008 was, in retrospect, very strange. Back then we were young entrepreneurs (which means we thought we were indestructible and special), so we were frustrated that "those blasted venture capitalists" didn't understand that. The credit environment of the time was, therefore, manna from heaven - we could get debt to take the risk without selling any shares. What could possibly go wrong?

Yet even for people as financially naive as us, it was all a bit weird. In December 2007 we nervously attended a meeting at HBOS HQ in Bishopsgate, London, just prior to signing our loan agreement, to confess that we were starting to miss our projections. The immaculate bankers just looked back at us with glazed eyes and perfect smiles... and signed the documents. So we drew the cash, and within six months had breached our covenants.

During the GFC, every day felt like the trenches.

During the GFC, every day felt like the trenches.Credit: AP

It got weirder. By then we couldn't get hold of anyone at the bank, due to "reorganisations". And then, in September 2008 when the financial crisis erupted, our sales fell 15 per cent and we were, to all intents and purposes, bust. We didn't even bother calling them, and within a month HBOS had itself gone bust. Being left alone was the best we could hope for.

Our desperate straits became the mother of inventive ways of filling the vast hole in our cash flow. We threw everything we could overboard, got to know our balance sheet and all our creditors, begged shareholders for assets to use as security for subordinated debt (after using up all our own) and so on. Every day felt like the trenches, doing just enough to stay alive until tomorrow.

Most importantly of all, we resisted the advice to pre-pack the business to shed the debt. It was our best decision. It forced us to grow up, and get to know every line item on our balance sheet.

To cap the weirdness, a year later, as we were getting back on our feet, HBOS, like an inept killer zombie, woke up and put us in its "bad bank". Immediately we asked for a meeting and finally got a date, in a low rent office building with wailing, scuffles, long queues and a whole brigade of security men.

After being ushered into a windowless cupboard we met our new "bank manager", a debt collector from central casting. He memorably stalked in and welcomed us by barking: "What the f--- am I doing in here, it's not you who calls the meetings, it's me."

Our desperate straits became the mother of inventive ways of filling the vast hole in our cash flow.

We finally escaped Crazytown by refinancing our debt with a civilised, thoughtful and experienced (very) high net-worth individual who has provided all our debt ever since and has been a joy to work with. We kept our heads down and focused on getting the business fundamentals right. And we reflected on our experiences.

Advertisement

Business at odds with society

We started to think about what had led the world to this place. And the answer, pretty obviously, was that the system was - and still is - incorrectly designed. There is a fundamental misalignment between the interests of capital and the interests of society. Financialisation means that, as value is extracted now by the financial services industry, someone else will pay later - and is in bondage in the meantime. The policy response has been to regulate to control the misalignments, presumably because policymakers think misalignments are inevitable.

Loading

Now, 10 years on, it is this fundamental misalignment that people are starting to consider - the misalignment between shareholders (and their intermediaries) and society. The consequences of maximising the interests of capital (profit) at the cost of the other two inputs (land and labour) are ever more visible. They set business at odds with society, making it rational for business to exploit our environment, our communities and their own workers in order to maximise their profits.

Dumping these negative effects on society is rational behaviour - even (some believe) a fiduciary responsibility. But the consequences are becoming ever more evident with climate change, deteriorating ocean health, mass migration, political upheaval caused by widening wealth gaps and the hollowing out of poor communities.

We have no desire to build a business that is at odds with the well-being of society and future generations. And we have learnt that it doesn't need to be this way. We are convinced that our company can create value for shareholders while also seeking to maximise the interests of land and labour.

It is incumbent on business leaders, bankers and policymakers to learn this lesson and address the big flaw in the system.

It is incumbent on business leaders, bankers and policymakers to learn this lesson and address the big flaw in the system.Credit: Jamie Smetkowski

Learning the lessons of the GFC

It is this conviction that caused us to join the global and burgeoning B Corporation movement in 2013. There are now nearly 3,000 other businesses who share this conviction. This is a movement that reboots business to operate for people and planet, as well as profit. Founded, by chance, in 2007.

Five years in, we are convinced that it is the most strategic response to the financial crisis. It internalises misalignments and allows business and finance to organise around a different idea - that business can create value for everybody, as opposed to just for shareholders at the expense of all else.

So, to the financial crisis of 10 years ago, I say, thank you. Without it, we probably would not have learnt how to succeed. It caused us to find a better operating system for business - and the $US60 trillion ($84 trillion) of capital that it puts to work to shape our world and design our future.

It is incumbent on all business leaders, financiers and policymakers to learn this lesson and address this systemic flaw, as increasing numbers now are. So that we might avoid further crises (and associated human misery), and liberate business to fulfil its unique potential for everyone in society.

James Perry is co-chairman of food manufacturer Cook and a founding partner of Snowball, a multi-asset impact investment manager

The Daily Telegraph, London

Most Viewed in Business

Loading