It is one of those eternal questions in the business world: why do companies fail? There is no definitive answer, but some people come closer than others to cracking the mystery.

One such is Sir Ewan Brown, a man who has been involved in Scottish business for over 50 years. Last year he set out to see if, by collating histories, experiences and thoughts, answers could be found. In his self-published volume, Brown’s concludes that ‘The prime culprit for each company’s fall from grace was the development of a collective mindset in the boardroom.’

It is a fascinating and very Scottish book because, in particular, he wanted to properly understand why so many thriving, prosperous and, in many cases, longstanding Scottish businesses have failed.

He points out that Scots business and accountants, of which he is one, were, like many ordinary Scots people, revered for their innate common sense. They were thoughtful, canny, perceptive and wise, and often given to shafts of wild humour. But they were quietly successful.

Much of this was sometimes attributed to the nature of the Scottish education system. He sees the ‘collective mindset contagion’ among non-executive directors as originating in classrooms: ‘Spending up to 13 formative years in school conditions us to become listeners and discourages us from being challengers.’

Boardroom blindness

Brown is genuinely puzzled that Scots companies, many of them several centuries old, have fallen by the wayside. There are many reasons, but at the heart of it is a complacency.


Robert Bruce, journalist and accounting commentator

Brown warns that offloading responsibilities to external accounting firms is a mistake

‘I don’t start by assuming that it is either a dominant chief executive or a poor chair who is the root cause of the problem’, he says. ‘I favour a deep dive into the collective mindset of the board that gave rise to the appointment of the dominant chief executive in the first place; and the boardroom blindness that failed to recognise the problem when it should have been blatantly obvious that there was something seriously amiss’.

He comes up with a series of warnings, including against illusions of invulnerability; illusions of unanimity; obedience to authority without question; and a lack of diversity and too few independent minds.

Lessons to learn

Brown has simple lessons, including how, in a study of the annual statements of all the FTSE 100 companies in the 1980s, none used the word ‘cash’. ‘Yet, five of the seven companies in this study either ran out of cash or were not able to access funding. The same could be said to apply to Barings, Northern Rock, Carillion, Thomas Cook and Patisserie Valerie.’

He warns that offloading responsibilities to external accounting firms, specialist lawyers and others is a mistake. He also advises keeping non-executives properly informed.

Business life in Scotland does not really impinge on the consciousness of the population

‘The reason that the best board papers I received came from Stagecoach Group was that they were drafted to be intelligible to a non-executive director and were pleasingly short’, he recalls. He contrasts this with Lloyds TSB, where reports were drafted by executives and passed through the senior executive and chairman’s committee, ‘without proper thought being given to the ultimate recipients, the non-executive directors’.

Ask the right questions

On auditors, he is very clear. ‘If directors believe that external audit gives them any material assurance, they are mistaken’, he says, ‘because, in a vicious circle, they are actually giving assurance to the auditors rather than the other way round.

‘The annual report is unequivocally the responsibility of all the directors – who must be sufficiently knowledgeable about the company’s business and be able to ask the right questions and mount the necessary challenges in order to vouch for what the company is reporting’.

There is a cultural issue here as well. Unlike in the US, for example, business life in Scotland and the rest of the UK does not really impinge on the consciousness of the mass of the population. It only comes to the fore when a disaster occurs and people then excoriate the auditors.

The public sector goes equally unscrutinised. As Brown says in his latest findings: ‘Within the vast array of Scotland’s national companies and non-departmental public bodies…there is a propensity for precisely the same boardroom malaise that has, so devastatingly, permeated parts of Scotland’s private sector’. 

Brown lists the 34 listed Scottish companies that have vanished in the last 40 years; it is a roll call that would probably spur mournful bagpipers into playing laments. But it is not just Scotland that cannot afford to lose this scale of business. The lessons stretch across all of Britain’s inadequate business culture. Brown focuses on his own experience. But it should be everyone’s to think about.