Optimism is a risky business
Would Michael Bright be in prison for fraud if Independent Insurance had not gone bust? Once the insurer failed, the forensic accountants crawled all over it, found the black hole that caused the insolvency and charged the key executives. But if the questionable accounting had not been enough to bring down the company, would there have been a fraud trial?
Plenty of companies take an optimistic view of business and get away with it. Some take a similar view and get caught out, but the companies – and often the executives – survive even if the share price is decimated. But when a company goes bust, over-optimism is likely to be branded as criminal.
Bright’s sin was to note the big claims against the company on a whiteboard until they crystallised rather than provide for them in the accounts. An optimist says that is because they might go away; a prosecutor calls it deliberate non-disclosure. But if Bright’s optimism had been well placed he would be lauded.
Other than inflating his share price, pay packet and ego, Bright did not gain personally from the deception. When the pin hit the balloon, the shares were worthless anyway.
Insurance is about risk, of course, and Bright assessed Independent’s wrongly. But no pessimist ever went into business and if every contingency was provided for, most businesses would appear insolvent. How many other directors – from dot.com companies to banks – should now be asking whether they would face jail if their optimism turns out to be misplaced and their company fails?
Independent was not Enron, but British business should take it as a warning. A mistake big enough to bring down the company could mean up to 10 years in prison.
