Tuesday, 8 December 2015

Some risks in Turnbull's benign view of business failure

Michelle Grattan, University of Canberra

Malcolm Turnbull spruiks his lines like one of those optimistic entrepreneurs that he urges Australians to become. The positive tone of the message is the first step to eliciting a favourable response for the content.

Thus it was with Monday’s innovation statement and Turnbull’s news conference launching it.

Turnbull’s exhortation – that Australians should be more willing to take business risks and less fearful of failure – is an attempt to promote a major cultural change in the community. This drive to transform thinking is arguably of greater significance than the particular measures that were announced.

But the often-compelling nature of Turnbull’s presentation can discourage forensic examination of what he’s actually saying, and its implications.

He is a man who doesn’t blush at his own hyperbole – as in this Monday observation:

If you start a new venture, a new business and it goes well for a while and then, for whatever reason, it doesn’t succeed, you may have lost some money, your investors may have lost some money, but the overall economy massively benefits because you are wiser, your employees are wiser, your investors are wiser, everyone’s learnt something and the ecosystem benefits. That’s why cultural change is so important.

This cheery view of the benign nature of failure surely represents a very specific perspective.

It’s one appropriate to the deft person who can muster the resources and has the skills to bounce back – and good on those people. We do need more of them.

But to claim that a business failure is just a glitch replete with upsides and never mind the downsides ignores a whole lot of things.

While the “ecosystem” might be benefiting, the family who mortgaged the house to launch a business that has now gone kaput could be devastated. Some investors who put money into a start-up that could not live up to its big idea may have lost part of their retirement nest egg. The now “wiser” employees may be having trouble getting other jobs.

None of this is to deny that it’s vital for Australia to become more innovative, or that start-ups deserve fostering. Rather, it is to argue that the statement in the innovation policy that “we need to leave behind the fear of failure” overhypes and oversimplifies something that requires a more sophisticated approach.

The old adage “nothing ventured, nothing gained” is all about the need to take risks. But in start-ups and the like, it is also a matter of the nature and degree of risk, who is taking them, and what the consequences of failure will be. If the risk-taker is going to be financially or personally destroyed by a venture going wrong, it’s a risk better avoided. Only some will be able to endure the several failures now being extolled as a reasonable pathway to success.

A balanced view is required, but Turnbull’s rhetoric often has a balance bypass.

In his quest against the fear of failure, he has been influenced not just by his own experience of the business world, but apparently by talks he had recently with Israel’s chief scientist. The refrain is also a mantra of Bill Ferris, who will head the new Innovation and Science Australia that is replacing Innovation Australia.

The innovation statement has specific measures, involving reform of the insolvency laws, that are designed, if you like, to somewhat reduce for entrepreneurs the risk of taking risks.

The default bankruptcy period will be shortened from three years to one. A “safe harbour” will be brought in to protect directors from personal liability for insolvency trading, if they appoint a professional restructuring adviser to develop a plan to rescue a company in trouble. And, if a company is restructuring, there will be a ban on “ipso facto” contractual clauses that allow an agreement to be ended solely due to an insolvency event.

These changes might bring their own risks in a laxer attitude by directors, but Turnbull stresses that other obligations on directors would remain so protections would continue to be there.

Helped by the sheer force of his personality and messaging, Turnbull has pulled off his innovation policy, leaving Labor lamely pointing to the fact that it had plans out first in some of these areas.

It’s not just a matter of the government stealing ideas worth having. What else would an agile and innovative administration do? And it’s only partly that most attention inevitably focuses on what a government does, especially one with a new leader, rather than what an opposition says.

The real lesson is that Turnbull can bring together a policy and enthuse it with a special life that makes it attractive (even when it raises questions) while Shorten’s announcements are piecemeal, often sludgy and lack a narrative or a spruiker who can radiate confidence.








The Conversation

Michelle Grattan, Professorial Fellow, University of Canberra

This article was originally published on The Conversation. Read the original article.
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