News channels are saturated with stories of how the bonus culture within the banking sector has led to the problems of ‘Toxic Assets’, the consequential calls for better banking regulation and vitriolic demonisation of deposed directors. 

It’s not surprising that big banks are in the firing line but the media have yet to spot that across many other sectors the endemic bonus culture and weak ‘lightly touched’ regulation has produced problems that are, in aggregate, both significantly scaled and equally difficult to resolve. 

‘Toxic Sales’, the burden of unprofitable deals made in times of gung-ho growth fuelled by bonus-driven sales-folk and approved by their share-price-driven managers, will, if their businesses survive, take a lot of unstitching and reconstruction.

We have not seen this level of accumulated drift in commercial practice since the excesses of the dot-com bubble; the demise of WorldCom and KPNQwest, Global Crossing’s ‘hollow swaps’ designed to boost top-line reporting, and many other Enron-like financial fictions.

The problem of ‘Toxic Sales’ is woven wider through our economic fabric than these celebrity cock-ups and, in truth, it is not entirely possible to separate the issues from those of the financial services sector.  The dodgy deals satisfied City pressures for growth and were facilitated by the availability of debt financing.

The root cause, how businesses of all shapes and sizes got into this mess, is undeniably linked to the bonus culture that was legitimised by widespread but uncritical acceptance of efficient market theories – now more clearly understood as deficient market theory; deficient in the sense that quantity trumped quality.  For small and micro businesses, where all employees are closer to commercial realities, it may be less of an issue but for enterprises employing more than 200 people, the avoidance and remediation of 'Toxic Sales' demands more management time.  

If your company is strong enough to withstand the shock, the simplest (but perhaps least ethical) way of dealing with ‘Toxic Sales’ is to walk away, to resign the business and leave the customer to pick up the pieces and (if they can afford the legal fees) review the original contract in the hope of finding grounds for compensation.   This terminal solution only makes sense if the vendor is prepared to forgo hopes of doing any further business in that market until such time as managements move on and memories fade – which, on current form, may be less than a decade.

If, on the other hand, you have a mix of healthy business and a rotting pile of ‘Toxic Sales’, walking away is not an option.  Some deals may be renegotiated but this approach is massively dependent on the appearance of new relationship managers with a totally open approach and a clear, believable, commitment to future delivery.  The line ‘Surely you should have known that this deal was too good’ is unlikely to impress business customers who are well aware of their own costs previously incurred in the procurement process – the customer’s cost hurdle that eager sales-folk rarely take into account.

The alternative ‘grin and bear it’ approach is fraught with dangers if, in seeking economies, the delivery standards are compromised.   The real cost of wearing your way through the ‘get-well plan’ is found in management upheaval, retraining and recruitment, lost capacity for new and better business and the need for cultural change and process overhauls to ensure that the quality of trading never again relapses.  Bonuses may not be entirely banished but at least they could be linked to doing better, proven higher-quality, business.

This is, of course, a major challenge for senior managers whose personal fortunes may still be linked to share-price movements and fickle speculative City sentiment.  The banks have learned, albeit slowly and reluctantly, to open their books and reveal the scale of ‘Toxic Assets’.  Is it too much to ask that they should understand the notion that business is a two-way street?

Regulators, at least in the financial services sector, are beginning to rethink their understanding of performance quality and the interests of all stakeholders including customers.   Other sector regulators are now more likely to appreciate that they too are required to question the direction of the herd.

The good news is that the recessionary rains are watering recently barren imaginations.  Concepts not previously permitted are showing vigorous growth – for example in the teasing apart of complex integrated businesses to reveal that basic utilities must be managed and regulated in very different ways.  It is perhaps too early yet to declare that Clearing Banks are the fifth utility but the notion that Broadband Access is the fourth is rapidly gaining ground.

Meanwhile it is time for companies across all sectors – especially those companies who are traded on stock exchanges -  to own up to their ‘Toxic Sales’, to declare how these dodgy deals will impact on performance and to reform bonus cultures to match the need for quality business.