Memo 7 ~ MVF Reports and Accounts ~ Spin or Substance ?
Updated 20th July 2007
Perhaps it is not surprising, in a competitive commercial world that Mole Valley has felt it necessary to engage professional expertise in the field of public relations, marketing and image enhancing presentations.
Having paid for professional advice there is then reluctance to ignore recommendations for advertising, new display materials in Branches and at shows, updated vehicle livery and other costly conventional publicity devices.
Apart from unwelcome addition to rising administrative expense, there is a danger that use of commercial spin doctors may result in presentations which conflict with cooperative concepts. It has now evidently become commendable that “we have strengthened our standing as a commercial enterprise” through our acquisitions of subsidiaries and that our Royal Cornwall show stand “was given a new more corporate look”. These recent Newsletter quotes are evidence of the importance now attached to superficial aspects of prestige, but will not impress farmers seeking cost savings on their input purchasing.
These examples are at the less dangerous end of the full spectrum of spin doctors’ skills, which at the bottom end result in the word “spin” just being a euphemism for intent to deceive i.e. just lying.
The particular difficulty for a cooperative is to make the right judgement as to how far down the spectrum it is acceptable to go in terms of commercially perceived need. To go beyond this point, thereby compromising the very trust which members are entitled to expect from their own Company, should be totally unacceptable.
Opinions will differ on where this boundary lies. For example, take the single statement last month that from 1960, “whilst the business has changed and expanded, the philosophy has remained true to its purpose”. Informed comment on this requires some understanding of then and now – and there are not many of us left! It is correct to claim that the stated philosophy, and the stated purpose, have not changed. The only words I find incorrect are “remained true”. Being true to a philosophy surely implies that you follow its precepts in practice and thus fulfil the underlying purpose. Mole Valley’s entitlement to make such claims is declining every year as its principles become eroded, resulting in reducing competitiveness.
Further down the “spin” spectrum is the subject of Board decisions on the extent of financial reporting beyond the narrow limits of compliance with statutory provisions. Chartered accountants maintain high standards of accuracy in translating documented transactions into a full set of audited documents. Memo 6, however, includes an example of obvious “spin” at work in the 2005 presentations of the Pye Bibby acquisition and subsequent operational performance. Mole Valley auditors, however, were able to provide a true and fair opinion of the presentation, because they did not recognize MVF Ltd as a cooperative, with a duty not to mislead or deceive its farmer shareholders.
None of us finds it easy to admit in public to a serious mistake, and in this case an element of commercial confidentiality might have been pleaded. Unfortunately the scale of the misfortune was such that the 2006 published SVF P&L Account had to disclose a cumulative £326,000 loss for the first 19 months.
This, however, only represents,
say 10% - 15% of the cumulative loss that would result if more
conventional accounting parameters had been adopted, including a 5 year
amortisation period to write off the £3m payment of goodwill,
instead of 20 years. The effect of the alternative presentation
is shown in the following tabulation.
| 2006 £ (12 months) |
Cumulative £ (19 months) |
|
| Re-imbursement to MVF for bank charges incurred on behalf of SVF Additional loss | 500,000 | 750,000 |
| By reimbursement of (or provision for) interest on MVF’s £3.5m cash input Additional loss | 175,000 | 280,000 |
| By difference between 5-year and 20 year Amortisation. Annual addition for first 5 years | 520,000 | 890,000 |
| By inadequate apportionment of MVF admin expenses (see Memo 5), approximately | 300,000 | 500,000 |
| Sub-total alternative presentation, additions to loss | 1,495,000 | 2,420,000 |
| SVF P&L a/c published losses | 186,000 | 326,000 |
| Total losses illustrated by the alternative presentation | 1,681,000 | 2,746,000 |
This illustrates another reason for avoiding use of the initial “spin” in the previous year. Acknowledging error a year later involves disclosure of deliberate cover-up, in addition to admitting the original error. Conventional advice to stop digging has evidently not been accepted!
With the transfer of Mole Valley’s long established feed business into SVF for the year 2006/2007, the previous profitability of this division will now provide a significant loss-reducing element in SVF P&L accounts, - but at further parent company expense. Professional accountants normally insist on consistency from year to year as a means of valid comparison and thereby, of establishment of trends. Justification for paying £3m goodwill within the PB acquisition should therefore presumably require around £1.8m in transfer value for MVF goodwill to be shown in 2007 SVF accounts.
A further danger of placing too much reliance on external spin-doctors, is that Board policies can become influenced by the need to keep up with and fit the image that has been generated. Similarly, ambitious salesmen demand, as part of their selling spin, pricing flexibility or, they argue, the sales targets defined for them cannot be met.
Both of these contribute to the heavy spin ‘tail’ eventually wagging the Mole Valley ‘dog’.
The ultimate, potentially terminal, danger however, is that eventually Mole Valley policy makers start believing in the oft-repeated propaganda being generated on their behalf.
Why not leave propaganda to the politicians?
The truth is so much simpler.