The British Accounting Review 36 (2004) 233250 www.elsevier.

com/locate/bar

Disclosing smaller business success and failure

John Ritchiea, Sue Richardsonb,*
b

University of Durham Business School, Mill_Hill Lane, Durham DH1 3LB, UK University of Shefeld Management School, 9 Mappin Street, Shefeld S1 4DT, UK Received 12 December 2002; revised 27 November 2003; accepted 4 March 2004

Abstract The article argues that smaller businesses are mostly sidelined from the current debate about corporate governance. As a result they are less scrutinized than their larger corporate counterparts. They are afforded exceptionalist special case status and are specially promoted through state policy, yet genuine grassroots evidence would appear lacking. The state therefore currently proceeds with its British enterprise revolution and new enterprise culture with targets and measures that would underline smaller business success while reconstructing failure at the same time. Thus, as long as accounting disclosures are taken as denitive evidence of such businesses success and failure, the critical study of actual accounting within them might produce more grassroots evidence regarding their exceptionalist special case claims. The case study, MIS Limited, used here for this purpose, reveals other sides to the personalism associated with managing smaller businesses, which question these claims. As a real-time accounting-practitioner investigation of the actual processes of smaller business success and failure, both the case study and research process are relatively unusual, but they could point to new directions for further research. q 2004 Elsevier Ltd. All rights reserved.
Keywords: British enterprise revolution; Exceptionalist; Smaller business exceptionalism; Personalism

1. Introduction Accounting researchers and practitioners must well appreciate how corporate governance now attracts such lively debate. One such debate indeed casts a particular shadow over accounting itself. That debate focuses upon allegedly scandalous malpractice among certain larger corporations in particular. Other such corporations, then drawn into this debate, nd themselves more critically scrutinized accordingly. So far smaller
* Corresponding author. Tel.: 44-114-222-3429. E-mail address: susan.richardson@shefeld.ac.uk (S. Richardson). 0890-8389/$ - see front matter q 2004 Elsevier Ltd. All rights reserved. doi:10.1016/j.bar.2004.03.002

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businesses have rarely been included in such debate and few parties therefore extend equivalent critical scrutiny towards these businesses. It is thus corporate accounting and auditing (Lee, 2002) scandals which particularly provoke any quasi-legal shaming of corporations at large (Skeel, 2001). Not only are smaller businesses thereby sidelined from this debate, but they also emerge doubly privileged. So, on the one hand, they escape the more critical scrutiny other businesses might nd themselves subjected to, leaving their own downsides and darker sidesfrequent fraud included (Robertson, 2002)relatively under-exposed. On the other hand, smaller businesses continuing small is beautiful idealization (Schumacher, 1974) sustains their further claim to be a special case for exemption from whatever additional regulatory and/or disclosure requirements other businesses might face (Pierce, 1998). With government itself now claiming a British enterprise revolution and a new enterprise culture (Brown, 2002, 2003), few really challenge the validity of these exceptionalist claims. A particular construction upon smaller business success and failure is therefore imparted into whatever state-driven, downwardly cascading policy process follows. So long as accounting disclosures are taken as denitive evidence of smaller businesses success and failure, the critical study of accounting itself might yield valuable insights into, and challenge the validity of, such exceptionalist claims. However, judging from its limited coverage in leading academic journals, accounting has not yet fully engaged this issue. Indeed, Otleys (2002) review of related matters in the Research Assessment Exercise suggested a dearth of both policy oriented and intensive longitudinal research of the type this might require. Other gaps between accounting research and practice could therefore emerge unless issues like this are addressed better in future. With this in mind, the article therefore seeks to raise and inform this debate by investigating smaller business success and failure, via their accounting disclosure. It begins by exploring how such success and failure are rst constituted by both this British enterprise revolution and new enterprise culture themselves. It then discusses the methodological issues posed by investigating such success and failure in the eld. Such issues are made more apparent from the practitioner standpoint within the narrative study (Llewellyn, 1999) of how they occurred in the case of MIS Limited, which then follows. By seeking to raise and inform debate, rather then better evaluate related policy as others proposed (Curran, 2000; Curran and Storey, 2002), the article then questions how success and failure are being re-articulated through this new enterprise revolution and culture in particular. It nevertheless acknowledges that certain public policies might almost have been doomed to succeed through what Storey (2000, 2003) judged to be inadequate partial evaluation based on cheap and cheerful research before. In raising and informing debate, the paper therefore rst critically scrutinizes what smaller business success and failure are coming to mean in any new enterprise culture itself.

2. Disclosing success and failure in the context of a British enterprise revolution and a new enterprise culture Government publicly claims to be committed to the hands off regulation of small business. It bases this belief on the particular premise that more of the enterprise which

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makes these businesses grow is thus better freed up for that purpose. The emergent enterprise cultures that Ritchie (1991) previously outlined are thus now being ofcially recongured into another new enterprise culture. This new enterprise culture is accordingly more state-driven and, in terms of hierarchies and agencies, executively managed with the new economy and enterprise society in mind (DTI, 1998). Yet the core premise that smaller businesses are naturally growth-seeking has already been challenged by rival claims that mere survival alone so dominates many such businesses, that any real growth is often just sporadic and episodic with many plateaus between (Storey, 1994). After setting the overall successes against the failures which its own forecasters themselves predict, Government nevertheless claimed that the entire small business sector will signicantly expand over the present decade (DTI, 2000). Other Parliamentary overseers may question the exact policies themselves (DTI, 1999) but small business has thus far enjoyed a charmed existence where evidence-based policy is concerned (Curran and Storey, 2002). Hence nearly three decades later the very cache of small is beautiful lives on with further linguistic turns (Fairclough, 2000) that would clearly outvoice the more moderate expression found in both the pathnding Bolton (1971) and Wilson (1979) Committee Reports before. Not only does the state itself intend this new enterprise culture to be downwardly cascaded across other business, professional and educational frontiers, but now its specially required promotion is considered particularly important as well (House of Lords Select Committee on the European Communities, 1999). Under the banner of think small rst, the further de-regulation of small business is also claimed to require more joined up government itself, the success of which then depends upon more visibly progressing it. Consequently newer national Parliaments and regional development authorities now expectantly plan for it (DTI, 2003); a resurrected Small Business Service strategically benchmarks it (Irwin, 2002); leading bank and corporate support has been league tabled regarding it (Cruickshank, 2000); and educational and training institutions appear more accountable for working towards it. Not surprisingly, then, this new enterprise culture does not leave much to chance (Gray, 1998; Carr, 2000), especially where success and failure are concerned. Yet, as publicly visible as it is now being rendered, this enterprise cultures progress still encounters grassroots implementation problems (Blackburn et al., 1992), despite the plethora of league tables, benchmarks, targets and other accounting enumerations that audit society (Power, 1997) now espouses for this purpose. Less critical observers nevertheless assume that such calculation makes success and failure more explicable, especially when they have also been popularly embellished with well-formulated stories of achievement (Corvellec, 1997) as well. Not only are success and failure thereby publicly rearticulated, but they also apparently call for the reworking and recodication of related UK Company Law and its accounting and auditing mandate (for example, Freedman and Godwin, 1993; Freedman, 1994, 1999, 2000; Milman, 1999; Rider and Andenas, 1999). This extends to the deliberate creation of a safety net rescue culture (Enterprise Act, 2002; Finch, 2003) for mitigating the stigma associated with small business failure at large (Hunter, 1999). Yet success and failure can have other meanings outside this new enterprise culture itself. For many smaller businesses, for example, they are both more like one-off outcomes, or end-states, of certain particular ways of organizing and managing themselves. Naturally this impinges

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upon the accounting processes used to particularise and disclose their very occurrence. The actual accounting statements and reports that are often taken to be the most compelling, if not conclusive, proof that success and failure have occurred, are nevertheless just socially constructed re-presentations from which certain accountability relationships follow (Perren and Grant, 2000). For that reason alone the study of small business success and failure should pay particular attention to accounting itself. In Section 3 of the article, we discuss the methodological issues posed by such an investigation and describe the research here undertaken.

3. Studying and researching smaller business success and failure Although success and failure both enjoy special coinage in a cascading new enterprise culture that would deliberately employ them for enhancing its dramatic effect, as issues for further enquiry they are not always open to, and may not necessarily fully repay, expressly critical study and research. Various researchers have therefore reected upon the incentives and disincentives for enquiring into failure and breakdown in general (Anheier, 1999). Because of their personally close nature, smaller businesses may add another dimension that necessitates linking their social, organizational, and managerial understanding closer together. For all their topicality, success and failure are not necessarily readily pursued, or even disclosable, however. For example, neither the more compendious Encyclopedia of Small Business (Hillstrom and Collier, 1998), or indeed the authoritative Handbook of Entrepreneurship (Sexton and Landstrom, 2000) and likewise the Handbook of Entrepreneurial Research (Acs and Audretsch, 2003) expressly index either success or failure as such. One previous convention assumed that success and failure were readily identiable end states whose relative frequency was best detected from statistical aggregations and cross-tabulations derived from ofcial/formal data sources, as if this would then reect combined movements across entire smaller business populations at large. Those calculations were then selectively woven into more dramatic public narratives about the entry and exit, rise and fall, and even birth and death of those entire populations. Others have previously attempted to predict what makes for failing enterprises (for example, Altman, 1968; Argenti, 1977), and to produce models for better decision making. Yet these approaches alone cannot reveal much about the ongoing grassroots experience of success or failure at the time and situation in which they both actually occur. These may therefore only enter popular consciousness through more dramatic journalistic exposes instead. The issue of how research methodologies might better t the personally close and changeable nature of many smaller businesses has been raised elsewhere (Curran and Blackburn, 2001). Further enquiry into the grassroots experience of success and failure may need to resist the contemporary managerialist halo effect whereby preferred individual subjects become further heroized and lionized into role models for other purposes (Collins, 2000). As well as resisting other transient fads and fashions, such research nevertheless raises important questions about relationships between, and mutual impressions of, researchers and researched alike. Such relationships and impressions are

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particularly sensitive when, for example, failing and failure become close personal considerations. Others have observed that the experience of both were once largely offcurriculum, and ill-recognized and/or voiced concerns, even among pathnding business schools themselves, at least until more critical approaches nally took hold (Mant, 1981). As objects for study, smaller businesses appear so small, informal, and personally managed, worked and closely regarded by the human actors concerned that it is necessary to justify addressing them as if they were abstract businesses. Their individually miniscule size, workings, and basic personalism might well need and deserve much better capture through alternative research practices instead. Any such personalism has important implications for the actual researching of their relative success and failure in the eld, for example, because it underscores those very relationships through which research access gets negotiated, ndings are pursued, and other matters are made disclosable in due course. In many situations failing and failure could be such personally close, even threatening, phenomena to either anticipate or experience that they are much less openly known and discussed than succeeding and success for example. So, being more potentially hidden, denied, and disclosed may make the negotiation and performance of corresponding research (and indeed other) roles particularly difcult in this respect. To openly pursue the issue of failing and failure, however, variably dened, can thus raise resistances and defenses among individuals and groups themselves, with the apparent paradox that the success of any such research project could itself depend upon disclosing more about its subjects failure. Certain researchers might react to this by seeking to disengage themselves from such disturbing affects through more detached hands off understandings which skirt around the close personal issues involved, even though it is these which make more impression upon the human actors concerned, whose experiences therefore would clearly need better capture. To the extent that these issues and dilemmas are almost intrinsic to failure-bound situations themselves, it underlines the need to pursue less traditional research approaches in order to make the experience of them more critically intelligible. In unraveling such complexity, particularly within smaller businesses, a qualitative ethnographic approach might reveal more insights (Jack and Anderson, 2002). Indeed, some consider the smaller business to be the ideal arena for ethnographic research, since its smallness facilitates closer relationships with those under observation (Holliday, 1995; Hytti, 2003). But it is particularly important that any research process does not itself unduly reect, or else become unduly compounded with, the in situ failings and failure under study. These failings can also prove difcult to articulate when they challenge more supercial successes as a result. Yet any differences between success and failure should not be exaggerated because, as Miller (1990) emphasized, one can eventually lead into the other, and vice versa. Indeed, in their classic clinical study of business founder personality, Collins and Moore (1964) originally observed how closely many such individuals negotiated the borderlines between success and failure, and other clinical psychological researchers have taken that issue further (KetsDeVries, 1977, 1996), often revealing more about their darker side in the process. As yet, studies of smaller business enterprise crime have not entered other mainstream literature (Slapper and Tombs, 1999), and may well have a particular, network character that is difcult to disclose (Barlow, 1993).

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Thus, the problematic nature of disclosing the processes of smaller business success and failure at grassroots level goes beyond even the concerns revealed by Otley (2002) for accounting research in general. A strong tradition in accounting case study research reveals how accounting might be socially constructed, bound up in power relations, and with certain unexpected consequences (for example, Hopwood, 1987; Dent, 1991; Richardson et al., 1996; Ritchie and Richardson, 2000; Burns and Scapens, 2000; Humphrey, 2001). But research into smaller businesses further confronts their very personal nature and high degree of proprietorial power. This can indeed suggest that although accounting mechanisms may be introduced or changed, to professionalise smaller businesses for example, they may not have much impact upon performance (Burns and Scapens, 2000), and ultimately success and failure. Indeed, they may lay claim to rationality whilst still preserving proprietorial control (for example, see Richardson et al, 1996). This suggests that critical accounting case study research into smaller businesses might have the potential to reveal more about their success and failure than is currently known and could better inform policy debate accordingly. Thus the challenge for critical theorists is, as Owen et al. (1997) suggest and Otley (2002) conrms, to engage more with practice. But this may not be enough. It has been suggested that much accounting case study work has become too embedded in the researchers own particular philosophical camp, leaving much case study research only partially developed and disseminated (for example, Humphrey and Scapens, 1996; Humphrey, 2001; Richardson and Cullen, 2004). Thus, a further challenge for critical theorists is to be more creative in developing and disseminating their work. For example, the power of the story (Humphrey, 2001) might better inform theories of contemporary accounting practice (Humphrey and Scapens, 1996). Thus, in published case studies we should not always be constrained by the convention that dictates we mould the data around one particular theory alone, while leaving out much rich contextual description. Otherwise, we might paradoxically limit the potential development of knowledge. So far, we have established the problematic nature of studying success and failure in the eld and explored different ways to proceed. It is argued that it requires critical studies of the context in which succeeding and failing are disclosed and that the power of the story allows wider interpretations of its contribution to policy development and practice.

4. Perspective on the research process MIS was investigated by one of the authors over a period of two and half years. As the new managerial accountant, they gained insider access that outside researchers cannot ordinarily enjoy, although, as the case will reveal, it was also gained at some personal cost once failing and failure took their toll. Neither failing nor failure was on the agenda when this researcher rst entered the situation; the issue of how to enable more successful growth was far more pressing instead. Thus, this study was not originally designed to be a study of failure any more than most smaller businesses are designed to fail. The process of failing was more emergent and the researcher experienced the consequences in real time, during the research process. Throughout the process the researcher observed, recorded events and observations in a diary, and collected company documentation.

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As events transpired, a high degree of reexivity was necessary to encompass the full cycle of succeeding, failing, and then failure proper in such a short, but nevertheless intensely focused time. Such reexivity nevertheless still meant engaging difcult ethical issues and dilemmas while that situation became more critical. For that reason a line can be drawn between reexivity, as compared to inconstancy and opportunism in the use and exploitation of others conicts and misgivings while failing and failure became clear. As reective practitioner (Argyris and Schon, 1995) this researcher was both an actor whom they had the opportunity to hold responsible and accountable for such occurrences, and someone who experienced similar conicts and misgivings too. As a tale of the eld (Van Maanen, 1988), the following research narrative is therefore also in the original tradition of Dalton (1959, 1964)), except that issues of success and failure, and ultimately everyday survival, were here more directly pressing throughout. The narrative itself has been deliberately constructed to reveal the shifting course of failing and failure, in what might otherwise rst appear like another successfully grown and still growing small business. It describes ongoing processes of an often indeterminate character, as they are socially negotiated among networks of different actors, so as to variously implicate their respective performances, beyond what formal accounting statements and reports themselves later maintained. The case study MIS Limited now follows.

5. MIS in prole Although MIS had already grown to a turnover approaching 2.5 million, it originally arose from a similarly specialized family owned business some time before. Having dissolved those earlier family ties, its founder and sole director, for these purposes named Philip, was often regarded as its very personication, and the boundaries between him and this businesses indeed proved very blurred indeed. As what some would consider to be a grown small business, MIS provided inspection services to large international company client sites, using an overdraft as its main source of funds. As events transpired, it had constantly experienced liquidity problems, partly due to its proprietors own personal, rather than just business, spending. As the key events here begin, he had requested an increased overdraft, and then persuaded a newly appointed bank manager to raise this from 30 to 100k, on condition of providing additional security (a charge on the proprietors home and company debtors, since the business itself had few assets), unlimited personal guarantee, and improved management control information. The latter in particular had led its proprietor to recruit a new managerial accountant to replace the occasional accounting services and other nancial support provided by another accountant outside, here known as Jim. By developing its accounting capability, the proprietor had intended demonstrating that its management had itself been consolidated around MISs previous business growth. The key players at the time are depicted on Fig. 1 below. Whatever their position, however, few played any part in this decision, as the entry of the new accountant soon revealed.

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Fig. 1. The key players at March 1990.

6. The new accountant entry process In recruiting the new accountant, its proprietor, Philip, talked openly about improving company performance while making various staff changes. It soon emerged that few administration staff had prior knowledge of this appointment or what kind of accounting role it might be. A certain amount of suspicion and resentment were thus apparent from the outset on the basis that certain staff jobs could well be in jeopardy. In the face of her early isolation, the new accountant even considered leaving to allay rising anxiety, but eventually chose to stay and remake the role accordingly. The process of role making duly revealed that, since staff considered MIS to be a proprietorial efdom, the very way they explained how it was managed usually put the proprietor personally right at the centre. Both his everyday actions and relationships were furthermore invested with such personal intrigue and suspense that an informal workplace network overlaid what were relatively underdeveloped accounting systems and procedures anyway. In order to develop those systems and procedures further, the new accountant clearly needed to learn how to manage that network or else risk being bypassed instead. In essence, this new workplace socialization, in contrast to any professional socialization before, sharply underlined just how inuential these personalized relationships and understandings themselves could prove to be. For research purposes, Helen and Laura (newly appointed to replace Mary) became key intimates, and the new accountant carefully recorded her own, and other informants ongoing narratives, as well as other formal data concerning how MIS was really managed and accounted for.

7. Towards initial breakpoint Fig. 2 depicts how further staff changes altered the cast of actors involved. Marys attitude was perceived by most to be a real obstacle to new systems and procedures

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Fig. 2. The changed cast.

changes and Simons frequent absences were problematic. This triggered a reorganisation of workloads and both positions were made redundant. However, Jennys replacement was a personal decision by Philip. In due course, Tracy, Philips most recent girlfriend, replaced Jim as company secretary. While working towards improved formal accounting systems and procedures, on the basis of a growing understanding of what her specialist role should be, it was nevertheless apparent that the proprietors style and intimacies meant that these were still being bypassed and/or ignored. Thus, tensions between personalism and professionalism grew. As well as transferring company designated funds into personal bank accounts, the proprietor also diverted them towards a lavish lifestyle, including expensive holidays and gifts for close female friends. Not even the appearance of such transactions upon cash ow forecasts and controls led to him changing such personalized practices, however. As a result, his indebtedness to MIS itself grew, without the personal resources that would cover it, and MIS was continually drained of cash resources, in breach of its renegotiated overdraft facility. It was unlikely that Jim, an accounting practitioner running his own small rm, and also acting as nominal company secretary of MIS, would himself confront this problem, having earlier provided MIS with a 20,000 loan, duly converted into a personal loan to its proprietor to reduce his indebtedness to MIS, for which no interest was either formally accrued or paid. For accounting purposes, the proprietors liability was recorded as a loan to the director, so that any essential ambiguity remained. Nine months after the new accountants arrival, Jim, a longstanding personal friend as well as business associate, was still preparing management accounts for bank monitoring purposes, showing just how strong those personal ties appeared to be. Even after later proposing to dispense with his outside accounting services, the proprietor promised him the MIS audit work, while he still provided salary preparation and consultancy support. In the interim, the proprietor switched from a big six to a sole proprietor auditor, claiming this would simply mean cheaper audit fees. Relationships still overlaid and inltrated business dealings where a succession of bank managers was concerned. The proprietor deliberately cultivated each successive bank manager with self-styled get to know you and out-of-work socializing sessions that were also intended to be personally obligating. On return to the workplace, any account given to MIS staff assured them about how favourable and supportive the particular bank manager

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was claimed to be. Not even this tactic could eventually obscure the banks closer monitoring of MISs cash situation and the effects of his own continuing unpredictable withdrawals, however. While these unpredictable occurrences did not cause himself particular concern, they increasingly embarrassed MISs new managerial accountant, since they regularly undermined required forward projections, and threatened to compromise working relationships with bank managers. As Jim was still preparing other management accounts for monitoring purposes, using outdated budget projections for comparison, this simply rendered such information increasingly untrustworthy.

8. Organizational double-binds Any explanation for these problematic business occurrences was a sensitive matter. While the managerial accountant desisted from this so far as was possible, the proprietor avoided directly contacting the bank at critical junctures while claiming that I dont know why they want to speak to me. I havent got any information. You know all about it. Caught up in this double bind, the new managerial accountant was thereby exposed to blame-shifting tactics that were becoming more difcult to confront within MIS itself. As the pursuit of accountability intensied, any conict between being subordinate, employee, colleague, and professional accounting specialist thereby increased, with further attendant consequences. Even inspection staff, who were either directly employed, or else subcontractors to MIS, became so concerned about late payments that they called upon its clients own representatives to pursue enquiries on their behalf, because they feared the entire payment process being undermined. They thus invoked the authority of more powerful clients outside in order to access transactions and elicit payments, while sometimes openly threatening to so expose the MIS management that it might then lose such business altogether. As more such deliberate power games became apparent, its proprietor would express his frustration, blame other staff, and yet still commit payments whatever their effects upon cash ow, as if in management-by-crisis mode. In thus distancing himself from any such eventual consequences, and thus not appearing to lose face, he indicated little regret over reneging upon apparent contractual agreements with MIS inspectors, however. Other staff therefore faced the invidious situation of fending off inspectors claims and enquiries while privately realizing the self-liquidizing effects of his own cash drawings upon MISs corresponding capacity to pay. At other times he would tell the managerial accountant of his eventual intention to mend his ways, sell his house soon, or else the possibility that another business associate would lend nancial support, all described in the most promissory manner, with comments like I cant understand why my [personal] account is in such a mess. It never used to be a problem.

9. Escalating misalignment As the centrifugal force behind MISs fast approaching breakpoint, the proprietor thus traversed a ne line between being considered relatively self-serving, or else outrightly misleading and deceiving, both inside and outside the workplace itself. Any rising blame

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shifting further switched the balance towards the latter, so long as real fear and anxiety about the emerging situation prevailed. The very process of accounting for MIS, and being held accountable for it, furthermore implicated both its managerial accountant, and also certain client debtors as well. Any client making late payments was thus deemed proverbially responsible for its rising cash shortage, while those demanding preferential payments were dismissed as whingeing and ungrateful by key MIS staff themselves, whose ambivalence towards the proprietor disclosed their feeling of being simultaneously dependent yet powerless. Degeneration was brought into even sharper focus by an episode when one client erroneously duplicated a payment of 28,000 that was not realized for many months. By then its nances were so precarious that this presented a lifeline, a fact that could not be admitted until some time later. Once again this implicated the managerial accountant in the associated cover up even though, by this stage, other invoiced work required further payment too. Other cover up stories evolved as delaying tactics for dealing with different suppliers and state agencies became part of everyday staff folklore and ction likewise. One intimate rationalized this by saying, The lies Im telling arent mine. Im telling them on behalf of the company, thats all, with the implication that continuing collusion must sufce. This spiral continued because active proprietorial mismanagement meant that other commonly taken-for-granted ways for conducting everyday business were similarly undermined.

10. Transient realignments Despite being considered a proprietorial efdom, MIS was eventually rendered more accountable through a banking intervention but, by that stage, any power to decide its long-term future was fast passing to others outside, however. Any foreclosure was thus temporarily delayed by the effects of the banks attempted intervention over the way MIS nances were best accounted for. This only occurred after its agreed overdraft limit was exceeded, although the new annual accounts also recorded major operating losses for the period before. This intervention appeared particularly dramatic because the reigning bank manager intended reducing its overdraft facility by 5000 per month indenitely. In effect, MIS was considered to be trading insolvent and needed new capital to both eliminate losses and compensate for the proprietors adverse loan account. To reinforce any impression of growing seriousness, the bank manager also insisted upon constant recorded updates about MISs cash ow position, as if its day-to-day survival was in question. The workings of a newly introduced costing system had revealed just how personally dependent the proprietors previous contract pricing decisions had been. On paper this system could provide calculated backup for further contract pricing decisions ahead, from which better cash ow and improved protability might duly result. In combination with the banks intervention, this could effect greater accountability, and also bring key proprietorial decisions under more control. A new budget was then compiled, directors legitimate expenses were curtailed, and MIS protability duly improved, so that cash ow projections appeared more reliable and creditors were paid within its agreed overdraft facility. That facility was reduced for four months, then frozen at 80,000, with a gradual

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relinquishing of control, as if the entire process was thereby suitably realigned and professionalized and more trustful relationships restored. In the event, these changes only proved relatively transient. Even during this critical period itself the proprietor had used MIS designated funds, withdrawing 56,000 to part-repay his personal loan from Jim and for personal use, in this period alone. The very idea of an independent company secretary appeared to be such a misnomer that, when Jim duly resigned this nominal post, the managerial accountant refused to take over, successfully nominating the proprietors close female friend, Tracy, instead. By this time, Tracy had already been entered upon the MIS payroll and the nancing of her car was transferred over to the company itself. With his present property still unsold, Philip began privately house-hunting with Tracy, only for the informal workplace network to reveal his intentions by means of a misplaced fax from his estate agent, causing renewed gossip and speculation about how many more days and weeks MIS might survive. In the event, the 200,000 valued property was re-designated MISs southern ofce without due consultation, leaving the managerial accountant ruminating, There is no consultation. How can I do the job under such circumstances? Where will he nd the deposit? Who is prepared to nance this latest venture? How will he repay Jims remaining balance on the loan? Is he intending to get rid of me because I disapprove and stand in his way?. With year-end accounts under preparation, the new accountant was also concerned about the outstanding balance of 22,500 on an overseas joint venture supervised by Arnold, as Overseas Manager, which the proprietor simply deemed a bad debt. Other intimates maintained they had witnessed him depositing American dollars, obtained through his joint venture associate, into another personal account, however. Despite such evident mistrust and suspicion, the accountant did not then inform the new auditor about this possibility, and this alleged bad debt was partly written off accordingly.

11. Breakdown and exoneration Having been variously marginalized, bypassed, and conicted over what role to play, the new accountant latterly faced up to the possibility of becoming key whistleblower as well, but felt immobilized through the sheer range of dilemmas this posed. For example, not just personal, but other employee and outside small business interests together weighed heavily upon the accountants mind, as did any suggestion of personal culpability, not least if some important part of the story was still unrevealed, while others simply expected nothing else from this type of proprietor anyway. Any previous realignment and professionalization had proved both short lived and misleading without having positive effects upon either decision making or cash ow itself. In combination with Jim and the new auditor, the new accountant had nevertheless enabled Philip to obtain a mortgage on the new property on the basis of MIS prot forecasts, from which 40,000 was withdrawn for the deposit and refurbishments, with MIS then being charged rent equivalent to the mortgage repayment for this newly designated southern ofce. Following non-payment of VAT, customs and excise threatened to wind up MIS, for which reason the new accountant nally decided to resign. Once MIS audited accounts were nally published, the bank then requested a meeting with its proprietor, accountant

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and auditor present together. The auditor refused this request and resigned his auditor position before the proposed meeting. Despite recording a turnaround in reported prots, the auditor had failed to separately identify the directors loan from MIS, which the bank had already realized from other management accounts provided. However, despite knowing Philips debt to MIS, the bank manager only attached blame to its departing auditor, as if he alone was responsible for any such cover up. By the same token, the bank chose to ignore how Philip had earlier introduced his own exclusive mediterranean villa into the accounts as a company asset, in order to reduce his loan account. In the midst of this growing network of collusion (Barlow, 1993), the bank nally demanded its own approved auditors be appointed, and that Philip repay his loan from MIS. His proposal to raise another personal loan was dismissed on the grounds that he was already overcommitted through his personal mortgage. Few then realized that, in effect, this mortgage was being paid by MIS, however, and fewer still owned up to not really understanding such convoluted nancial affairs. In the face of closer questioning and inquisition, the accountant nevertheless refrained from exposing anything beyond whatever could be formally accounted for. Philips further cash withdrawals amounting to 100,000 meant the directors loan nally reached 140,000, and his undeclared tax liability was then probably sufcient to terminate MIS. After leaving, the new accountant was contacted for interview by the inquiry branch of the inland revenue, and took further legal and professional advice about possible culpability, being closely questioned about the overseas joint venture accounts and bad debts written off, the villa and cabriolet situated on the Mediterranean coast, and other known bank accounts. MIS passed into liquidation before its proprietor registered another company that began trading in the same business.

12. Discussion The article argues that smaller businesses are largely sidelined from the current debate about corporate governance. As a result, their activities are less scrutinized than their larger corporate counterparts. It further argues that their small is beautiful idealization affords smaller businesses special case status and promotional support in ofcial policy, even though grassroots evidence has been lacking. The state has nevertheless proceeded to promote a British enterprise revolution and a new enterprise culture and targeted and measured these accordingly. In seeking to bring smaller businesses themselves back from the margins of this debate, the article argues that a critical study of accounting within them might yield valuable insights into, and challenge the validity of, any such exceptionalist special case claims. In the discussion that follows, the article signals a range of issues arising from the study of MIS and from the particular research process undertaken. MIS was a growing smaller business, yet its everyday management generally operated in failure avoidance mode, especially when its proprietor primarily treated MIS as his personal efdom. As such, MIS fell well short of the enterprise ideal, and its study revealed a dark side similar to those scandalous larger corporations shamed previously (Skeel, 2001).

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Its accounting disclosures, assumed to be such denitive statements about success and failure, were far from straightforwardly categoric, let alone denitive either. Nor were they alone the seemingly neutral, value free untainted proof of performance and good governance elsewhere supposed. The MIS auditor seemingly obscured proprietor loans in its audited accounts, the implication of which was sufcient to render MIS insolvent, and further agreed the dubiously categorised bad debts. The auditor also acquiesced to the inclusion of the proprietors personal assets in MIS accounts, performed to give the appearance of a reduced proprietor loan. Similarly, the auditor and the new accountant were drawn into presenting evidence to support the proprietors mortgage application for the new property, as the proprietor contrived to make this a further company asset. Accordingly, any outsiders attempting to ascertain the real state of affairs at MIS could not really depend upon its accounts to determine success or failure. As well as sitting on the fence in later judging success and failure, accounting was previously implicated in the process whereby the conditions for succeeding and failing rst arose at MIS. Cash ow forecasting was not only seriously undermined by unexpected personal proprietor cash withdrawals, but the cash impact of previously committed personal expenses (assigned to the proprietors loan account) appeared on such forecasts supplied to its bank to be used to monitor the secured overdraft and to renegotiate limits. The new accountant was also drawn into the cover up of a duplicated payment from a client and used excuses and delaying tactics to manage working capital. Proprietorial power relations were particularly important (Burns and Scapens, 2000) in socially constructing accounting at MIS. The introduction of a new costing system and more accurate and timely monitoring information could have improved performance. However, this was negated by self-serving personalism and proprietorial power. In pursuing their various interests, key employees, suppliers, customers, bankers and statutory agencies, all were implicated. The bank never realized its potential to control proprietorial power and personalism. Employees were eventually embroiled in cover ups and were ambivalent about who to blame for the failing situation, being concerned about either revealing too much or not much at all, as they struggled to maintain working capital. Suppliers and clients were kept in a state of uncertainty, while state agencies only exerted greater pressure as failure became more apparent. The closeness of the former company secretary and the proprietor, and the plan for auditor succession, reveal key insights about such relationships as well. But, despite exerting further hierarchical and relational accountability (Ritchie and Richardson, 2000) most were still unable to control or modify the proprietorial power that rendered MIS a personal efdom ultimately doomed to fail. Equally, MIS challenges the conventional distinction between success and failure, in keeping with earlier researchers like Collins and Moore (1964), KetsDeVries (1977, 1996) and Miller (1990), on the grounds that one led towards the other, and neither was that clearly recognizable for very long. This creates difculties for invoking appropriate outside intervention. At MIS a series of outsiders were uncertain about its exact position, while insiders were never condent that any short-term improvement in performance was sustainable, given the proprietors personal dominance. In any event, failing was not simply a dysfunctional consequence of individual managerial capability failing to develop in line with business expansion, it had its deeper and darker personal side too. In this

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respect, the proprietor for a while seemed particularly capable of managing a network of collusion (Barlow, 1993). This darker side of MIS is somewhat at variance with the small is beautiful idealization of smaller businesses. MIS employees experienced real emotional and economic consequences from working for a self-gratifying proprietor whom they felt they could hardly inuence. Under continuous cash shortage, often resulting directly from his behavior, they also felt drawn into his network of collusion. They were suspicious of particular aspects of the business, yet felt unable to make any effective change, and they felt insecure and culpable amid growing suspicion and resentment. Outsiders likewise had little tangible evidence about MIS to inform their position. Consequently, suppliers experienced late payments and ultimately bad debts, and the auditors reputation suffered. More evidence about success and failure is therefore necessary to fully justify the exceptionalist special case treatment of smaller businesses at large. Paradoxically, in treating all smaller businesses as a special case, whereby less frequent and less detailed disclosures are required, particular smaller businesses like MIS escape the more intensive scrutiny some would apply to their larger corporate counterparts. Even so, the bank had access to those management accounts of MIS, which should have alerted it to the growing problem of the proprietor loan. The formal accounts produced and audited by the sole trader auditor were indeed of little use in identifying the exact situation at MIS but did stimulate further investigation, once it recognized the untoward non-disclosure. But any action was seemingly too late, insufciently inuential, or inadequately pursued to reverse any failing process that had then taken hold. As a narrative, MIS provides much contextual description, which, it is argued, is necessary for understanding the above issues and can inform further debate. However, like the story of MIS itself, the research process might be considered unusual as well. For example, it is rare to have the perspective of a reective practitioner, purportedly employed to professionalise the management of an apparently successfully restarted, already grown and still growing small business. It is equally unusual to conduct a real time investigation during the actual process of failing itself. As such, in discussing the methodological problems encountered, the paper can inform debate about researching smaller businesses and success and failure specically, and also the debate about critical accounting research in general. Thus, the article not only presents a story about MIS, but also a story about the research process itself, and it is the power of the story (Humphrey, 2001) that can potentially distinguish the articless contribution. In sharing this research experience, other critical researchers too might take up the challenge to engage with practice more (Humphrey and Scapens, 1996; Owen et al., 1997; Humphrey, 2001), and may even shift their larger corporate focus to smaller businesses instead.

13. Conclusions The contemporary British Enterprise Revolution and new enterprise culture would seemingly together rewrite the rules of the game where accounting for smaller businesses is concerned. At the margins of the wider corporate governance debate, smaller businesses appear much less scrutinized than their larger corporate counterparts, even

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before further special case pleading to reduce their disclosure and regulatory requirements takes effect. So far, research has not really questioned such issues, preferring to adopt a more conrmatory, rather than critical, approach that virtually accepts the special case agenda as it stands, so that some such policies are doomed to succeed (Storey, 2000, 2003). This article has challenged such issues, via the story of MIS and the research process itself. In striking at the very heart of the personal nature of smaller businesses (Curran and Blackburn, 2001), it has demonstrated how proprietorial dominance can pervade the smaller business, sometimes in dark and destructive ways. It has shown how accounting professionals and accounting itself can be drawn into, and often be made culpable for, frequent acts of organizational misbehaviour (Ackroyd and Thompson, 1999), as the margins of success and failure are negotiated and variously disclosed through the co-production of accounts. It has demonstrated how relationships between the smaller business proprietor and its auditor (often, in effect, a small business proprietor themselves) can be constructed. It has also demonstrated the relationship that can develop between the smaller business proprietor and the bank, and the role it plays and/or might play in the process of smaller businesses succeeding and failing. These insights suggest that the critical study of accounting in smaller businesses could indeed yield valuable insights into and challenge the validity of those exceptionalist special case claims for smaller businesses. More such studies would seem to be needed to bring smaller businesses from the margins of any debate about corporate governance, and to contest any special case status that they seemingly enjoy.

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