Would you buy shares in Great Britain Ltd?

Let�s imagine a friend or financial adviser called you up and suggested you invest your life savings in a company called Great Britain�Ltd (GBL).

Your first question�might be, �could you tell me a bit about�GBL’s management?�

�Well�, your contact replies, �the CEO used to work in the PR department and has never run a major organisation or even department before. But he�s a really nice guy and very popular. The Financial Director is one of the CEO�s closest chums, but�has no financial qualifications � in fact he�s a history graduate with no real work experience�.

�What about the management team? Surely they know what they�re doing?� could be your next question.

“Umm,� your contact hesitates for a moment, �actually most of them have been caught fiddling their expenses and using company money to pay partners, friends and children as supposedly working for them. And they�ve been pushing for more generous expenses and a 30%�to 40%�pay rise even though GBL�s results get worse every year and its share price has fallen by about�40%�compared to�similar companies�.

By now, you�re not feeling too excited about the prospect of investing your cash in GBL. But, just in case there�s something you�ve overlooked, you ask, �what�s GBL�s financial situation like?�

There�s a long silence, then finally your contact admits, �unfortunately GBL spends �720bn for every �600bn it earns, its debt is rising by �120bn a year and markets will soon lose confidence in GBL�s management. In just five years from 2010 to 2015, GBL�s debt will rise from �700bn to �1.4trn�and soon the company will only be able to borrow�money at almost extortionate rates of interest. Unless GBL�s management do something pretty drastic and do it quickly, GBL may go� bankrupt�.

Hearing this, you politely suggest that there�s no way you�d consider putting your hard-earned money into a seemingly obvious disaster like GBL.

�Ah,� your contact quickly replies, �it�s not as bad as it looks. There�s a very strong rumour that a new management team will be taking over GBL in May 2015�.

By this time, you�re pretty doubtful this will improve the situation. But nevertheless, out of politeness, you ask, �what�s the new management team like? Have they a better record than the current bunch?�

�The person likely to be the next�CEO is quite young and�was most people�s second or even third choice for the job.�He was very close to the previous Financial Director who got booted out 3 years ago when GBL got into severe financial difficulties. He has little to no experience and isn�t really that impressive. In fact, most people think he�s a bit of a nerd,� your contact hesitatingly reveals. �And the next Financial Director was�a key and influential member�the last management team. During a time when business was booming, they unfortunately more than doubled spending while revenue only increased by about 60%�and they doubled GBL�s debt from �350bn to over �700bn even though sales had never been so good. This meant that when business conditions worsened, as they always do after a period of unusually strong growth, GBL got into real financial trouble and the whole of the previous management team was replaced�.

�So,� you ask your contact, �you�re telling me that key members of the team responsible for wrecking GBL�s finances will soon be back in their management roles?�

�Yes,� you contact replies, �but although they won�t admit to making any major mistakes last time they were running GBL, they�ve promised to be a little more careful if they take over in 2015. So, it�s a great investment with a great future�.

Being a rather cynical person, you�re not convinced and decide to put your money elsewhere.

Now, I don�t know whether comparing a company with a country is valid. But what this little parable tells me is that I should be getting out of sterling, as neither of the two management teams likely to run Great Britain�has a track record of success. And neither has either the ideas or the courage to solve Great Britain�s financial problems.

What are you going to do?