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What Is The Connection Between Business And Plimsolls?

Jan 16, 2008
The business account has been around since the beginning of business. It was very quickly established that business dealings had to be kept separate from personal accounts as it was essential for early rulers to be able to keep abreast of tax debts.

But what about when business's were in trouble? Along with business accounts to keep track of business finances came the ability to doctor these accounts and defraud insurance companies.

This was a common occurrence in shipping. When a business was in trouble and the owner looking for a way out, export ships would be over laden with goods in the hope that they would sink. This led to fraudulent insurance claims and the term 'coffin ships'.

To put a stop to these claims, English politician Samuel Plimsoll invented the Plimsoll Line. Not, as commonly believed, a mark on the floor of the school gym, but a system by which ships loads could be measured depending on the type of water they would be sailing in.

Different levels are painted onto the sides of ships to discern how much cargo can be loaded depending on whether the ship will sail in tropical fresh water, summer or winter sea water, tropical sea water or winter North Atlantic sea water.

This system has been adapted over the years to accommodate various types of cargo and modern advances in ship building but the Plimsoll line is still adhered to by law and the business accounts of insurance companies have a degree of protection because of it.

Occasionally, big business's still make the news with the fraudulent dealings of their business accounts. Not so long ago, the biggest bankruptcy case in US history made headlines when its founder was sentenced to a 25 year jail term for his part in the collapse of the company.

WorldCom were at the centre of these headlines and their deceptive business account was said to cost some 20,000 workers their jobs and shareholders lost an estimated $180 billion. This had an enormous knock on effect to hundreds of thousands of people as the families of the workers were suffering too. Many of WorldCom's employees found it difficult to secure another job due to the loss of trust associated with their former employer.

Many telecoms companies business accounts were looked into around the same time as many of them were responsible for handing our extortionate pay cheques. This was one of the contributing factors that led to the downfall of WorldCom, with its chief executive receiving a $50 million golden handshake, a $400 million personal loan as well as use of the company's corporate jet for a paltry $1 a month.

Laws were introduced after the scandal of these badly handled business accounts to try and reduce the likelihood of company directors having the power to cause the downfall of so many people again. However, these laws have been criticised as being too harsh.

A report on the business accounts of US companies has resulted in the recommendation that shareholders have a more active say in the accounts of their investment including voting on director's pay. The structure of the director's board is also set to change with no director serving for longer than 10 years and a new director joining each year.

Of course, the type of fraudulent accounting as laid out above leads to disaster but is not beyond recovery. WorldCom now trade as MCI and its new directors have been implementing the recommendations but, they say, they are struggling to regain the trust of the people.

A business account is a necessary part of corporate dealings but should be closely monitored and regulated for the protection of all involved.
About the Author
Expert banker Catherine Harvey looks at the business accounts of some of the larger companies. To find out more please visit http://www.lloydstsbbusiness.com/accounts/index.asp/
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