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Marketing folk tell you the reputation of a company is not destroyed by the mistakes it makes, but by the way it recovers having made one.
People are not surprised when things go wrong. It happens. But if a business shows genuine remorse, seeks immediately and without argument to put right the wrong and takes steps to make sure it does not happen again, the chances are it will emerge with its reputation enhanced rather than damaged. But if it argues and wriggles, seeks to avoid responsibility or pass the blame onto someone else, it fools no one and is never thought of as highly again..
By these yardsticks the Financial Services Authority ought by now to be getting some credit. It was caught out by Northern Rock, but it admitted as much and put in place a plan for improvement. In its annual report published yesterday chief executive Hector Sants claims that since Northern Rock last August the regulator has performed well. It has ensured the institutions it supervises have reacted immediately and effectively to ever-changing market conditions and intensified its engagement with individual banks so it has been on top of any emerging problems. Overall, it has demonstrated it has the ability to operate swiftly and flexibly in a time of turmoil and that, says Sants, is an excellent model for the future.
He has a point. Perhaps when there is a mistake a tougher standard is set for regulators. But the last thing London needs is a regime structured to avoid failure at all costs. It would be the equivalent of imposing a 10 mph speed limit on the motorways to avoid fatal accidents. It would work, but would defeat the point of having the motorways.
Most people will accept this. But in the heat of the moment, or under political pressure, or out of opportunism, or perhaps even to settle some old score they use the mistake as a crowbar to deliver wrenching change. In the past when doctors did not understand the diseases they were treating they managed to kill their patients. Politicians too often behave like ancient doctors.
This is the real worry for London. In the FSA report, outgoing chairman Sir Callum McCarthy says: "Separation of supervision of banks, securities firms and insurance companies in any form would be a retrograde step which would cost the UK dearly." The fact he feels the need to say it is a warning of how close we might be to turning the Northern Rock mistake into a City- wide disaster.
Southern Cross shows the pain
It is one thing to talk about the theory of de-leveraging - the process by which debt is sucked out of the economy - it is another to see its effects in practice. Yesterday, shares of Southern Cross, a care homes group, crashed by 80% at one point, from an opening price of 315p to a low of just 48p, though they did bounce back to over 100p where they were merely 66% down.
Care homes, one might think, are far removed from the world of finance, housebuilding and consumer spending - the obvious casualties of the credit squeeze - but in this case, not far enough. And in fact what this crash underlines is how deeply the addiction to debt, and the assumption credit would always be freely available, has penetrated all corners of the economy.
Trading has been disappointing and that is a problem, but the Achilles heel in this case is property and the group's plan hatched in happier times to sell and lease back some of its homes and use the proceed to pay down bank debt.
It was the kind of thing that could have been done easily a couple of years ago when banks were only too happy to lend against real estate. Now, of course, it is the opposite - few want to buy, and no one wants to provide the finance. So the company is stuck with the property and deprived of the planned means of repaying its debt.
It may be that something will turn up. Southern Cross's bankers may be understanding or it may be that the group will have to slash its prices to a level where it can find a buyer.
Either way, Southern Cross is a timely warning of what lies ahead. It may be the first heavily indebted company to be thus exposed; but it is unlikely to be the last.
