Business failures decline

Nation's Business, April, 1988 by Joan C. Szabo

The business-failure rate is declining after eight years of increases, the Dun & Bradstreet Corporation reports.

The number of business failures in 1987 fell to 61,236 from 61,601 in 1986, preliminary figures show. In contrast, failures increased by 7.6 percent in 1986 and by 9.9 percent in 1985.

The turnaround is an outgrowth of the economic situation, says Joseph W Duncan, D&B's corporate economist and chief statistician. "The current pattern of business failures underscores the fundamental strength of the U.S. economy," he says.

The failure statistics include bankruptcies, foreclosures and court-ordered receiverships. Most of the firms that ceased operations are small to medium-sized.

Only two industry sectors-services and agriculture-reported an increase in business failures. Failures in the service field increased 14.6 percent, and in farming they rose 42.9 percent.

Business failures in the service field reflect increased competition and falling demand as many large firms cut spending on services in connection with cost-control efforts.

The substantial growth rate of failures in agriculture is a direct result of the introduction of Chapter 12 of the bankruptcy code in November, 1986, Duncan points out.

Chapter 12 protects family farmers from creditors while they reorganize their debts. Before Chapter 12, most farmers had no choice but to liquidate assets to meet creditors' demands.

By region, the Pacific states reported the largest decrease in failures, down 8.4 percent to 12,449 from 13,597. Substantial declines in failures occurred in Washington, Oregon and Hawaii.

Failures in the South Atlantic states posted the largest increase among all the regions in 1987, up 11.4 percent.

In New England, which led the current economic recovery, failures were down 6.3 percent. Significant decreases were reported in Connecticut.

In the Mountain states, business failures were down 0.6 percent. And in the industrial states of the Midwest-Illinois, Indiana, Michigan, Ohio and Wisconsin-the overall rate of failures decreased 0.9 percent. The biggest drop was posted in Wisconsin, where failures declined 20.9 percent.

Duncan says that the industrial Midwest "will be one of the bright spots in 1988 as exports play an increasingly important role in contributing to total U.S. economic growth."

From Exec to Entrepreneur

The number of discharged managers who have started their own businesses has increased dramatically, according to a new survey by Challenger, Gray & Christmas, Inc., an outplacement consulting firm in Chicago.

"Our survey indicates that one in every five or six discharged managers is going into business for himself, compared with 1 in 14 in 1985," says James E. Challenger, founder and president of the company.

The results are based on a survey of 600 managers discharged from companies with sales volumes ranging from $30 million to over $1 billion.

Challenger says one factor contributing to the growing trend of becoming your own boss has been the Reagan administration's emphasis on entrepreneurship. "The administration has promoted individualism, thrift and other characteristics of the free-enterprise system," he says.

In addition, he believes today's would-be entrepreneur is likely to have a smoother path if he or she has support from a working spouse. "The spouse who also works is familiar with the ways of business and is not likely to complain about long working hours and periods away from the home to run a business."

Banning Polygraphs

A business coalition spearheaded by the U.S. Chamber of Commerce is hoping for a presidential veto of legislation that would bar private-sector polygraph testing of job applicants.

The Senate recently passed a polygraph bill by a vote of 69 to 27; the House approved a tougher version in November. After differences between the two measures are reconciled in a Senate-House conference, the legislation will be sent to President Reagan.

"The U.S. Chamber is mobilizing members to urge the President to veto the bill," says Roger Middleton, the Chamber's counsel for corporate policy.

The polygraph has become an invaluable tool for business in deterring workplace crime and identifying security risks among job applicants, says Albert D. Bourland, the U.S. Chamber's vice president for congressional relations. It is estimated that employee theft increases the cost of goods sold to consumers by as much as 15 percent.

One employer, Days Inn of America, told a congressional hearing hat polygraph testing has helped to reduce the cost of employee theft by more than $1 million a year.

The polygraph is useful in other ways, Bourland notes. Day-care centers, for example, must be able to screen job applicants in order to try to avoid hiring anyone who might later abuse children. "Public-utility companies, chemical plants, airlines and railroads are only a few examples of the industries that need to be able to screen prospective employees to help avoid public disasters," he says.

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