In Blog

What is the greatest risk to reputation? It must surely be that people decide you cannot be trusted to deliver on your promises. Relationships, both personal and commercial depend on trust as a fundamental commodity. Whether you buy from a market stall or a department store if you pay for goods in advance you expect them delivered or failing that your money back. This is a not simply ethically right it makes good business sense as it preserves trust.

About 45 years ago the UK sold a supply of military hardware to Iran then under the regime of the Shah. The Ministry of Defence managed to secure payment in full in advance – not simply a deposit – but the full amount, now calculated at around £400million. In 1979 the Shah was deposed and the UK government decided not to fulfil the order to the new regime of the Ayatollah. The UK also decided to keep the money and haggle over its repayment. 

There have been 18 Secretaries of Defence since 1979, any one of whom could have acknowledged the debt and approved its repayment. Twelve conservative and six labour cabinet ministers responsible for defence either declined or deferred repayment thus delaying the settlement. The current secretary, Ben Wallace, who has been in post less than a year, deserves credit for finally acknowledging the outstanding repayment that has festered for 40 years.

In 2008 an international arbitration ruled that the UK owed the debt, but for the past 12 years the MoD has argued that the debt is invalid as payment would breach US trade sanctions with Iran. This argument adds a political overlay to what should be a simple commercial or moral settlement. Payment was made in advance for goods ultimately not supplied, so a debt is owed. It should not be an issue about the character of to whom the debt is owed, but the fact that it is owed at all.

How much damage this transaction has done to the reputation of the UK as a trading partner is not something on which I can comment. Politicians in the UK would claim it has little or no bearing on future trade deals.  However as the UK appoints a new foreign trade advisor, Tony Abbott, at the same time the debt is admitted for the first time in 40 years, you have to raise eyebrows as to the timing co-incidence of the two events. Maybe reputation is important after all, but it is a bit late to try to restore trust once it has gone. The damage probably exceeds this particular repayment sum.