Harland, a listed systems controls company, has insufficient independent directors who can review its problems with the detachment that shareholders, employees, customers or suppliers would expect.
Though the chairman and finance director have been replaced recently, David Mahony, the new chairman, has held the job before and George Neophitou, the finance director, was an internal appointee. Neither is independent.
There is only one non-executive director, Jack Strowger, and he is 76. He will step down when another non-executive is appointed.
It is the relationship with Perfect Information that deserves special scrutiny. Despite its name, information about this private company is less than complete.
How can it afford to buy so much expensive equipment from Harland Simon? Who are the other shareholders in Perfect?
Even though Harland has now bought 63 per cent of Perfect, it remains unclear who controls shares held by Sandford Etablissement, a Liechtenstein trust. Harland says that, despite strenuous efforts, it was unable to provide formal evidence of the beneficial ownership of shares held by Sandford, which has been a major stakeholder in Perfect. As a result Harland's accounts will be qualified.
At last Harland says it intends to consolidate Perfect in its accounts. It is a pity it has not taken this step before.
Harland founded Perfect, an on-line news-cutting service, with help from Birol Nadir, son of Asil. Harland has previously owned 50 per cent of the firm. Its finance director and company secretary occupy the same positions with Perfect.
The private company has received funds from Harland and from its pension fund (now reimbursed by Harland). And it has financed its purchases from Harland by selling the equipment it has bought and leasing it back. At one stage last summer, Harland was guaranteeing lease finance worth pounds 6.7m - a third of the group's net assets then. Harland was effectively guaranteeing its own sales and its own profits.
On Thursday Harland announced a pounds 6.3m loss, pounds 10m worse than depressed expectations. This was partly because of a pounds 5.1m write-off covering the pension fund reimbursement as well as future losses and money that Perfect owes Harland for supplying computer equipment. Harland has also paid a Swiss company pounds 193,000 to unwind the highly complex deal through which Sandford acquired its stake last year.
Harland's shares have lost 94 per cent of their peak value this year. Shareholders have an interest in acting before they lose yet more of their money.Reuse content