12th February 2017
A committee of MPs has called for companies with an important social impact to face new governance and reporting requirements in a bid to avoid a repeat of the BHS fiasco.
The work and pensions select committee wants the requirements currently faced by publicly listed firms to be extended to large private firms and those with more than 5,000 defined benefit pension scheme members.
The committee also says company directors should have a new duty to pension fund trustees, as the representatives of pension scheme members. The committee believes that these measures allied to the more substantial recommendations on pension law and regulation in a previous report published in December 2016 will reduce the chance of another company collapsing in the manner of BHS.
The Committee notes that publicly listed companies are required to comply with the Financial Reporting Council Corporate Governance Code and its reporting requirements or publicly explain why they are not. It argues that his is a proportionate approach for companies of social importance. Transparency about governance arransigements, performance and risk can better equip stakeholders to hold company directors to account. It also argues that wider awareness of the state of the BHS pension schemes may have pressured Sir Philip Green into taking more reparative action, sooner.
The report includes a table of the top 30 largest private companies in the UK, with many household names like John Lewis, Clarks, Matalan, Virgin Atlantic, River Island, Pret a Manger – and the Arcadia Group – that would fall under the parameters of this recommendation.
It adds that pension scheme trustees should be added to section 172(1) of the Companies Act 2006 in terms of directors’ responsibility. It adds that: “The incomes of pensioners in retirement are reliant on the sustained success of the sponsoring company but they are at particular risk of being neglected in corporate decision making as no one makes the case for former employees.”
Frank Field MP, Chair of the Committee, said: “For a company with a big social and economic footprint like BHS it is simply not enough to be accountable to shareholders – particularly when one shareholder owns most of the stock. The sorry tale of its sale and collapse, putting 11,000 people out of work and leaving a pension fund £571million in the red, with 20,000 pensioners facing an uncertain financial future, was a result of gross failures of corporate governance. Would the story have played out the same way if its directors had to be open about the financial decisions they were making for its future? The finances and leadership of a company with so many people depending on it should be open to scrutiny.
“We have already expressed our grave concerns about corporate governance in the Green empire, and we know the Arcadia pension fund is also now in substantial deficit. We have been pressing Arcadia’s directors and pension trustees for detailed information on their schemes but very little is published and neither the company nor the trustees – who unlike the BHS schemes do not have an independent Chair – will tell us. Does Sir Philip not want us to know that he was being relatively generous to the Arcadia schemes while the BHS schemes floundered and the company headed inexorably for insolvency? Was he neglecting both? It can’t be right that basic information like the schedule of employer contributions and the length of the recovery plan is not in the public domain. If it goes under then levy-payers and pensioners foot the bill.”
Sisters Food Group
Bakkavor Group Ltd
TJ Morris Ltd