Our new Prime Minister has promised to get “tough on irresponsible behaviour in big business”. The report today of our joint Select Committee on the collapse of BHS offers a case study of what can go wrong at a company almost 90 years old and why she is right that government must react.
After over 20 years in international business, I thought little would surprise me. But what emerged from the evidence of the long, and ultimately unhappy, saga of BHS under Sir Philip Green’s stewardship was worse than I expected.
We learnt, above all else, that BHS was run like a medieval fiefdom, with absolute control by the Boss, shaky governance, and only lip service responsibility to its defined benefit pension fund.
The story of the pension scheme in fact mirrors the business, which lurched from profitability to loss (1999-2006), then financial crisis and now administration. The pension scheme went from (£43m-plus) surplus to (£350m-plus) deficit and was then steered to the care home for defined benefit schemes – the Pension Protection Fund where benefits are reduced. For almost ten years previously, Green had said at various times, and to different people, that he would sort out the pension fund. But when push came to shove, he never did so and 20,000 pensioners may get less deferred salary as a result. Why?
Green had no need to do anything originally, when the business was enjoying a contribution holiday, and only focused when the scheme went into deficit. He considered insurance buyout solutions, and then a wider solution (Project Thor), which might have worked if he had given enough information to The Pensions Regulator (TPR). But as the chairman of the scheme trustees noted, Sir Philip objected to TPR “trawling through ten years of Bullshit”. His proposal for staggered injections over 23 years stretched belief: and he then rushed through the sale of the company to a totally inexperienced retailer, without telling either the chairman of the trustees or TPR. The evidence suggests Green was as keen to be shed of the pension scheme as the business, and that Dominic Chappell was steamrollered into agreeing the terms, through greed and naivety.
There is a wider issue here – of what would prevent other owners of companies with defined benefit schemes from selling their businesses in a hurry, regardless of their obligations. That’s why I strongly recommend it be mandatory for TPR to report on the health of the pension scheme for any potential buyer of a business with a defined benefit scheme, just as a mortgage lender requires a valuation of a property: then everyone knows exactly what the situation is.
As it is, we are left with Green’s word that he will see the pensioners right. After hearing that Green told Chappell, eventual buyer of BHS, that he would get the company “pension free”, I wouldn’t bet the ranch on this happening. Green’s reputation hangs on a thread. I hope he seizes the moment to do the right thing and inject enough capital into the scheme for it to continue outside the PPF, without members taking a haircut. It would be the best result of a long inquiry into one of Britain’s less glorious corporate episodes.