MPs to investigate corporate governance in wake of BHS criticism
MPs intend to undertake investigations into corporate governance of private firms and greater regulation of pension funds following a highly critical report into the the collapse of BHS. The report calls former owners Sir Philip Green and Dominic Chappell the “unacceptable face of capitalism,” claiming that Green had enriched himself at the expense of the firm. Its findings are expected to increase pressure on Green to personally contribute to the pension fund, which is currently facing a shortfall.

BHS was subject to “systematic plunder” by former owners Sir Philip Green, Dominic Chappell and their respective “hangers-on”, according to MPs, leading to the collapse of a company that once employed 11,000 people.

A damning report published on Monday after weeks of evidence from former executives and advisers says the “tragedy” of BHS was the “unacceptable face of capitalism” and raises questions about how the governance of private companies and their pension funds should be regulated.

All BHS’s remaining stores will close by the end of August after the department store group went into administration in April leaving a £571m pension deficit. Green sold BHS for £1 in March 2015 to a consortium led by Chappell, a serial bankrupt. The retailer failed 13 months later.

Green’s business reputation is torn apart in the report put together by MPs on the work and pensions select committee and the business, innovation and skills (BIS) committee, who concluded there was “little to support the reputation for retail business acumen for which he received his knighthood”.

Their conclusions are likely to add to pressure for Green to make good the pension shortfall or be stripped of the honour which the Cabinet Office on Friday confirmed was being reviewed.



The shadow chancellor, John McDonnell, said: “If Philip Green won’t do the right thing by the members of the BHS pension fund then he should have his knighthood removed. And if he says he can’t afford it then he should sell up his extra yacht.”

Frank Field, the chair of the work and pensions committee, said: “[Green’s] reputation as the king of retail lies in the ruins of BHS. His family took out of BHS and Arcadia a fortune beyond the dreams of avarice and he’s still to make good his boast of ‘fixing’ the pension fund. What kind of man is it who can count his fortune in billions but does not know what decent behaviour is?”



MPs said Green had “systematically extracted hundreds of millions of pounds from BHS, paying very little tax and fantastically enriching himself and his family, leaving the company and its pension fund weakened to the point of the inevitable collapse of both.”

Green was found to hold prime responsibility for the pensions black hole after years of refusing to provide sufficient funding, despite pleas from the fund’s independent trustees.

The report urges Green to bring about a swift resolution to the financing of the BHS pension fund by making “a large financial contribution”.

“He has a moral duty to act, a duty which he acknowledges. We still do not doubt that Sir Philip has heartfelt affection for BHS. To an extent it created him; it could also bring him down,” MPs said.

Green last week set out a robust defence of his stewardship of BHS, claiming he put £421m into the group during his 15 years at the helm.

But MPs found the demise of BHS was the result of “a series of bad business decisions and personal greed”.

“Sir Philip Green, Dominic Chappell and the respective directors, advisers and hangers-on who all got rich or richer are all culpable, with the only losers the ordinary employees and pensioners,” their report concludes.



Dominic Chappell. Photograph: PA

MPs said Chappell had put no money into BHS and “had his hands in the till”, personally taking £4.1m from the ailing company in 13 months of ownership including a £1.5m interest free loan, secured against his father’s house.



Iain Wright, the BIS committee chair, said: “BHS’s demise has created many losers, particularly the 11,000 staff facing the loss of their jobs and the 20,000 pensioners facing significant reductions to their pensions. The actions of people in this sorry and tragic saga have left a stain on the reputation of business which reputable and honourable people in enterprise and commerce will find appalling.”



The committees said they would support investigations by the Financial Reporting Council, the Pensions Regulator, the Insolvency Service and the Serious Fraud Office.

The Pensions Regulator said its “anti-avoidance” investigation was continuing and it expected to have made significant progress by the end of this year. “Discussions are ongoing with various parties,” said Lesley Titcomb, its chief executive.

MPs plan to launch two new investigations that will examine regulation of the corporate governance of private companies and whether there should be more proactive regulation of pension funds.

“Some of the failures which allowed this to happen are not unique to BHS. Its lessons merit broader consideration of the framework in which companies operate,” the report says.

Their plans are likely to be supported by Theresa May, who has pledged “to make our economy work for everyone by getting tough on irresponsible behaviour in big business”.

Weak corporate governance at Green’s Taveta group, which was run as a “personal fiefdom by a single dominant individual”, according to MPs, meant there was little independent oversight or challenge to decisions.

They suggested Green had acted to conceal the true state of the BHS pension fund’s problems from Chappell’s Retail Acquisitions group and said his account of talks to sell BHS to a convicted fraudster, Paul Sutton, did not tally with that of his former adviser Robin Saunders.

The eventual sale of BHS to Chappell – a former bankrupt and business associate of Sutton who had failed to meet Taveta’s own hurdles in terms of providing equity, working capital and a credible retail frontman – went ahead without Taveta’s chairman, Lord Grabiner, even knowing about the deal.

Grabiner, a high-profile corporate lawyer, was criticised for having a “remarkably docile attitude” and representing the “apogee of weak corporate governance”.

“He was content to provide a veneer of establishment credibility to the group while happily disengaging from the key decisions he had a responsibility to scrutinise. For this deplorable performance he received a considerable salary,” MPs said.

Under Green’s control, BHS struggled to cope with tough conditions on the high street as he failed to invest sufficiently in stores or reinvent the business. MPs said the early rise in profits under his leadership was the result of cost cutting and asset sales and that paying out substantial dividends, mainly to Green’s wife Tina, who lived in the tax haven of Monaco, had weakened the ability of the business to keep up with its competitors and tackle its rising pension deficit.

They noted that companies controlled by Tina Green and registered in the tax havens of either Jersey or the British Virgin Islands continued to make millions of pounds from a loan which was used to help sell the business from one of the group’s entities to another. Last year, she earned £8.3m, or 8% interest, on the £200m loan to Taveta made in 2009 on top of a £20m per year loan repayment.

As BHS’s pension fund deficit soared, Green decided to offload the business rather than answer the Pensions Regulator’s questions about the money extracted from the business.

As Chappell struggled to come up with the finance necessary to finalise the buyout of BHS, MPs said Green had attempted to make good those inadequacies to facilitate the sale. “He was both sides of the deal,” their report concluded.

They said that contrary to evidence from Green’s lieutenant Paul Budge to MPs that Chappell was a new bidder who “started from a clean sheet of paper”, it was clear that he had picked up the plans of Sutton “with the full knowledge of Arcadia board members”.

While Green insisted in his evidence to MPs that BHS was offloaded with a healthy balance sheet, they concluded there was “simply not enough cash in BHS to give it a realistic chance of medium term survival”.

Having gained control of BHS, Chappell’s Retail Acquisitions also suffered from “feeble” corporate governance and its board was peopled with friend’s and family of the former bankrupt.

Under their stewardship, Retail Acquisitions charged £11m to BHS in the form of salaries and fees while a string of directors jumped ship or failed to fulfil their responsibilities despite “profiting handsomely” from their positions.