The MPs’ recommendations follow their inquiry into the collapse of the retailer BHS last year. This privately-run retailer went into administration when its pension fund was in deficit. The MPs have blamed poor management decisions – such as Sir Philip’s Green’s sale of the business to a retail novice – on the firm’s collapse and the state of the pension scheme.
In its response to the government’s green paper the select committee said it believes the Financial Reporting Council’s corporate governance code which currently applies to publicly listed companies should be extended to large private companies and those with over 5,000 defined benefit pension scheme members.
The MPs also want pension scheme trustees – who must work for the benefit of all pension fund members – to be included in section 172(1) of the Companies Act 2006 so they form part of the list of stakeholders to whom they must have regard in the course of their duties. The select committee said, the inclusion of pension scheme trustees in section 172 may increase the chances both that directors would take into account the interests of current and future pensioners in carrying out their duties and that those who have failed to do so will be held accountable in the courts.
Finally, the select committee recommended that future Insolvency Service reports should be published when there is significant public interest in publication.
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.”
The select committee published a broader report on defined benefit schemes last December which already provided a series of recommendations which it believed would prevent a similar occurrence in the future including making improvements to The Pensions Regulator. The select committee believes there is a strong case for mandatory clearance when corporate changes could damage a pension scheme. The MPs are recommended that the government consult on rules regarding the size of the pension deficit relative to the value of the company and the viability of the ongoing plan for supporting the pension scheme as the basis for a mandatory clearance.