The scathing report issued by MPs on the collapse of BHS and the loss of up to 11,000 jobs raises questions about the future of corporate governance in the UK.
MPs from the work and pensions and business, innovation and skills select committees said Arcadia boss Sir Philip Green’s greed and disregard for corporate governance is ultimately to blame for the demise of the high street chain.
Neil Saunders, chief executive at retail analyst Conlumino, said the report serves as a warning to other retailers: “No business can act as it wants and not get held to account at least in a reputational way. In the long term there will be a lot more scrutiny on how firms are governed.
“There’s a sense that [prime minister] Theresa May will have a review of corporate governance and boards will be held more to account for their actions.”
He added: “Public retailers like Tesco and Marks & Spencer will now be taking another look at their structures and practices to make sure they are whiter than white. The public is getting very tired of this type of behaviour and retailers need to think of the risk of reputational damage.”
A spokeswoman for May said the BHS case was “concerning”, adding: “The prime minister has already set out that we need to tackle corporate irresponsibility, reform capitalism so that it works for everyone not just the privileged few. That means in the long run doing more to prevent irresponsible and reckless behaviour.
“The prime minister’s focus goes broader than one individual or one issue. She is determined that we tackle corporate irresponsibility across the board.”
As retailers mulled the implications, trade union officials pointed out that the more immediate concern is what will happen to the chain’s current and former employees, given the loss of jobs and the £571m pension deficit.
Dave Gill, national officer at Usdaw, said: “Many BHS staff have given their whole working lives to the company and they must be feeling devastated and totally let down. While we are aware that the administrators are continuing to seek a buyer who will hopefully be able to secure the future of the staff in the remaining stores, we are increasingly concerned as time goes on.”
He added: “Sir Philip Green made two promises to BHS staff after the company went into administration. First, to offer employment within the Arcadia Group to the blameless, dedicated and loyal staff who suddenly find themselves unemployed. Second, to sort the pension scheme and we await details of what he proposes. We need him to come good on these commitments as soon as possible. In the meantime we are providing the support, advice and representation our members.”
Independent pensions consultant John Ralfe told Drapers there was no quick fix for the £571m deficit.
“Whatever Sir Philip Green said six weeks ago about sorting the pension deficit, I didn’t believe him then and even less so now. There’s no rabbit he can pull out of a hat without writing a very large cheque. The Pensions Regulator will continue its investigation. It’s a long painstaking process which could take several years and go all the way to the Supreme Court.”
He added that companies will be more cautious about making decisions that could fall foul of the regulator.
One financial source close to the situation said a change in law surrounding pensions may come into play as a result of the fallout, but a harder line on corporate governance was less likely:
“A lot of businesses will be thinking about what they need to do to protect pensions. I can see politicians trying to put into law some protection- no dividends to be paid out if there is a pension deficit for example. There are lessons to be learned for pension trustees.”
He added: “However retail has a history of aggressive chief executives with soft boards around them and when these businesses are growing quickly the City gets seduced and forgets how bad things can get.”
Jonathan De Mello, head of retail consultancy at property firm Harper Dennis Hobbs, said: “The report shows we need tighter controls on big retail employers. Over the last 10 years it has become endemic, people are brought in to save a business and they make it worse.
“The report needs to lead to some action to change the retail sector. Huge businesses like BHS with lots of suppliers and staff need to be held to account. This needs to be more than a slap on the wrist.”
Will Thomas, partner at retail property agency KLM, pointed out that landlords will have seen this coming for some time, so they will have a plan in place. But he added: “A lot of the shops will need to be split to suit new tenants as if you don’t give them exactly what they want, someone else will. There is demand in the market but it comes at a particularly tough time in the market for fashion retail with extreme weather and uncertainty surrounding Brexit.”
“It’s a very sad story and there are lessons to be learned. Our focus is now on finding new occupiers for the space this has created on the high street, and some stores are easier than others to fill.”
Retail analyst Nick Bubb said the immediate focus would be on Green’s knighthood and whether he will make a sufficiently generous payment into the BHS pension fund. Attention will then turn to Arcadia.
“In the medium term the key will be what happens to Arcadia in general and Topshop in particular. It is pretty clear that Topshop generates nearly all of Arcadia’s profits, so if that is starting to struggle, then he may soon need to take remedial action on the other chains.”