BHS

Michelle Thomson Excerpts

Thursday 20th October 2016 Commons Chamber

[Jeremy Quin]

The hon. Gentleman, as so often, reads my mind. If he is a little patient, he will hear me make a similar point later in my speech.

On the period during which very generous dividends were paid, directors cannot be expected to have the gift of prophecy, but they can be expected to understand the fundamental trends driving the underlying profitability and sustainability of their business. I am far from convinced that that was the case in this situation. The most serious questions, as raised by the hon. Members for Hartlepool and for Torfaen (Nick Thomas-Symonds), are about the corporate governance of large private companies with millions of employees and pensioners.

Unlike my feisty friend, my hon. Friend the Member for Bedford (Richard Fuller), I intended not to refer to the individuals directly concerned in the sad demise of BHS, but to focus on the more general lessons to be learned. I am afraid that I have been drawn back to the circumstances of BHS after reading the joint legal opinion produced for Taveta Investments Ltd by learned counsel last night. As the right hon. Member for Birkenhead said, the two lead QCs make a point of saying that they are friends of the chairman of TIL. I hope that their report, which is considerably longer than the report of the joint Committees that it analyses, was not unduly costly. The report basically starts by saying, “Let’s pretend this is not a parliamentary inquiry, but some other kind of inquiry. Would that type of inquiry be set aside by the courts?” Having set up an irrelevant question, the opinion produces an irrelevant answer.

[Michelle Thomson (Edinburgh West) (Ind)]

Does the hon. Gentleman agree that it is somewhat ironic for Sir Philip, who has complained bitterly about an outcome with which he does not agree, to be able to pay handsomely for an 81-page report from two eminent QCs, given that I imagine the pensioners and employees are not, unfortunately, able to resort to such a tactic?

[Jeremy Quin]

I suppose the answer depends on the quality of the report. Frankly, having read it, I find that it contains a series of straw men that have been set up for demolition. In my view, it does not help Members, the pensioners or anyone to understand the circumstances of the demise of BHS.

To put at rest the minds of learned counsel, the joint Committees did not object to a dowry being provided on the sale of BHS, and certainly did not question its legality. However, we questioned the sufficiency of the cash and the choice of partner in the circumstances that BHS faced. We did not question the concept of a company being sold for £1. Clearly, that is a matter for Taveta Investments (No. 2) Ltd, the selling company, which received the £1. It is unfortunate that TIL2, which is ultimately controlled by Lady Green, is still paying back to Lady Green the £200 million consideration for its acquisition of BHS in 2009. This consideration was satisfied by £200 million of loan stock provided to three overseas companies controlled by Lady Green, with a coupon of 8%.

We would need a much longer debate—I am very mindful that other Members wish to participate—to draw out all the straw men contained in the joint opinion of learned counsel, but several others are produced in the context of corporate governance. A rare point on which the joint Committees’ perspective seems to be shared by learned counsel is on the—in our view, lax—governance of the sale, as was so eloquently described by my hon. Friend the Member for Bedford. However, learned counsel state that that is an irrelevance, because the shareholders in TIL could in any event provide a direction, so the directors were in no position to prevent the sale of BHS to any party. That may be true legally, but it should raise questions for this House. Learned counsel tell us that TIL is 88%-owned by Taveta Ltd, a company registered in Jersey, and 12% by six minority shareholders. We are informed that the ultimate beneficial owner of the Jersey company is Lady Green, and that under the articles, Lady Green, acting with any one of the minority shareholders, could have directed the sale of BHS at any time and on any terms.

The right to own and dispose of property under English law is absolutely fundamental, and Parliament would be wise to tread very softly, but I am concerned in this context about checks and balances—not only on the sale, but more generally. What is the value of a section 172 provision, telling directors to have regard to other stakeholders, in these circumstances? What is the role and purpose of non-executive directors, especially when the 88% shareholder is not present around the boardroom table?

To my mind, it is not appropriate for directors serving private companies to decide that they can take an approach different from what is good corporate governance, purely because they can ultimately be directed. That would make it more important, especially on major or related transactions and on honouring commitments to pensioners, that they should bend over backwards to adhere to strong and demanding codes and be prepared to call out owners if they feel actions are taken that do not have sufficient regard to other stakeholders. There are thousands of very successful large and medium-sized private companies employing millions, and for those millions, ownership should be as transparent as good corporate governance.

There are other issues, from which I fear I have been sidetracked by the legal opinion, that the House should consider. As the hon. Member for Hartlepool mentioned, corporate governance codes should be applied not only to listed companies, but to those owned privately. On related party transactions, independent valuations or independent opinions are important when such transactions exceed de minimis levels. There is the issue of the utility of the requirement to have regard to other stakeholders in section 172 and how directors can be expected to do so when they owe responsibility elsewhere. There is the question of the appropriateness of dividend payments above certain thresholds, particularly if a pension scheme is in serious deficit. I was challenged on that point by the hon. Member for Ross, Skye and Lochaber (Ian Blackford).

There is the issue of the requirement for courts to be cognisant of pension deficits, as well as of creditors, when considering applications for corporate restructurings and capital reductions. In private mergers and acquisitions, where pension problems may be less transparent than in the listed market, consideration should be given to compulsory engagement with the Pensions Regulator and with the trustees. For both directors and advisers engaged in sale processes in respect of a company in which the Pensions Regulator has already expressed concern and a sale is not being pre-cleared by the Pensions Regulator, all parties should be very aware of the actuality of the counterparty to whom they are selling. English law requires no due diligence to be done on the buyer—nor, in my mind, should it do so—but common sense suggests a certain wariness to be wise.

In conclusion, there are lessons to be learned from this sad story. Above all, however, we are all focused on the loss of a well-loved icon, the employees who have been made redundant and the pensioners who are rightly worried, but whose plight may yet be mitigated by Sir Philip. Such an act would, indeed, be honourable and very welcome. I understand from the radio this morning that he is, not for the first time, planning to meet the regulators in the next few days. Time will tell whether pensioners have been waiting for a result or have been made to endure a particularly poorly directed “Waiting for Godot”.

--- Later in debate ---

[Amanda Milling (Cannock Chase) (Con)]

As a member of the joint Committees that conducted the inquiry into the collapse of BHS, it is a pleasure to speak in the debate. It is also a pleasure to follow the hon. Member for Westminster North (Ms Buck), a fellow member of the Committee, and my hon. Friend the Minister, whom I welcome to her place. She had a slightly different role beforehand—she was my Whip.

Before being elected to this place, I worked in business. Like my hon. Friend the Member for Bedford (Richard Fuller), I am pro-business and pro-enterprise, but not at any cost. I have been appalled by the catalogue of events that led to the demise of BHS and by what we learnt in the Business, Innovation and Skills Committee about working practices at Sports Direct. Both are bad for business and, I am afraid, both are bad for the reputation of business, to pick up the point made by the hon. Member for Westminster North.

Rightly, reputable businesses have also been appalled by both situations. The irresponsible behaviours of a few endanger the reputations of the majority that operate responsibly. That is why I fully support the position of the Prime Minister and the Government that we need to make our economy work for everyone. As she said on the steps of Downing Street,

“we’re the party of enterprise, but that does not mean we should be prepared to accept that ‘anything goes’”.

That is not, as I see it, an attack on business—far from it. There is a desire to protect the reputation of business. After all, we do not want to see the irresponsible behaviours of a few tarnishing the reputation of good business. We need to look only at the banking crisis and the resulting lack of trust in banks, from which, let us be honest, they are still trying to recover, to see the dangers of reputational damage resulting from such events.

[Michelle Thomson]

I rise to note something on the banking crisis and to refer to the Minister’s remarks earlier. Does the hon. Lady agree that, with issues such as the banking crisis and how the state deals with the continuing RBS saga concerning the Global Restructuring Group, how quickly and effectively agencies deal with the matters that we call out is pivotal?

[Amanda Milling]

The hon. Lady makes an interesting point. She has a lot of personal interest in looking at RBS and the banking industry. From my perspective, the Government have been very quick in responding to the collapse of BHS and in recognising that there is a need to review corporate governance. I will come on to that in a bit more detail shortly.

The devastating events that resulted in the tragic collapse of BHS raise several questions about whether the framework of corporate governance is satisfactory, especially in relation to large private businesses—those with large workforces and large pension liabilities. This is about protecting our economy, protecting the taxpayer from picking up the bill and, most important, our responsibility to do everything we can to protect employees.

Many right hon. and hon. Members have discussed the consequences of the collapse of BHS. They have looked at the employees and the members of the pension scheme. I would like to focus on the employees. Eleven thousand people lost their jobs as a result of the collapse of BHS. But for those people it was not just about losing their job; it was about the impact on their lives and that of their families. Many of those people have mortgages to pay and are worried about whether they can keep a roof over their head and that of their family.

--- Later in debate ---

[Michelle Thomson (Edinburgh West) (Ind)]

I would like to begin my contribution to this important debate by joining others in thanking the Chairs of the combined Select Committees and pointing out that any suggestion that their report was not a robust, detailed, evidence-led inquiry can be rebutted. It ran for months and had many sessions; the session with Sir Philip Green alone lasted for six hours.

I support the view that, from its initial purchase, Sir Philip saw the dash for cash from the business as the Green family’s primary purpose. Even in the early days, there was limited evidence of a successful retailer improving turnover or market share. I am sure other Members will continue to highlight the various ways that money was redeployed to the Green family, often away from the clutches of the UK taxman, such as by the payment of dividends and the treatment of various assets. I have no doubt that they were all entirely legal, but were they irreproachable?

We have heard much already about the nature of corporate governance. Our report describes it as having a variety of roles, including balancing

“the interests of…many different stakeholders”.

We have also heard reference to the UK corporate governance code. It states that

“one of the key roles for the board includes establishing the culture, values and ethics of the company.”

[Roger Mullin (Kirkcaldy and Cowdenbeath) (SNP)]

I thank my hon. Friend and all the members of both Committees. I had the pleasure of sitting in and listening to quite a lot of the interrogation and I thought it was first-class.

Despite the problems we have heard about, such as those to do with corporate architecture and regulation, does my hon. Friend agree that Adam Smith was right when he said we cannot divorce business practice from human behaviour, and that the problem here is that the human behaviour of Philip Green has undermined corporate governance and any positive culture?

[Michelle Thomson]

I thank my hon. Friend for that intervention. The code goes on to say in the sentence I was quoting:

“The directors should lead by example and ensure that good standards of behaviour permeate throughout all levels of the organisation.”

The code applies only to listed companies with a premium listing of equity shares, but that does not absolve a private owner from any responsibility. Time and again opportunities were missed to address the growing pension deficit and it cannot simply be argued that the deficit was a result of the global financial crisis and increased longevity. Sir Philip had accountability for addressing the deficit and could have chosen to do so on a number of occasions, as other schemes managed to do.

The QCs’ report cites many examples of the Green family’s legal rights as the majority shareholder, but says very little about the responsibilities to pensioners and employees that that brings. I am sorry, but Sir Philip cannot have it all his own way. It was a lack of judgment that allowed the pensions situation to continue, and a lack of judgment that progressed a sale to a wholly unsuitable third party.

The non-executive chairman was at pains to point out that the code does not apply to private companies, and the QCs’ report notes that the chair of the board has merely the same duties as the other directors. Legally that is true, but might I inquire as to what exactly the remuneration of £125,000 as chair of the board was for? I support the suggestion of the governing body for governance, the ICSA, which suggests reforming the code to include private companies. We have heard a number of calls for that today.

In terms of the general culture of organisations, there is always a key risk if a level of power is concentrated in just a few key individuals, there is weak leadership which chooses to surround itself with people who are reluctant to disagree for fear of falling out of favour, and there are cultural failings within the organisation that are common knowledge but remain unchallenged. We all have a duty to speak out in these cases, because by remaining silent we become complicit in the contract of the bully and the bullied.

In the case of BHS, the final decision on sale was made without the non-exec chair asking about the credentials of the purchasing company, why it was believed to be the best outcome for the employees and pensioners, or whether the third party had a credible turnaround plan—and, incredibly, they were not invited to the ratification meeting. There was only one non-exec director at the meeting: the son-in-law of Sir Philip Green, whose stated brief was to represent the interests of Lady Green.

I challenged some board members to name a time—any time—when they successfully challenged Sir Philip Green. Their response was muted. I could literally count the seconds ticking by as each respondent looked for an example.

Our report notes that

“absolute power, in business as in politics, is a dangerous thing”.

It was certainly absolute power that enabled Sir Philip and the Green family to run BHS as their personal fiefdom, to exclude independent directors from key decisions and to bully weak senior managers, and this contributed to the ultimate failure of BHS and to its ultimate failure in its duty of care to the pensioners and employees.

I shall finish by making a brief comment about the amendment. This UK legislature is already struggling to demonstrate its relevance to many people. It must be able to give a voice to people on the important issues of the day. The saga of BHS is being played out in the media, and not only recently. We have seen the success story, the “loadsamoney” parties, the knighthood, the record-breaking dividends, the decline and the eventual sale of the business. People watching at home have, with every justification, asked, “How can this be? How can an owner of a company act with such impunity in the matter of 11,000 jobs and 20,000 pensions?” Hindsight is a wonderful thing, and who among us does not recognise circumstances in which we would do things differently? I am sure Sir Philip Green regrets the circumstances now, but we are talking about a knight of the realm, and that position must surely require a higher bar of ethical behaviour.

[Joanna Cherry]

(Eningburgh South West) (SNP): My hon. Friend is making a powerful speech. Has she, like me, received dozens of emails from constituents who are concerned that Sir Philip Green should be held up as an example? I shall read out just one of the emails I have received.

“As someone in business, who takes pride in the efforts we make for our staff and customers, it’s really hard to understand why someone like Sir Philip would be allowed to retain his knighthood. Surely, we should not be placing such traits as aspirational for the public.”

Does she agree with that sentiment?

[Michelle Thomson]

I absolutely agree. Many of us will have received hundreds of letters and emails from our constituents on this subject.

It is on this point that the argument turns for me. The corporate governance code is not there to provide a loose set of rules that companies are invited to think about now and again. It is fundamentally a framework for behaviour in business. Business is not just about the bottom line; it is about providing jobs and sustaining communities, and the best businesses are based on partnership. Sir Philip Green knew for many years that BHS was in trouble and he failed to do the right thing. His actions, and his inaction, led directly to the loss of 11,000 jobs and affected the lives of 20,000 pensioners. He seems to believe that BHS being a private company negated any accountability or responsibility for the lives of people who depended on him and, ironically, who made his success.