Parliament Blames BHS Collapse Squarely on Phillip Green
As we covered in an earlier article, British high-street staple BHS is in a state of complete collapse and financial free-fall, and, at time of publication, both the owner, Dominic Chappell, and the former owner Sir Phillip Green were under investigation by Parliament to discover whether they were to blame.
The Parliament report has been published, and is it turns out, they are to blame. The report is damning, and pins the disaster on Green, Chappell and the “hangers-on” that accompanied them in their “systematic plundering” of the company. The result, after years of “bleeding the company dry” was the collapse of BHS, which previously employed 11,000 people.
In a particularly suspicious move, Green sold BHS to Chappell and his allies in 2015 for only £1, quickly washing his hands of it and repeatedly stating to the press that it wasn’t on his head if the company failed now, as though he somehow suspected that it was about to spectacularly fail. Within 13 months, it had done just that. The chain will close the doors on its final store at the end of August, and immediately thereafter go into administration with a £571 million hole in its pension pot.
The report was compiled by MPs from the Work and Pensions Select Committee and the Business, Innovation and Skills Committee. Now, with weeks of evidence gathered behind them, those MPs have delivered the report, branding Sir Green’s actions as “the unacceptable face of capitalism” and demanding answers on how the government can regulate private businesses in future – ordinarily, little is done, but with such a massive pension pot deficit from BHS applying to its 11 thousand workers, thousands of people have essentially been robbed of the pensions they worked for and now rely on, with no chance for the mis sold pension compensation.
The report went on to shred Green’s reputation as an honest, capable businessman, with the MPs claiming that the reputation for incredible retail business acumen for which he received his knighthood had “very little left to support it.” Now, pressure is on Green to cover the missing £571 million of employee pensions, or face having his knighthood stripped away, which, according to the Cabinet Office, might happen anyway.
Speaking about Green’s behaviour, MPs said “he has methodically taken hundreds of millions of pounds out of BHS, paying a pittance in tax and enormously enriching himself. Inevitably, his predatory dealings led to collapse of both his company and his employee’s pension funds, as both inevitably collapsed.
With his typical direct speech, Shadow Chancellor John McDonnell went on the record saying “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.”
Despite the pleas for better funding over the course of years of work by the trustees of the BHS pensions fund, he was found to have consistently ignored them and paid in far less than enough, and as a result, the report places the pressure on Green himself to pay what he owes the fund. Claiming last week that he invested £421 million of his own money into the firm, Mr. Green was nonetheless found to be responsible for the collapse through the mixture of “bad business decisions and personal greed.”
During Green’s tenure as leader, BHS suffered enormously on the high street, failing to keep up with the times or adapt to changing conditions, and wasted away from lack of investment. The initial uptick in profits seen when he took over, say the MPs, was the result of massive asset sales and cost-cutting measures which ultimately crippled the company’s ability to keep operating. Massive dividend payouts were also made, mostly to Green’s wife, who lived in the tax haven of Monaco. As BHS’ pension deficit continued to soar and the Pensions Regulator began to ask questions about the missing money, Green elected to offload the company as quickly as possible.
The report finished by saying “Sir Phillip Green, Dominic Chappell and their staff of directors, advisors, consultants and hangers-on who enriched themselves at BHS’ expense are all culpable in this mess. The only victims were the ordinary workers and pensioners who trusted them.”
After Green sold the company to Chappell, the situation seemed, if at all possible, to get worse.
According to the report, Chappell invested nothing into the company and took £4.1 million as personal payment, including securing a £1.5 million interest-free loan using company assets. In response, the BIS Chairman said that the situation had “created many victims” not least of which were the 11 thousand staff now facing unemployment and the 20,000 pensioners now facing harsh and utterly undeserved cuts to their pensions. He also announced that the commission would support full investigatory action by the Insolvency Office, the Financial Reporting Council, the Pensions Regulator, and the Serious Fraud Office.
MPs are currently drafting a plan to launch two further investigations that will look into whether more work needs to be put into governing private companies and whether the government should take a more active stance on regulating pension funds. The report indicates that the key points by which BHS failed are not exclusive to BHS, and could occur anywhere. In fact, it could simply be that BHS is the first warning of a greater problem, which could be avoided with more careful legislation. It seems likely at time of writing that these plans will be supported by Theresa May, who has pledged to get tough on big business and punish irresponsible behaviour by business leaders.
The MPs involved also said that there was considerable evidence that Green had deliberately concealed the true extent of BHS’ pension troubles from Chappell’s Retail Acquisitions Group, and have proven that his account of the talks involved in selling the company do not match the account given by his former advisor. The sale doesn’t stop being shady there, either – Green’s Taveta group had itself earlier refused to sell to Chappell as he didn’t meet its standards of equity, working capital and leadership, but the deal went ahead anyway without the Taveta chairman being allowed to know about it. That chairman, Lord Grabiner, was criticised for not trying harder to influence the deal and appearing “docile” about it. His disengagement from critical decisions made by the company is seen by many of the investigating MPs as providing the “pinnacle of weak corporate leadership”.
While Green attempted to frame Chappell as a new bidder for the company who had a “clean sheet”, it is clear to the MPs investigating that he had moved into a pre-prepared space and acted with the full knowledge of the Arcadia board. Green insisted that BHS was given away with a healthy balance sheet, but they disagreed, saying that it was obvious that BHS was in enough distress that even medium-term survival was unlikely.
Chappell’s Retail Acquisitions group put the final nail in BHS’ coffin with an £11 million charge to BHS in salaries and fees for its string of directors, who each appeared, profited enormously, and jumped ship in turn.
Parliament currently waits for the resolution to this mess. It may be some time.