Greater transparency and bans on dodgy directors would protect jobs and money
Last March, the struggling BHS – newly-flogged to a former bankrupt by Phillip Green for a pound – got a loan for £8.4 million.
One would think that a company with £275 million in pension fund deficits would need every penny it could get to sort out the business and turn it around.
Instead, £3 million of that £8.4 million loan went straight to four of the new company directors, according to the Guardian: ‘handing them a multimillion-pound windfall just days after buying the struggling department store chain.’
Later, Dominic Chappell, who bought the business from Green, is alleged to have transferred £1.5 million from BHS to his own bank account before administrators were called in in April.
The allegation is from BHS’s then Chief Executive, with Chappell alleged to have threatened to kill former CE Darren Topp if he spoke out about it. There are other allegations that Chappell’s company, Retail Acquisitions, took out £17 million from BHS in the single year it owned the company.
Of course, there were ownership problems before Retail Acquisitions took over.
As Lord Myners told parliament this week, ‘HMRC must look into the ownership structure and how it managed to convince itself that these businesses are owned by Lady Green in tax-free Monte Carlo, but run by her husband’ from the UK, where he is subject to tax but receives little income.
There are all sorts of questions about tax-dodging, but it’s bigger than that. We should know who’s really running a company, and they should prove they are capable of handling 11,000 livelihoods and billions in funds.
From the mismanagement of loans, to asset-stripping before sales, and complete negligence in the face of pension turmoil at the company (as Prem Sikka has written on this site), BHS is a lesson in how not to run a company.
The problem is that the directors could potentially be let off the hook. There’s every chance they could return to running companies in the future, post-fine or short jail time.
There’s an inquiry going on at the moment, which is positive. But all this is too late. This was preventable if we had a single, well-funded, ‘toothy’ regulator of company boards and directors (and, in addition, workers on company boards).
We don’t. There are few rules on what’s required to be a company director, because it’s seen as an impediment to the ‘free market’.
But when incompetence puts 11,000 jobs at risk, and hundreds of millions in pensions left hanging in the balance, there is a huge public interest element. The tax-payer picks up the tab – in the dole money, in the lost tax, in the emptied high street and the potential bankruptcies.
So it’s reassuring to hear Business Minister Anna Soubry say that the government may take action on banning dodgy directors.
There a two inquiries into BHS going on at the moment. But we can’t simply have post-fact inquiries every time a company puts our economy and people’s livelihoods at risk for short-term gain. We need preventative measures before – such a licencing company directors.
Its an idea pitched by accountant Richard Murphy writes today:
‘We do not let people drive until they can prove that within reasonable limits they can do so without major risk to themselves or others.
The right to drive is not absolute: it is granted by society conditionally and only to those who prove they can use it appropriately.
That is precisely because we know that driving imposes a substantial risk, not just to the driver, but also to others.’
The same goes for directors. Because when businesses fail due to negligence, it’s bad for business too. As Simon Walker – head of the influential Institute of Directors has said, every saga like this has the ‘potential to be deeply damaging to the reputation of British business’.
Companies have ‘moral responsibilities’, says Walker – particularly the larger they are. If, say, Sainsbury’s collapsed tomorrow, it would have huge ripple effects on our economy.
We should be able to have trust that the directors are competent, and that if they mess up, they know that there will be penalties – for the sake of us and of faith in business.
Josiah Mortimer is a regular contributor to Left Foot Forward. You can follow him on Twitter@josiahmortimer.Like this article? Sign up to Left Foot Forward's weekday email for the latest progressive news and comment - and support campaigning journalism by making a donation today.