BHS scandal proves company directors should be licenced

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.

3 Responses to “BHS scandal proves company directors should be licenced”

  1. Owen O'Donnell

    I think this is an over simplistic and idealised view of a solution to the problems. A fundamental re-think is required over the responsibilities and accountabilities of directors and also of shareholders. The principal of the ‘Corporate Veil’ designed to protect individuals and shareholders for over 100 years has not developed adequately to protect relevant stakeholders and employees. How many bankers went to jail! How many pension funds have been left unfunded? How many of those directors have suffered the consequences of their actions? By comparison how many of the general public have suffered through those actions and what meagre protection are they offered?
    Time for a fundamental re-think on the priorities of corporate law.

  2. Richard Prior

    Idiot Journalist writes about a subject about which he is dangerously ignorant.

    Philip Green was and remains the British High Street for the Apparel market.

    He achieved a remarkably rapid turnaround in the fortunes of the former British Home Stores. His Merchandising Genius has now been pushed aside by the rabid journalists.

    Green is guilty – primarily of maximising benefits to his family & getting rid of a doomed & failing business.

    Why did BHS fail – primarily because the EUs Trade Policies had decimated the revenues of the Youth demographic & as the biggest spenders in the Apparel market, this was the death knell for BHS.

    Some say – inaccurately – that the demise of BHS was caused by the growth of the online market. Without doubt, there was some impact – but the primary impact resulted from the decimation of European Industries combined with massive job losses – particularly to the youth segment.

    Consumer confidence dropped to its lowest level in 70 yrs.

  3. Imran Khan

    Obviously the writer has never run a business or probably had a real job. The vast majority of people in this country are employed in small to medium sized businesses. The biggest employer is in construction with over eighty per cent of those employed working in firms with twenty employees or fewer. These companies already struggle under a weight and cost of rules and regulations that drive too many every year into bankruptcy.

Leave a Reply