Large private businesses, including the likes of John Lewis, Arcadia and Virgin Atlantic, should have to follow the same corporate governance requirements as public listed companies, according to MPs.
The Work and Pensions Committee, in response to the Government’s consultation on corporate reform, has said the reporting requirements for public listed companies should be extended to private companies that have “important social impact”.
To reduce the chance of another company collapsing in the manner of BHS, the select committee added that company directors should have a new duty to pension fund trustees.
Frank Field MP, chair of the committee, said: “For a company with a big social and economic footprint like BHS it is simply not enough to be accountable to shareholders – particularly when one shareholder owns most of the stock.
“The sorry tale of its sale and collapse, putting 11,000 people out of work and leaving a pension fund £571 million in the red, with 20,000 pensioners facing an uncertain financial future, was a result of gross failures of corporate governance.
“Would the story have played out the same way if its directors had to be open about the financial decisions they were making for its future? The finances and leadership of a company with so many people depending on it should be open to scrutiny.”
Large private companies, as defined by Government, and businesses with more than 5,000 defined-benefit pension scheme members, should, say the MPs, be made subject to the Financial Reporting Council’s Corporate Governance Code on a comply-or-explain basis.
On 28 April 2016, the committee began a joint inquiry into the collapse of BHS and the origins of the privately held retail chain’s huge pension scheme deficit.
The three-month inquiry examined corporate governance in BHS’s former owner Sir Philip Green’s companies, which are privately held and ultimately owned offshore by Lady Green.
The key themes that emerged included:
- “lamentable” corporate governance in what was a large private company;
- a lack of publicly available information about the state of the company and its pension fund; and
- the absence of a voice in the running of the company for those who relied on its success for the security of their pension savings.