One of the paradoxes of the current debate about good business is that, for all we talk about it and support it, there is not a great deal of agreement as to what it actually means. In particular, the law has little or nothing to say once you go beyond the fundamentals such as the minimum wage and health and safety. For the vast majority of businesses and business owners, a basic sense of morality and an eye on the long term keeps them on the straight and narrow. Unfortunately, every so often a more unscrupulous character will go to the absolute edge of that legal void and commit acts that, while not illegal, would be considered by most to be utterly immoral.
In that vein, some of you may remember a month or so ago Sir Philip Green appeared in front of two Parliamentary committees to answer questions regarding the collapse of BHS. Their final report was released this week, and to say that it is damning does not begin to do it justice.
The highlights are as follows. After buying BHS in 2000, Sir Philip Green and his family took almost £580 million out of the company in dividends, rental payments and loans. The company’s pension funds went from holding a substantial surplus to a deficit that eventually reached hundreds of millions of pounds. Sir Philip Green and the BHS investors refused to address this, going so far as to sell the company for £1 rather than allow The Pensions Regulator access to the company’s financial records. The business was sold in a manner that ignored concerns about takeover regulations and the ability of the buyer, Mr Dominic Chappell (a man who no prior retail experience), to maintain BHS as a going concern. BHS went into administration at the end of the April, by which point Mr Chappell had also taken £2.6 million out of the business in fees and loans.
It should be noted that the payment of large dividends, which can be justified if the business is thriving, and the existence of a pension fund deficit, which can be caused by low interest rates and tough trading conditions, are not by themselves signs of negligence. The key difference in the BHS case is that Sir Philip Green took out dividends at the expense of investment and growth in the company, and did nothing to address a large and growing pension deficit when he had the personal wealth and capability to do so.
There is a very real human cost to this as well. BHS employs over 11,000 people across the country, many of whom now face an uncertain future through no fault of their own. The 20,000 current and future holders of BHS pensions could also face cuts to pay-outs that they worked for decades to earn. Almost without exception, it has been the innocent who have suffered while the guilty have walked away even richer than before.
I am proudly pro-business, and I am also the chairman of a pension fund. It is for these reasons that I consider what has happened to BHS to be nothing less than a national scandal. We need businesses that thrive and prosper for the benefit of all, not businesses that exist only to enrich a select few at the expense of their workers and the taxpayer.
As she entered Downing Street, our new Prime Minister promised a more responsible capitalism. She could make a start by using the power of her office to define, in black and white, what a good business is. If necessary, this should be backed up by law. That is only way to make sure that another Sir Philip Green never gets his hands on another BHS.