Response to the Government’s consultation on corporate governance reform Contents


The collapse of BHS, which left its pension funds in a deficit of £571 million, was precipitated by gross failures of corporate governance. We welcome the Government’s green paper on corporate governance reform. This Report is our response to that consultation, based on our BHS inquiry and our subsequent work on pensions.

We have not sought to cover the breadth of the consultation, which is the domain of our colleagues on the Business Committee, and have restricted our comments to areas relevant to pensions. The three recommendations in this response should be read in conjunction with the more substantial proposals in our December 2016 Report on Defined benefit pension schemes. Our recommendations are:

(1)The Financial Reporting Council Corporate Governance Code, which currently applies only to public listed companies, should be extended to large private companies and those with over 5,000 defined benefit pension scheme members. BHS was a private company but the effects of its collapse spanned widely: not least to its thousands of employees and pensioners who have lost out while those who owned BHS took lavish rewards. This measure should improve transparency about governance arrangements, performance and risk in private companies to the benefit of stakeholders including pension scheme members.

(2)Pension scheme trustees, who must act in the interest of scheme beneficiaries, should be added to section 172(1) of the Companies Act 2006. That legislation sets out the duties of company directors, including a list of stakeholders to whom they must have regard in the course of their duties. Directors of larger companies must then report on how they have performed those duties in an annual Strategic Report. The current list does not explicitly account for defined benefit pension scheme members. Their income in retirement is reliant on the sustained success of the sponsoring company but former employees in particular are at particular risk of being neglected in corporate decision making. Our recommended measure may increase the chances both that directors would take into account the interests of pensioners in carrying out their duties and that those who have failed to do so will be held accountable in the courts.

(3)Future Insolvency Service reports should be published when there is significant public interest in publication. There is a legitimate public interest in the complete story of the failure of BHS being laid bare. We welcome the Government’s indication that it will seek to publish Insolvency Service findings into BHS.

9 February 2017