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

Conclusions and recommendations

Large private companies

1.BHS was a private company but the effects of its collapse—and the gross failures of corporate governance that precipitated it—spanned widely: to its thousands of employees and pensioners, to gaps on high streets and to other businesses in its supply chains or paying the PPF levy. Public listed companies are required to comply with the Financial Reporting Council Corporate Governance Code and its reporting requirements or publicly explain why they are not. This is a proportionate approach for companies of social importance. Transparency about governance arrangements, performance and risk can better equip stakeholders to hold company directors to account. Wider awareness of the state of the BHS pension schemes may have pressured Sir Philip Green into taking more reparative action, sooner. We recommend that private companies that are large, as defined by Government, or have over 5,000 defined benefit pension scheme members be made subject to the FRC Corporate Governance Code on a comply or explain basis. (Paragraph 14)

Director's duties and pensioners

2.The list of stakeholders to whom company directors must have regard under section 172(1) of the Companies Act 2006, duties they must report on annually under section 414C of that Act, does not include defined benefit pension scheme beneficiaries or the trustees who must act in their interests. Incomes of pensioners in retirement are reliant on the sustained success of the sponsoring company but they are at particular risk of being neglected in corporate decision making. The inclusion of pension scheme trustees in section 172 may increase the chances both that directors would take into account the interests of current and future pensioners in carrying out their duties and that those who have failed to do so will be held accountable in the courts. We recommend that pension scheme trustees be added to section 172(1) of the Companies Act 2006. (Paragraph 21)

Insolvency and transparency

3.There is a legitimate public interest in the complete story of the failure of BHS being laid bare. The former employees and pensioners of BHS deserve to understand what happened. Transparency is not simply a matter of holding those responsible publicly accountable, but also enabling informed debate about the implications of BHS for business and pensions policy. We welcome the Government’s indication that it will seek to publish Insolvency Service findings into BHS. We recommend that future Insolvency Service reports are published when, in the opinion of the Secretary of State, there is significant public interest in publication. (Paragraph 24)

9 February 2017