News
25 Jul 2016 02:00pm

Bad business decisions and personal greed led to BHS collapse, MPs say

In a damning report on the downfall of the high street chain, MPs said that leadership failures and personal greed led to the demise of BHS and the loss of 11,000 jobs

While MPs concluded that Sir Philip Green is ultimately to blame for the collapse of BHS after rushing to offload the troubled retailer - which was losing money and burdened with a massive pension fund deficit to the “manifestly unsuitable” Dominic Chappell - the report also highlighted the failings of the advisers involved in the transaction.

MPs described the collapse of BHS as “the unacceptable face of capitalism” and said all those who got rich or richer from the company’s failure are culpable.

According to the report by the Work and Pensions and Business, Innovations and Skills committees, Green’s rush to drive through the sale of BHS - "a chain that had become a financial millstone and threatened his reputation" - was the culmination of a sorry litany of failures of corporate governance and greed.

"One person, and one person alone, is really responsible for the BHS disaster,” Frank Field, chair of the Work and Pensions committee, said.

What kind of man is it who can count his fortune in billions but does not know what decent behaviour is?”

Frank Field, chair of the Work and Pensions committee

“While Sir Philip Green signposted blame to every known player, the final responsibility for up to 11,000 job losses and a gigantic pension fund hole is his.”

MPs said although the ownership of Chappell and his associates at Retail Acquisitions Ltd was "incompetent and self-serving", the ultimate fate of the company was sealed on the day it was sold.

Ian Wright, chair of the Business Innovation and Skills (BIS) committee accused Green of “bulldozing” the sale of BHS to “twice-bankrupt chancer” Chappell, who had no retail experience.

Wright argued that this sale should obviously never have gone through and blamed Green for being determined to push the deal through, even if that meant the buyer could not deliver what BHS needed.

MPs also directed some of the blame on the advisory firms involved in the sale, who according to the report were “heavily incentivised to progress the deal.”

Green previously told the joint committee that Grant Thornton and Olswang – Chapell’s advisers - together earned total fees from BHS/RAL of at least £8m.

The committees said Grant Thornton and Olswang, who were “preoccupied with how their fees would be paid following the completion of the transaction” were “increasingly aware of RAL’s manifold weaknesses as purchasers of BHS”.

“They were nonetheless content to take generous fees and lend both their names and their reputations to the deal,” the MPs added.

The report also revealed that while Olswang did raise a number of concerns about the transaction in its due diligence, Grant Thornton’s due diligence, which also flagged a number of concerns, was “more muted in tone”.

The joint committee added that Grant Thornton’s report could have been clearer.

“While Olswang flagged up clearly the weaknesses of BHS as a business and the risks associated with acquisition, Grant Thornton deployed a large team for a short period and, based on the documentation we have seen, produced a report which could have more clearly explained the level of risk associated with the acquisition and offered firmer observations,” the report said.

A spokesperson for Grant Thornton said, “Grant Thornton’s only role in the pre-acquisition period involved carrying out financial due diligence on behalf of Retail Acquisitions Limited.

"Following the acquisition, we were working for BHS to provide consultancy services to the management team. We undertook our work in the belief that we could help BHS’ management team to turn the business around, and find a sustainable solution for the pensions scheme.

"It is regrettable that this hasn’t been possible, but we wouldn’t have been a part of that work if we didn’t believe we had experience of real value to share with BHS and its management."

Green previously told MPs that the presence of Olswang and Grant Thornton helped give Chappell credibility, an excuse MPs regarded as “disingenuous”.

The report also questioned PwC’s role as auditor of BHS as well as the Big Four firm’s links to Green.

His failure is bad enough, but that he effectively had his hands in the till is an insult to the employees and pensioners of BHS that he let down so badly

Ian Wright, chair of the Business Innovation and Skills (BIS) committee

The committees welcomed the FRC investigation into the conduct of PwC with regards to its audit of BHS’s accounts in the year ending August 2014, urging them to conclude this “as swiftly as possible”.

Wright also spared significant blame for Chappell, saying that he “took no risk and put no money into the venture and yet gained huge rewards as BHS crumbled around him”.

The report outlined that Chappell took £2.6m from the business, in addition to an outstanding £1.5m family loan.

“His failure is bad enough, but that he effectively had his hands in the till is an insult to the employees and pensioners of BHS that he let down so badly,” Wright added.

Chappell previously admitted to MPs that he was partly responsible for the downfall of high street chain but shifted most of the blame onto Green for his failure to sort the pension deficit.

According to the report, Green extracted hundreds of millions of pounds from BHS, leaving the company and its pension fund weakened to the point of the inevitable collapse of both.

Over the duration of the Green family’s tenure, significantly more money left the company than was invested in it, the report found.

MPs said Green was aware of the growth of the pension deficit but did nothing about it.

Field added that Green has still to make good his boast of 'fixing' the pension fund. The committees said it is Green’s “moral duty” to find a resolution for the BHS pensioners.

“What kind of man is it who can count his fortune in billions but does not know what decent behaviour is?” Field said.

The report also highlighted that Green’s wife, Lady Tina Green is still being paid tens of millions of pounds of tax free repayments on the loan that was engineered to sell BHS from one Green family business to another. It added that she will continue to benefit for some years to come.

“The actions of people in this sorry and tragic saga have left a stain on the reputation of business which reputable and honourable people in enterprise and commerce will find appalling,” Wright said.

The committees said they fear some of the failures, which allowed the high street chain to collapse, are not unique to BHS and there is need for broader consideration of the framework in which companies operate.

“This inquiry has exposed how capitalism can be worked to the advantage of directors, financiers and advisers at the expense of employees and the wider public interest. This deeply concerning example of corporate governance brings into question the adequacy of existing company law and corporate governance regulation, particularly in relation to large private companies,” the report said.

The Work and Pensions committee said it will continue to examine the future of occupational pension schemes and “there may be a case for stronger and more proactive regulation”.

“Our inquiry will not be the end of scrutiny of the demise of BHS,” the report said. “We support investigations by the Financial Reporting Council, the Pensions Regulator, the Insolvency Service and the Serious Fraud Office.”

According to Field, Green’s “reputation as the king of retail lies in the ruins of BHS.”

The committees said they found "little to support the reputation for retail business acumen for which he received his knighthood" and added "we don’t doubt that Sir Philip had some affection for BHS – to an extent it created him. Now it could also bring him down".

Sinead Moore

 

Related articles

Chappell accuses Green of forcing BHS into administration

MPs want scope of FRC investigation into PwC's BHS audit widened

Green "must ensure pensioners are compensated following BHS collapse"

Lady Green defends use of tax havens

Topics