UK politicians have called for corporate governance rules to be extended to cover large pension funds and private company boards.
The Work and Pensions Committee – a group of 11 members of the UK’s lower house – published their recommendations yesterday in response to a government consultation on corporate governance standards.
The committee has separately been conducting an enquiry into the British Homes Stores (BHS) pension scheme, which is being assessed for entry into the Pension Protection Fund (PPF) following the sponsor’s bankruptcy last year. The scheme was significantly underfunded at its last valuation. The Pensions Regulator is attempting to secure contributions from Sir Philip Green, BHS’ former owner, who sold the business in 2015.
Frank Field, chair of the committee, said that BHS’ collapse and its pension problems were the 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?” he added. “The finances and leadership of a company with so many people depending on it should be open to scrutiny.”
In October, business minister Margot James echoed the committee’s concerns that there were “apparent weaknesses in the corporate governance of the companies concerned”.
In its response to the government corporate governance consultation, the committee called for pension scheme trustees to be subject to the Companies Act 2006, which currently only applies to company directors. It sets out directors’ duties and explains to whom they are responsible.
The committee stated: “[Pension scheme members’] 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.”
The MPs also want the UK’s existing corporate governance code for listed companies to be extended to “large private companies and those with over 5,000 defined benefit pension scheme members”.
Arcadia, the unlisted business group ultimately owned by Sir Philip Green and the former parent company of BHS, also has a “substantial” deficit in its defined benefit (DB) pension fund, the committee said.
“We have been pressing Arcadia’s directors and pension trustees for detailed information on their schemes but very little is published and neither the company nor the trustees will tell us,” it added. “It can’t be right that basic information like the schedule of employer contributions and the length of the recovery plan is not in the public domain.”
If Arcadia, like BHS, was to go bankrupt, then other DB pension schemes – which all pay towards an industry-wide levy to fund the PPF – and pensioners would foot the bill, the MPs argued.
Late last year the Work and Pensions Committee published a major report recommending a number of reforms to the DB rulebook. These were driven in part by the committee’s work on BHS and the British Steel Pension Scheme.