UK: BHS: The Ongoing Governance Debate

Last Updated: 11 August 2016
Article by Peter Swabey

The sale and subsequent collapse of BHS and the revelations about the pension fund shortfall have focused attention on corporate governance. Trust in business remains low and here we have a case where, once again, it appears from press reports that the wealthy few have got wealthier and 11,000 workers and 22,000 pensioners are left in the lurch.

Frank Field MP, Chairman of the Work and Pensions Committee, has been outspoken in his condemnation of Sir Philip Green, but in truth much of the evidence with which the committees had to deal was contradictory. As the report concludes, 'The evidence we have received over the course of this inquiry has at times resembled a circular firing squad. Witnesses appeared to harbour the misconception that they could be absolved from responsibility by blaming others.'

The governance issues

But what are the corporate governance issues? For me, it boils down to a number of quite specific questions:

  • Did the owners of BHS take out more in dividends than the business could sustain?
  • Were the directors of BHS wrong to recommend the payment of such dividends when the pension fund was in deficit?
  • Should the sale of BHS have been permitted without a commitment to make significant payments to the pension fund?
  • Did the board of BHS undertake sufficient due diligence about the buyer?
  • To what degree did the board of BHS just do as Sir Philip Green told them?
  • To what degree were the new owners culpable for the failure of BHS?
  • To what degree should Sir Philip Green be held culpable for any or all of these issues?
  • What can, or should, be done about it?

Distribution of profit

The report by the Work and Pensions and Business, Innovation and Skills Committees argues that when Green bought BHS in 2000, the business was profit making and the pension scheme was in surplus. The committees are critical of the dividends taken out of the business in the period 2002 to 2004 – some £423 million against £208 million income – but Green and at least one other witness told the committees that this was not unreasonable given trading conditions at the time.

Comparing BHS dividends with those of M&S and Primark across the same period, the levels of payment made by BHS are roughly double the percentage of net profits attributable in those years paid by the other two companies. Yet the decision as to the distribution of profit between investment in the business and payments to investors is primarily a matter of business judgement by the directors.

If the answer to that first question is 'not proven', that to the second is a very clear 'no'. Back in the period in which these dividends were being paid, the pension scheme was in surplus and, of course, few anticipated the financial crisis of 2008 which plunged it, and many other pension funds, into significant deficit. That said, it was in 2006 that the scheme first seems to have moved into deficit with the trustees expressing concern the previous year. To be fair, the committees were also told that Green had been writing to the trustees criticising their investment policies since 2002.

Sale of BHS

Questions relating to the sale of BHS are more complicated. A significant pension deficit is likely to be a material consideration for the buyer of a company and likely to make that company significantly less attractive as the buyer will, effectively, be picking up that liability. The committees' report discusses 'Project Thor' which appears to have been an attempt to make the pension fund liabilities more manageable at the cost to pensioners of a proportion of their benefits and examines in some detail the sale process. Much of this is likely to be examined in Court in due course, but there is some evidence that the pension trustees sought assurances about the future of the pension fund and that one or both sides of the deal were, whether through misunderstanding or design, less than completely open about the implications for the pension funds.

Perhaps the trustees or the Pensions Regulator (TPR) should have pressed harder for concrete information. However, the trustees will undoubtedly have been inhibited by the fact that this appears to have been the only buyer in the market and, moreover, one which seemed 'surprisingly' willing to take on the pension fund liabilities. TPR seems to have lacked urgency in dealing with the case. The report contains a strong element of 'he said, she said' with all parties unsurprisingly keen to put the best possible interpretation on their words and actions and so it is hard to know who is at fault. The report shares that blame quite widely and I suspect we have not heard the last of it.

Due diligence

To take the next two questions together, the report is damning about the degree of due diligence undertaken by the board, and their 'complacency' in approving the proposed transactions. s172 of the Companies Act 2006 sets out the statutory duty of a director as to 'act in the way he considers, in good faith, would be most likely to promote the success of the company for the benefit of its members as a whole.' A director is also required 'in doing so [to] have regard (amongst other matters) to ... the interests of the company's employees ...[and] ... the impact of the company's operations on the community and the environment.'

Sir Philip Green was, it would appear from the report, keen to sell BHS and certainly he and his team played a leading role in the negotiations with Retail Acquisitions Limited (RAL). There is a telling remark from Lord Grabiner, the Chairman of the Taveta group boards, to the committees that there was 'no basis on which we could properly have disregarded the views of the board of [the company's] sole shareholder and refused to ratify the sale'. That seems to me to run the risk of having insufficient regard to the interests of employees and the community. But, equally, the board will have recognised, as the pension trustees may have done, that they may be left with Hobson's choice – Mr Chappell and RAL or no one.

Too little, too late

Regardless of the circumstances of the sale, BHS seems by that point to have been a struggling business. There was a business plan which, according to Sir Philip Green, would have saved it although the report brands this as over-optimistic and suggests that it was too little, too late. Certainly, it would not have saved the pension scheme as it required restructuring; one which would have needed further funding from Green which he was, according to the report, 'not prepared to make' unless TPR ceased investigating his companies. BHS' difficulties seem to have been exacerbated by the failure of new management to follow that plan – although it may have been unachievable in any case – and by Mr Chappell and RAL taking significant fees and loans from the company. It may be that the directors will have to justify their compliance with their duties under s172.

Whether Sir Philip Green is guilty or not of the allegations made against him in the report, it cannot be denied that his reputation, both as an outstanding entrepreneur and as a responsible business owner, has suffered significantly through this debacle. He has described the committees' report as 'the predetermined and inaccurate output of a biased and unfair process' and, reading some of the report and subsequent comment from politicians, he may have a point. However, there are some significant issues that need to be addressed.

Responsibility to stakeholders

Good governance is just as important in private companies as in listed companies; and private companies are not absolved from responsibilities to their stakeholders. It has been argued that poor business decisions at BHS simply lost the Green family money. They did, but where private companies employ substantial numbers of people, there would seem to me to be a higher standard to which they should be held – that responsibility to stakeholders. The world has changed and business owners cannot any longer – if they ever could – be relied upon to behave with morality and ethics. I believe that there is an unanswerable case for all private companies large enough to require audit, to be required to have a company secretary with sufficient authority and kudos to be able to flag to the board where there are wider issues that they should consider and statutory protection where those issues are ignored.

For most of us, pension provision for our old age is an increasing concern. When I started work, pretty much everyone could expect to join a company pension scheme with a final salary pension. Now, for a wide variety of socio-economic reasons, it is a fortunate minority still in that position. The overwhelming majority of us are reliant on saving in a defined contribution scheme or a pension plan through a provider more likely to be focused on its own profit than on our secure financial future. In that environment, and with many pension funds in deficit, perhaps it is time to make the owners of companies more liable for the financial future of their employees. The difficult question is how to do that. One solution might be for pension trustees and TPR to have greater powers to block transactions where the interests of pensioners are impacted, but that may require greater expertise and prescience than it is practicable for them to have.

There have been suggestions that Sir Philip Green should put his hand in his own pocket, perhaps sell a luxury yacht or two, and put the BHS pension funds back into surplus. But those funds hold investments – one of the reasons for so many pension funds being in deficit was the poor performance of those investments during the financial crisis. What happens if the BHS fund gets into further difficulties or moves into surplus – would Sir Philip get his yacht back?

For more on the BHS pension fund shortfall read Tim Middleton's (Technical Consultant at the Pensions Management Institute) article.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
Email Address
Company Name
Confirm Password
Mondaq Topics -- Select your Interests
 Law Performance
 Law Practice
 Media & IT
 Real Estate
 Wealth Mgt
Asia Pacific
European Union
Latin America
Middle East
United States
Worldwide Updates
Check to state you have read and
agree to our Terms and Conditions

Terms & Conditions and Privacy Statement (the Website) is owned and managed by Mondaq Ltd and as a user you are granted a non-exclusive, revocable license to access the Website under its terms and conditions of use. Your use of the Website constitutes your agreement to the following terms and conditions of use. Mondaq Ltd may terminate your use of the Website if you are in breach of these terms and conditions or if Mondaq Ltd decides to terminate your license of use for whatever reason.

Use of

You may use the Website but are required to register as a user if you wish to read the full text of the content and articles available (the Content). You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these terms & conditions or with the prior written consent of Mondaq Ltd. You may not use electronic or other means to extract details or information about’s content, users or contributors in order to offer them any services or products which compete directly or indirectly with Mondaq Ltd’s services and products.


Mondaq Ltd and/or its respective suppliers make no representations about the suitability of the information contained in the documents and related graphics published on this server for any purpose. All such documents and related graphics are provided "as is" without warranty of any kind. Mondaq Ltd and/or its respective suppliers hereby disclaim all warranties and conditions with regard to this information, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. In no event shall Mondaq Ltd and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use or performance of information available from this server.

The documents and related graphics published on this server could include technical inaccuracies or typographical errors. Changes are periodically added to the information herein. Mondaq Ltd and/or its respective suppliers may make improvements and/or changes in the product(s) and/or the program(s) described herein at any time.


Mondaq Ltd requires you to register and provide information that personally identifies you, including what sort of information you are interested in, for three primary purposes:

  • To allow you to personalize the Mondaq websites you are visiting.
  • To enable features such as password reminder, newsletter alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our information providers who provide information free for your use.

Mondaq (and its affiliate sites) do not sell or provide your details to third parties other than information providers. The reason we provide our information providers with this information is so that they can measure the response their articles are receiving and provide you with information about their products and services.

If you do not want us to provide your name and email address you may opt out by clicking here .

If you do not wish to receive any future announcements of products and services offered by Mondaq by clicking here .

Information Collection and Use

We require site users to register with Mondaq (and its affiliate sites) to view the free information on the site. We also collect information from our users at several different points on the websites: this is so that we can customise the sites according to individual usage, provide 'session-aware' functionality, and ensure that content is acquired and developed appropriately. This gives us an overall picture of our user profiles, which in turn shows to our Editorial Contributors the type of person they are reaching by posting articles on Mondaq (and its affiliate sites) – meaning more free content for registered users.

We are only able to provide the material on the Mondaq (and its affiliate sites) site free to site visitors because we can pass on information about the pages that users are viewing and the personal information users provide to us (e.g. email addresses) to reputable contributing firms such as law firms who author those pages. We do not sell or rent information to anyone else other than the authors of those pages, who may change from time to time. Should you wish us not to disclose your details to any of these parties, please tick the box above or tick the box marked "Opt out of Registration Information Disclosure" on the Your Profile page. We and our author organisations may only contact you via email or other means if you allow us to do so. Users can opt out of contact when they register on the site, or send an email to with “no disclosure” in the subject heading

Mondaq News Alerts

In order to receive Mondaq News Alerts, users have to complete a separate registration form. This is a personalised service where users choose regions and topics of interest and we send it only to those users who have requested it. Users can stop receiving these Alerts by going to the Mondaq News Alerts page and deselecting all interest areas. In the same way users can amend their personal preferences to add or remove subject areas.


A cookie is a small text file written to a user’s hard drive that contains an identifying user number. The cookies do not contain any personal information about users. We use the cookie so users do not have to log in every time they use the service and the cookie will automatically expire if you do not visit the Mondaq website (or its affiliate sites) for 12 months. We also use the cookie to personalise a user's experience of the site (for example to show information specific to a user's region). As the Mondaq sites are fully personalised and cookies are essential to its core technology the site will function unpredictably with browsers that do not support cookies - or where cookies are disabled (in these circumstances we advise you to attempt to locate the information you require elsewhere on the web). However if you are concerned about the presence of a Mondaq cookie on your machine you can also choose to expire the cookie immediately (remove it) by selecting the 'Log Off' menu option as the last thing you do when you use the site.

Some of our business partners may use cookies on our site (for example, advertisers). However, we have no access to or control over these cookies and we are not aware of any at present that do so.

Log Files

We use IP addresses to analyse trends, administer the site, track movement, and gather broad demographic information for aggregate use. IP addresses are not linked to personally identifiable information.


This web site contains links to other sites. Please be aware that Mondaq (or its affiliate sites) are not responsible for the privacy practices of such other sites. We encourage our users to be aware when they leave our site and to read the privacy statements of these third party sites. This privacy statement applies solely to information collected by this Web site.

Surveys & Contests

From time-to-time our site requests information from users via surveys or contests. Participation in these surveys or contests is completely voluntary and the user therefore has a choice whether or not to disclose any information requested. Information requested may include contact information (such as name and delivery address), and demographic information (such as postcode, age level). Contact information will be used to notify the winners and award prizes. Survey information will be used for purposes of monitoring or improving the functionality of the site.


If a user elects to use our referral service for informing a friend about our site, we ask them for the friend’s name and email address. Mondaq stores this information and may contact the friend to invite them to register with Mondaq, but they will not be contacted more than once. The friend may contact Mondaq to request the removal of this information from our database.


From time to time Mondaq may send you emails promoting Mondaq services including new services. You may opt out of receiving such emails by clicking below.

*** If you do not wish to receive any future announcements of services offered by Mondaq you may opt out by clicking here .


This website takes every reasonable precaution to protect our users’ information. When users submit sensitive information via the website, your information is protected using firewalls and other security technology. If you have any questions about the security at our website, you can send an email to

Correcting/Updating Personal Information

If a user’s personally identifiable information changes (such as postcode), or if a user no longer desires our service, we will endeavour to provide a way to correct, update or remove that user’s personal data provided to us. This can usually be done at the “Your Profile” page or by sending an email to

Notification of Changes

If we decide to change our Terms & Conditions or Privacy Policy, we will post those changes on our site so our users are always aware of what information we collect, how we use it, and under what circumstances, if any, we disclose it. If at any point we decide to use personally identifiable information in a manner different from that stated at the time it was collected, we will notify users by way of an email. Users will have a choice as to whether or not we use their information in this different manner. We will use information in accordance with the privacy policy under which the information was collected.

How to contact Mondaq

You can contact us with comments or queries at

If for some reason you believe Mondaq Ltd. has not adhered to these principles, please notify us by e-mail at and we will use commercially reasonable efforts to determine and correct the problem promptly.