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Will BHS blowback cause corporate governance changes?

19 / 08 / 2016
Will BHS blowback cause corporate governance...The collapse of BHS has been one of the most controversial business failures in recent years, sparking a parliamentary inquiry into how the retailer was allowed to go into administration. 

News of the organisation's demise was first reported in April, with 164 outlets and more than 11,000 staff at risk. The company also has a pension deficit of approximately £571 million. This marked the biggest failure of a retailer since Woolworths went out of business in 2008, with nearly 30,000 people losing their jobs. 

However, the media blowback regarding BHS has intensified over the months as more details about the company's disintegration came to light. Specifically, BHS owner Sir Philip Green's sale of the business last year to Dominic Chappell, a former racing driver who had twice declared bankruptcy, came under considerable scrutiny. 

Mr Chappell bought BHS for a nominal £1, and Sir Green has been accused of overlooking obvious shortcomings in the buyer that should have caused great concern to most sellers. 

Tackling corporate governance failings

The fallout from BHS's collapse has raised questions about corporate governance in the private sector. In fact, the Institute of Directors (IoD) has urged the government to consider reforms to ensure that heads of companies are more responsible for their actions when businesses fail. 

In an open letter to Labour MPs Frank Field and Iain Wright, IoD director general Simon Walker lamented the corporate governance failings that occurred at BHS. 

Mr Field is the work and pensions committee chairman and has been very critical of Sir Green's behaviour in the wake of BHS's collapse, while Mr Wright leads the House of Commons business select committee. 

"The corporate governance of a major high-street organisation is not just an issue for the company concerned, but for the business community as a whole," Mr Walker stated in the letter

"The corporate governance at Arcadia, and the collective failure of regulators, trustees, and advisors, represents a blight on the reputation of British business."

Government criticises BHS management

A report from the work and pensions and business, innovation and skills committees was especially critical, describing Sir Green and Arcadia of "egregious failures of corporate governance". 

Ultimately, MPs said the decision to rush through the sale of BHS was the result of severe corporate governance failures and greed. 

"Regulatory concerns were circumvented, [and] advisers were heavily incentivised to progress the deal," the report read. "The complacent performance of Lord Grabiner as the non-executive chairman of the Taveta group boards represented the apogee of weak corporate governance."

Theresa May pledged to take a firmer line on corporate governance issues in the run-up to becoming prime minister in an effort to improve transparency and accountability. 

Her proposals include letting employee and consumer representatives have a place on company boards, as well as making shareholder votes for executive pay binding.  

The announcement received a mixed response from businesses, and only time will tell if Ms May will follow through on these suggestions now that she's become prime minister. 

The future of corporate governance

In addition to the situation at BHS, there appears to growing anger at CEO salaries in underperforming companies generally. 

Earlier this year, BP shareholders rejected a £14 million pay package for company chief Bob Dudley after the firm saw record losses and made thousands of people redundant. 

If the government decides to step in and increase regulation in the private sector, corporate governance professionals may find themselves taking on more responsibilities, particularly at the boardroom level. 

This could provide both challenges and opportunities across corporate governance functions, giving the right candidates the chance to excel in constantly evolving business environments. 

Whether or not there are large-scale overhauls to regulations in the near future, organisations nevertheless continue to face more scrutiny following the global financial crisis and ongoing austerity. 

As such, corporate governance is likely to have a more central role at many enterprises, with professionals expected to better influence strategic planning and growth-oriented initiatives. 

Our 2016 Compensation and Market Trends Reports combine our review of the prevailing conditions in the corporate governance recruitment market together with the results of our latest employer survey.

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