Introduction
Corporate scandals have been continuously happening in the past years, these are all due to the unethical behavior of some employers which led to many people suffering from these misconducts. The most significant corporate scandal that has happened in the recent year is the breakout of the BHS scandal in Britain that has been extensively studied by different parties’ viewpoint. The scandal involves Sir Phillip green selling BHS for £1 to a former bankrupt, Dominic Chappell (BBC News, 2017a). This scandal has spread widely across the UK since it affects most of the people in the UK which is the pensioners, employees of BHS, banks, and the government. Through this scandal, we can observe the ethics, regulations, impact, different perspectives from external views of BHS and give recommendations for future events.
KEY INFORMATION
British Home Stores was bought by Philip Green in 2000 for £200 million, it was then taken over by Taveta company which is legally owned by his wife, Lady Green in 2009 (Hill and Felsted, 2015). A total of £414 million have been collected through dividends by Philip Green within the period 2002 to 2004 (House of Commons, 2016). In 2009 and 2012, the issues of a rise in pension deficit were raised by the BHS pension trustees, thus requested an increased in their contribution to the scheme (The Pensions Regulator, 2017). Following the rise of pension deficit problem, Project Thor was the deficit recovery plan to prevent the company to go bankrupt and make it more sustainable (House of Commons, 2016). However, it was canceled since Phillip Green decided that it was too expensive for it to run, plus the period for the recovery plan takes too long which is 23 years which made the Pensions Regulator investigated on BHS (Edwards, 2016).
After 15 years of owning BHS, Sir Philip Green decided to sell it for £1 to Retail Acquisition Limited (RAL) which is owned by Dominic Chappell in March 2015 (BBC News, 2017a). The new owner of BHS which has gone bankrupt twice and without any experience of retail had also fallen down with the BHS department store in April 2016, which caused 11,000 jobs and 20,000 pensioners at risk, plus a financial crisis of pension deficit which accumulates to £571 million (Butler, 2017a). All the agreement which have been made between BHS and RAL before it was sold to RAL were all not met. On top of that, Dominic Chappell has gained £2.5 million from his salary and his family received 1.5 million interest-free loan within the period of 13 months (Williams-Grut, 2016).
After months of receiving pressure from the Pension Regulators and threat of legal action, Philip Green finally agreed to the pension settlement which he has to fund £363 million to the pension scheme (Butler, 2017a). Dominic Chappell and his company, Retail Acquisition Limited (RAL), who took over BHS after Green has also been halted for legal measures as he has made the process of settlement prolonged by not disclosing information about the pension gap (Ruddick and Butler, 2017).
ETHICS APPLIED TO THE PROCESS
There are two ethics that are applied throughout the process of BHS scandal which is Theological ethics and Deontological ethics.
Sir Philip Green has shown a theological ethics since it is said that he sold BHS for £1 to Dominic Chappell who does not have any experience in retailing, in order for him to avoid the pension liability that keeps rising in the BHS pension scheme (Yeomans, 2017). According to BBC News (2017b), the pension regulators took months of negotiation for Sir Philip to contribute cash in the pension scheme. After the pension regulators said that it would take legal measures, only then Sir Philip agreed to an agreement which he then contributes £363 million (Butler, 2017a). Besides, Green also made detriments such as his absence in London Fashion Week and a loss of his 100 million superyachts (the Guardian, 2017).
Dominic Chappell has also shown a theological ethics by buying BHS from Sir Philip Green without any retailing experience, thinking that it will “benefit him”. BHS went into administration after 13 months and Chappell had managed to make £2.6 million from his salary, and his family received 1.5 million interest-free loans within 13 months while managing BHS (Williams-Grut, 2016). This shows that he took the offer from Green just to benefit himself without having thoughts about the business or millions of people under him.
Deontological ethics were applied when the Pension Regulators investigated the scandal thoroughly. They have done their job by urging Philip Green to pay the pension deficit and even started to use legal force before Green agreed to the settlement (Ruddick and Butler, 2017).
ETHICS APPLIED TO THE OUTCOME
The ethics that were applied to the outcome were virtue-based ethics, deontological ethics, and theological ethics.
Virtue-based ethics was applied when Philip Green made a contribution of £363 million to the crisis of BHS (Yeomans, 2017). As a matter of fact, he made an official apology to everyone that was affected by the catastrophe (Duncan and Burton, 2017). Likewise, the pension scheme would have been administered by the Pension Protection Fund (PPF) if Green did not contribute to the pension scheme (Yeomans, 2017). By doing all of above, Green thinks he is a good man which makes him apply the virtue-based ethics.
It is clear that Dominic Chappell used theological ethics in the outcome of the scandal. It was stated that Chappell did not provide sufficient information about the BHS pension and was fined £87,000 by the pensions regulator (the Guardian, 2018). This shows how egocentric Chappell is when he bought BHS from Phillip Green, he was only thinking of himself and not the 20,000 pension trustees as well as 11,000 jobs at risk.
The pension regulators also practiced deontological ethics in the outcome of the scandal. The members of BHS pension schemes received a better outcome since an agreement with Phillip Green have been made by the pensions regulator. The BHS pension settlement has three resolutions for the pension trustees to choose which is: (1) Transfer to a new independent pension scheme with the same starting pension as the BHS pension, (2) Anyone with small pension pot that accumulates up to 18,000 in total value may take a lump sum, (3) Remain with the current BHS scheme and receive at least PPF benefits levels (The Pensions Regulator, 2017).
REGULATIONS
The pensions regulator decided to investigate BHS following Sir Phillip Green sold BHS to (RAL) Company for £1 in 2015. The investigation was generally focused on how the BHS pension scheme is managed, the proceedings after the sale of BHS, the BHS schemes impact after it was sold, and post-sale events impacts on BHS schemes (thepensionsregulator.co.uk, 2017).
Firstly, the pension regulators have used the power under the Pension Act 2004 which is known as anti-avoidance or ‘moral hazard’ to issue a contribution notice (The Pensions Regulator, 2017). The contribution notice is to inform anyone who has relevant information regarding the BHS scandal to preserve the documents, so that it can be used for investigation (thepensionsregulator.co.uk, 2017).
Secondly, is the financial support direction (FSD). In order to issue for a (FSD), it needs to consider that the scheme’s employer was either a service company or ‘insufficiently resource’ at the relevant time (The Pensions Regulator, 2017).
Thirdly is the information-gathering which is under section 72 information-gathering power, its purpose is to gather any information which is relevant to use for the investigation (The Pensions Regulator, 2017). Additionally, the pensions regulator also has the rights to disclose any relevant information regarding the BHS scandal from any parties (The Pensions Regulator, 2017).
Next, warning notice of investigation has been done in the post-sale events of the investigation. It is the closing stages of the investigation when BHS went into administration along with RAL company (The Pensions Regulator, 2017). In this stage, the settlement involves BHS directors, trustees and Pension Protection Fund (PPF) meeting regularly for a solution (The Pensions Regulator, 2017). Pension Act 2004 was created by (PPF) with the purpose of compensating the entity or person which is affected by the insolvency event that happened with the pension scheme (The Pensions Regulator, 2017).
IMPACTS OF THE BHS SCANDAL
From my perspective, Taveta company which is owned by the Green family and particularly Sir Phillip Green has the worse impact on the BHS scandal.
Sir Phillip Green
The chief executive of the Pensions Regulator was determined to make Phillip Green conform with the legal demand issued, where if he refuses it will force him to have his assets seized including his newly bought £100m super-yacht (Ruddick, 2016). His reputation was also tarnished which caused him to prevent from going to social events such London Fashion week (Ruddick and Butler, 2017). Furthermore, he was also forced to lose his knighthood by Labor MP Frank Field (Sculthorpe, 2017). Sir Philip Green also bought a £100 million superyacht in the midst of the BHS scandal which caused him to be criticized the netizens (Ruddick and Butler, 2017). Henceforth, making his reputation worse than it is after he sold BHS for £1.
Taveta Group
The outcome of the BHS scandal has made Taveta company suffer from a 79% fall in its profit compared to 2016 (Butler, 2017b). Besides that, Arcadia group which is under Taveta Group also has difficulties catching up with the harsh fashion demand, which leads to one of its largest brand, Topshop and Topman’s sales to declined (Butler, 2017b).
EXTERNAL VIEW
There are many external views regarding the BHS scandal, nevertheless Labor MP Frank Field and Theresa May, the prime minister of the UK has an exceptional view to elaborate.
Labor MP Frank Field
Labor MP Frank Field, who was the head of the Commons work and pensions committee, blames Philip Green for the pension deficit as well as the administration of BHS, which caused 11,000 jobs and 22,000 pensions at risks (Boland, 2017). Additionally, it is also said that the settlement payment made by Philip Green was not adequate and the report made by the regulators was not sufficient enough for judgement (Butler, 2017a). Labor MP Frank Field was also threatened by Philip Green with a legal action since he exposed disclose data about the BHS scandal which caused tensioned between the two (Boland, 2017).
Theresa May
Carillion also has a crisis of a pension scheme with a deficit of £900 million following the BHS scandal (BBC News, 2018). As a result, it has urged Theresa May, the prime minister of the UK to reform capitalism and tackle the problem of irresponsible corporate behavior that has been extensively happening for the past years (Mason, 2016). Theresa May has declared to halt ‘pension abuse’ from private business sector, thus making the employers to take responsibilities for their own predicament (BBC News, 2018). Consequently, the government will set out a new legislation to protect defined benefit (DB) schemes (BBC News, 2018).
Conclusion
In conclusion, in this analysis of BHS scandal, Sir Philip Green is deemed an irresponsible person not because he sold BHS for £1, it is because he was thinking of ways on how to get out of the problem rather than tackling it all together to save BHS as a whole. Nevertheless, there are many ways to prevent similar misfortunes to happen in the future, for example, the government could establish an official parliamentary system, so that employers are responsible and would not be able to make private gains. The government can also enforce schools, universities or even current employees and employers to learn about ethics and apply it throughout their walk of life.