By Dina Medland in London
Corporate Governance and Pensions
Like a persistent hum in the background, issues around company pensions and corporate governance keep popping up in media headlines. In part, we have Sir Philip Green and the sorry tale of BHS to thank for that.
This week, as the UK’s pension regulator published its report into the deal done with the retail tycoon under which he agreed to give £363 million in cash to rescue the BHS pension scheme, it emerged that he was persuaded to do so after the regulator found that his “main purpose” in selling the department store was to avoid taking on liability for the scheme.
There are still a lot of unknowns around the conversations that took place between the regulator and Sir Philip Green. The strapline on the Lombard column in the Financial Times reads: ‘The TPR appears — still — to be being outgamed by Sir Philip.’
Leaving aside BHS, corporate responsibility for pensions is an issue that is in urgent need of some serious thought. I wrote about it on Forbes late last year in ‘It’s About My Pension, Stupid – Pensions Are A Corporate Government Issue’ and developed it further under the theme of corporate governance for the last chapter in a book just out from the cross-party think tank, the Centre for Progressive Capitalism.
BT, which has a large pension scheme deficit (and is mentioned in both my cited pieces) has made the headlines recently for starting a review of the scheme, and entering negotiations with pension fund trustees about its future funding. But the situation in which it finds itself has not sprung up overnight, and senior management at the telecoms giant have made many other strategic and operational decisions for years in full knowledge of the state of play on pensions.
The FTSE 100 business was also in the news this week as the Financial Reporting Council (FRC) announced it had launched an investigation into the auditing of BT's accounts by PwC after the telecoms giant identified a £530m black hole in its Italian business earlier this year. BT gave details of the accounting errors last year but then increased its estimate of the impact in January this year, sending its share price plunging.
There is a lot of scoffing in the media about regulation, and then every now and again there is a sharp intake of collective breath at actions taken by a regulator. So it appears to be with the announcement this week by the Financial Conduct Authority (FCA) of its report into the asset management industry, and its intent going forward.
The Financial Times headline read: ‘UK regulator calls for radical shake-up of £7tn investment sector’ with the strapline ‘Financial Conduct Authority wants fund managers to overhaul charges and governance.’
“The City watchdog has pressed the ‘nuclear button’ on Britain's investment industry by proposing a swathe of strict new rules aimed at building trust in the £7 trillion market” reported the Daily Telegraph.
Is it possible the UK’s mainstream media can suffer from a bout of ‘governance outrage?’ In an interesting choice of words the FT reported that the FCA’s “most controversial reform ideas include forcing investment managers to present investors with an all-encompassing fee and to put two independent directors on fund boards.”
Regulation is there to draw a final line. But there are so many areas in which regulators prefer industry to move voluntarily in what is seen as the right direction. Growing concerns around climate risk, it impact on unprepared businesses and unwitting investors is one such new dimension.
This week the Task Force on Climate-related Financial Disclosures (TCFD) set up by the international body the Financial Stability Board (FSB) released its recommendations. TCFD was set up to develop voluntary, consistent climate-related financial risk disclosures for use by companies. It has big names in business – particularly among banks – on board and will now be hoping for the best result: that sheer momentum takes it forward. Boardrooms in multiple industry sectors will want to be watching developments closely.