Sunday, 4 March 2018

Updates – Carillion, Sir Philip Green, and Toys ‘R’ Us

As is usually the case in this particular arena, business stories are continually developing and usually at a rate of knots. Therefore, today’s post catches us up with a few stories that we have looked at previously; all of these stories selected today were always going to be end up in a negative, and today’s updates confirm that with news that the Carillion collapse was not what it first seemed (predictably), that Sir Philip Green is continuing his war of words with British Politicians (and one in particular), and that the retailer Toys ‘R’ Us failed in its attempt to save itself.

The Carillion Collapse Reveals Predictable Skeletons

We have looked at the issue of Carillion on a number of occasions, ranging from the onset of the crisis to the collapse and subsequent call for the Pensions Regulator to much more in clawing-back some of the pension fund that was depleted by the company. Rather predictably on the back of such a large and interconnected collapse, the post-Carillion era has been littered with revelations regarding mis-management and poor performance from the company and the associated ‘gatekeepers’. This weekend it was announced that a previously unpublished report detailed the fact that the company’s managers ‘aggressively managed’ the company’s balance sheet to paint a rosier picture than was actually the case; whilst regular readers of Financial Regulation Matters and, in truth, almost everyone else, will not be surprised by this revelation in the slightest, the details make for interesting reading. The report, commissioned by Carillion for its lenders, suggested that income had been brought forward and payments delayed on the balance sheet, whilst subcontractors had their payment terms quadrupled to four months, with the BBC now reporting that many of those subcontractors face the inevitable as a result – bankruptcy. Whilst Carillion bosses felt the report was ‘too harsh’, Frank Field MP reacted by stating that the report clearly identified ‘gross failings of corporate governance and accounting’. However, whilst the internal governance mechanisms were clearly not suitable, it is interesting to note that the report was seen by interested lenders like RBS, Barclays, HSBC, Santander, and Lloyds, which suggests that the ultimate losers of the collapse – the pension holders, the supply chain, the contributors to the Pension protection Fund, and ultimately the public – were not considered at any point in the process. There is a general understanding that those ‘within the circle’ knew about the ever-increasing potential for Carillion’s demise far in advance of it happening, though there are other arguments for widening that circle to a number of other parties. Furthermore, the plot thickens with news that Ernst & Young had suggested to the firm that they would become insolvent in March 2018 (so, just a short while out from reality) and presented a plan that would see Carillion broken up and inject over £200 million into the pension fund (it is also being reported that the Government knew of this plan, and did not put any pressure on Carillion to accept it); the result of this is a realisation within one of two fields of reasoning – either, the management at Carillion genuinely believed that they could save the company, or they did not want to dismantle it as there was still money to be extracted before it failed. Which understanding one supports is down to the faith one has in the corporate field, but the sentiments of both are valid; if they did believe they could save it, then the Government needed to do more to push for the E&Y plan to be executed to save at least some money for the pension holders. If they continued past the point of no return for personal gain, then the directors and leading managers are in breach of a number of statutory rules within the U.K., and the punishment for that should be as severe as allowed under those same statutes. One thing is certain, and that is that there are plenty more skeletons in the cupboards of Carillion.

Sir Philip Green Calls for a ‘Truce’ in the Only Way He Knows How

We only covered the latest development in the so-called ‘feud’ between Sir Philip Green and Frank Field MP very recently, so we will not go into much detail on the ongoing ‘saga’ here. The post last month essentially related to the calls from Field to closely monitor the proposed sale of Arcadia to a Chinese firm if and when that transaction took place, mostly on account of Green’s poor record of fulfilling his responsibilities to employees and pension holders (mostly because of the collapse of BHS). Whilst one should not be surprised at Green’s inappropriate level of bravado, recent developments offer a clearer demonstration for his contempt of due process and the requirement to be a responsible business leader. Recently, Green sent a letter to the House of Commons Work and Pensions Committee, and in that letter he has called for a ‘truce’ to what he perceives is a long-running ‘spat’ between the two, stating that ‘everyone is bored with this story’. Green continues by stating that there is no truth to the proposed sale to Shandong Ruyi and that ‘all the Board are aware, if the company is sold, there are pensions obligations and there is a process’. Yet, rather than leaving it there, Green continues by accusing Field of building his ‘press profile on the back of me’, and that is it time to end the spat that Field ‘so enjoys’. Finally, Green suggested to Field that he should ‘go and tackle Carillion or someone else’. Field responded by stating that ‘Philip Green never ceases to amaze’ and that ‘he doesn’t know how to behave like an adult’. Yet, if we remove this back and forth, the facts of the matter present a telling picture; Green, a Billionaire who attempted to make off with the pension funds of his BHS employees and was forced to pay (just) a proportion of it back is now telling the elected official in charge of overseeing the fight against such practices that he is pursuing a ‘press profile’. The arrogance and narcissism displayed by Green is obvious and predictable, but it does not excuse his incredibly poor behaviour; if ever one wanted a demonstration of why white-collar crime is rife, then this is it – the lack of penalty means that not only does it continue, but perpetrators actually attempt to engage and bully those who are tasked with representing people who cannot represent themselves. Ultimately this saga will continue, no doubt, but the acknowledgement that Green represents the darker sides of the corporate ideal need to be recognised at every turn.

Toys ‘R’ Us Fails in its Attempts to Save Itself

Very briefly, we looked at the demise of the famous ‘Toys “R” Us’ brand recently, with the British segment of the business facing collapse if it could not find a buyer to save it from collapsing. Last Wednesday, the firm – and, coincidentally fellow retailer Maplin – failed in its attempts and fell into administration putting 5,500 jobs at risk between them. Part of the administration process is to attempt to bring the business back to health, although reports are suggesting that administrators are seeking to have the businesses sold as businesses, rather than breaking them down into parts to be sold. It is interesting to note that the collapse of Maplin, an electronics specialist, on the very same day paints a particularly bleak picture for the world of high-street retailers in the face of pressure from online retailers like Amazon. The Labour Party has called for the Government to work with Unions to safeguard the jobs that are at risk but, unfortunately, this seems to be a political move rather than a genuine call because, in essence, these types of firms are losing relevancy all the time in the modern marketplace – a fact demonstrated by a large number of job losses in the retail sector this year alone (and it is only March). The year-on-year losses experienced by Toys ‘R’ Us were a statistical representation of the reality that is coming to many a high street in this country (and many other countries) – the battle with the online marketplace is close to being lost, particularly in the niche sectors like toys or electronics. It appears, from recent developments, that spending habits in the current era will continue to re-shape the landscape that many have known for a large portion of their lives.

Keywords – Business, Politics, Law, Regulation, Pensions, Corporations, @finregmatters

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