Sometimes in our working lives, we come across colleagues at all levels that have abrasive personalities. Sometimes it can be people that don’t appear very passionate about the organisation at all. When it comes to seeking advice or help, we tend to look to our supervisors and managers for direction. In turn, managers will look to directors for their own guidance so what happens if the person we’re questioning is the one at the top of your organisation? We would like to believe we can always rely on our managers to steer us down the right path and give us the support we require. However if someone at the top is behaving badly and shrugging off responsibility, this work ethic and mentality will trickle down steam and into every team member of the business. Chalking things up as “oh the director is having a tantrum again” or “let them have their way it will just be easier” will enable bad directors to keep getting away with such behaviour and it will quickly become the norm. So how do people who act this way end up in a position of power?
We a nurtured into believing anyone can work hard and achieve a position of authority, however it when it comes to running an organisation successfully it takes strong leadership. Unfortunately, we can run into dysfunctional personalities who are sitting at the top which disables boards and management team members making smart and fair choices. If your director has a very large personality or presence, they can occasionally get away with not being held accountable for their own examples of behaviour due to the inaction of others. It can also seem very daunting to go up someone who is much more senior than you are so it is easy to see why these bad directors who aren’t performing to the best of their ability get away with slacking off. No one wants to be the person to poke the bear as it were however; there have been many examples of poor director leadership leading an organisation off to the gallows.
Whilst it may seem apparent that strong director leadership is vital to the successful growth of an organisation, there has been multiple instances of directors not hitting the mark. For example in 2016 Sir Philip Green, director of UK retail giant BHS, sold the company for a single British pound. With the shift in tastes over the years and the fact BHS didn’t keep up with changing styles, it is no mystery as to why BHS went bust. According to companies house BHS made an annual loss of £70 million in 2013. The new owners have protested that “no one is to blame”, saying it was a “combination of bad trading and not being able to raise enough money property portfolio” according to Dominic Chappell, the new BHS owner. However, the company’s historic and generous defined pension scheme is the real reason that Sir Phillip Green was disgraced.
There are 20,000 members of the BHS pension scheme and all current and former shop workers to whom the company made pension promises as part of the terms of their employment are not facing the prospect of not receiving their full pension pay-out. Documents released revealed the scheme is running a £571 million deficit but this does not mean the scheme itself is as bust as the parent company.
The present value of the schemes future liabilities (promised pension pay-outs) exceed the present value of all its financial assets (stocks and bonds). Deficits are not uncommon for defined benefit company pension schemes however when interest rates drop future liabilities automatically rise. If things remain the same, there will be a shortfall and pensioners will not get all they have been promised. The pension protection fund (PPF) is a government-run scheme that rescues pension schemes of bust firms. The PPF pays full pensions to those who retired, but imposes a 10 percent cut for those who retire early or remain in work. With this in mind, Sir Phillip may have offloaded BHS for £1 however, the Governments Pensions Regulator has the power to pursue former owners of businesses if it thinks they have responsibility to members of the schemes.
Now on the offset this may seem unfair to Sir Philip, given he wasn’t at the helm when they pulled the plug. However, take into consideration that his family received more than £400 million in dividends from BHS, added to the fact that no UK income tax was paid on these dividends as they were paid to Sir Philip’s wife who lives in the tax haven of Monaco. In 2012, Sir Philip and the BHS pension fund trustees also took a decision to close the pension fund deficit over 23 years. Instead of offering to put money back into an escrow account to cover the pension deficit, Sir Philip protested and refused to pay in, attracting the headlines who dubbed him as ‘Sir Shifty’.
Sir Philip Green’s behaviour has robbed hardworking people out of their pensions and reckless actions like this cannot go unchecked. Unfortunately, this is not the first time that a poor leadership has led to the downfall of an organisation. Earlier this year we saw construction giant, Carillion, fall into liquidation. How did this happen? Carillion’s business model heavily relied on large contracts, some of which have proved much less lucrative than it expected. As its contracts underperformed, its debts soared to £900 million. The company needed a £300 cash injection, but the banks that lent the money refused to put more in when the true extent of debt became clear. The government also refused to bail it out, leaving the company unable to continue and forcing it to go into liquidation and 43,000 people out of a job.
So who is at fault here? Keith Cochrane, Carillion’s Former Chief Executive, admitted failings in the run-up to the construction firms collapse and admitted the business did have issues. One of these issues appears to be Chief financial officer, Zafar Khan, who protests his innocence, saying “he wasn’t asleep at the wheel”. Initially Mr Khan claimed that he had reduced the company debt, but when pushed by MP’s, he finally conceded that it had increased during his nine-month tenure.
What makes matters worse is Carillion agreed to continue to pay Khan’s hefty salary of £425,000 for the year after he was sacked in September. He left the company just four months before it collapsed leaving hundreds of workers redundant and public sector contracts in turmoil. People who have already retired will have their pensions paid in full, but those yet to retire will see cuts of 10-20%. Higher earners may be affected by a PPF cap on pay-outs, which is currently £34,655.05. However, employees with more than 20 years’ service can receive more. Sadly, the PPF assessment procedure could take months or even years leaving thousands of people out of pocket.
Everyday workers are supposed to be able to trust managers and directors to lead us into a prosperous future however, when scandals such as BHS and Carillion happen it damages the view of an executive team in the minds of employees. It is very frustrating to see thousands of hard working people being hung out to dry by the actions higher-level executives. People like ‘Sir Shifty’ Philip Green and Zafar Khan will now forever be tarnished with the reputation of being money grabbing and dishonest, whether that is true or not. Looking towards the future, we can only hope that other CEO’s and directors learn from the mistakes that these two have made.
Transparency is one of the key pillars of holding up good governance, however that has been proved to be lacking from the examples outlined above. Holding directors to account for their actions and having demonstrable proof of duties they have agreed is vital for a company’s success and, maybe more importantly, restores the faith of its employees. Here at eShare, we believe good governance starts at the top and that investing in the correct tools to enable executive teams do their jobs efficiently is the key to a successful business. That’s why we developed BoardPacks.
With our document tracking features, there is no longer an excuse for board members not to read important board papers or documents. Anyone attending the board meeting can now see who, when and how long papers have been looked at. Oh and don’t have any concerns regarding if the document has been properly read, with BoardPacks we created our document tracking feature to record any inactivity. If it has been left for over 5 minutes, BoardPacks times out and wont mark the document as read. This feature was built in mind to hold people accountable for their responsibilities and stopping anyone to try to claim they have read the document when they haven’t. Say goodbye to poor transparency and take peace of mind knowing that the outcomes and decisions of meetings are being made with all the important information being read by your director and all board members.
If you would like to arrange a free comprehensive demo of BoardPacks please contact us at email@example.com or call us on 08452 007 829