Work and Pensions Committee joins calls for better oversight of large private companies

The committee's latest report, published in response to the government's corporate governance consultation, also recommends extending the list of stakeholders that company directors must have regard to in the exercise of their duties to include defined benefit (DB) pension scheme trustees, who must act in the interests of the pension scheme beneficiaries.

Extending the statutory duty, as set out in section 172 of the 2006 Companies Act, to pension scheme trustees in this way "might increase the chances both that directors would take into account the interests of current and future pensioners in carrying out their duties, and that those who have failed to do so will be held accountable in the courts", the committee said in its report. Incomes of pensioners in retirement are reliant on the continued success of the sponsoring company, but the interests of former employees are not represented in corporate decision-making, it said.

Citing the recent collapse of UK retailer BHS as an example, committee chair Frank Field said that it was "simply not enough" for private companies with a large social and economic footprint to be accountable to shareholders.

"It can't be right that basic information like the schedule of employer contributions and the length of the recovery plan is not in the public domain," he said. "If [the pension scheme] goes under then levy-payers and pensioners foot the bill."

"Companies already owe duties in relation to their pension schemes, but having them codified further is a striking suggestion," said pensions law expert Alastair Meeks of Pinsent Masons, the law firm behind Out-Law.com. "Companies would then need to grapple with how the interests of pension scheme members are to be weighed against the interests of shareholders and other stakeholders."

BHS was placed into liquidation in December 2016, after no buyer was found for the business as a going concern. The company had 11,000 employers when it went into administration, while its DB pension scheme was £571 million in deficit.

Public listed UK companies are required by law to comply with the UK Corporate Governance Code and its reporting requirements, or to explain why they are not. No such requirements apply to private companies. The committee has recommended extending compliance with the Code to large private companies and those with more than 5,000 DB pension scheme members, which would make it easier to hold their directors to account in the event of poor governance or pension scheme mis-management.

Many well-governed large private companies already follow best practice on transparency, according to the committee. Its report lists the 30 largest private companies in the UK, including "household names" such as John Lewis, Clarks, Matalan, Virgin Atlantic and Pret a Manger. The government is already seeking views on ways to strengthen the corporate governance framework for large privately-held companies as part of its consultation, and has proposed extending a version of the Code to cover these companies as a potential solution.

The committee also recommended that investigation reports by the Insolvency Service be made public where there is "significant public interest" in publication.

The corporate governance green paper consultation period ends on Friday, 17 February 2017. The government is seeking views on issues including executive pay, and on strengthening employee, customer and other stakeholder 'voices' on the boards of publicly listed companies, as well as on private company governance in response to the paper.