Once a fixture throughout the United Kingdom, British Home Stores is being liquidated. The bankruptcy of the nearly century-old home-goods retailer leaves 11,000 employees looking for work and 20,000 retirees worried that their pension fund will soon dry up. Retailers are struggling across the U.K., as middle-class shoppers embrace Internet delivery—when they’re spending money at all. BHS would have needed competent management and solid investment to thrive even in the best of circumstances. Unfortunately, it had an opportunist at the helm.
Sir Philip Green, who also owns Topshop and other British name brands, purchased BHS in 2000. It was at the time a healthy, profitable company, with assets of over half a billion pounds and liabilities of just £300 million. Its pension funds enjoyed a £43 million surplus. As a new report by the House of Commons notes, Green increased the company’s profitability, but not by increasing sales. Instead, he slashed costs by squeezing suppliers, often small businesses. Rather than reinvesting the higher profits, he took money out of the company.
In the early 2000s, BHS paid shareholders dividends that were nearly double profits. “This effectively removed value from the company, precluding its use for purposes such as investment or pension contributions,” the Commons report says. Most of those dividends—more than £300 million—went to Green’s family, which awarded itself “dividends far in excess of company profits.” Lady Green, his wife, a resident of Monaco, earned these profits offshore rather than in Britain, thus avoiding British taxes. This cash raid, unsurprisingly, left BHS weak. “By 2014, BHS was left on life support, having drawn on all its accumulated reserves and more,” the report says. That year, Green engineered the company’s sale to an investor for just £1—thereby unloading responsibility for a £300 million pension deficit.
As the Commons report notes, Green didn’t plunder the company all by himself. He had sign-offs, advice, and other help from the world’s leading financial firms, including Goldman Sachs, Grant Thornton, and PricewaterhouseCoopers. He also could turn to multiple boards of directors, made up of supposedly fair-minded people. British regulators missed several opportunities to compel BHS to put more money into its pension fund. British law has long allowed investors to avoid taxes, even under transparently dubious circumstances. How, for instance, did Green’s wife—who, the Daily Mail helpfully notes, lives in a “gin palace in a tax haven”—become such a large offshore investor in her husband’s company?
The BHS tale is a reminder that capitalism, in itself, is not moral or immoral but amoral. It needs moral actors to set ethical, social, and cultural norms. Strikingly, the Commons report notes in its conclusion that Green still has a “moral”— not legal—“duty to act” to use his wealth to shore up BHS’s pension fund. Though Daily Mail financial editor Alex Brummer called Green’s actions “breathtakingly immoral,” global financial and management officials have been notably quiet.
Free-market capitalism badly needs defenders who can point out that the pursuit of riches is good when it motivates people to invest in risky ideas, or to devote time to an invention that may fail—but who will also acknowledge that greed isn’t good when it motivates people to harm employees and customers in order to enrich themselves. The British public, like the American public, is angry at the world’s elites, and it’s not hard to see why. One BHS worker, C. Patel, who described herself as “56 years of age and hav[ing] worked for BHS since I left school,” told investigators that she now finds herself “in a position where my pension is under threat,” which has “caused me a lot of upset and sleepless nights. I feel so helpless in what is happening.”
What Green and his enablers did may have been legal, but it was also wrong. He should feel ashamed by the photos of his wife on her £100 million “superyacht” and by the photos of his daughter clutching her £2,100 purse. Shame has nothing to do with the law, or with regulation. It is a form of moral discipline. Markets could badly use some of that, lest more people turn away from them in disgust, leaving us all poorer.
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