This blog began in June 2006. In that same month I wrote about the activities of Sir Philip Green. I had just taken part in recording ‘The Money Programme' that noted the record-breaking dividend paid by Green controlled com9anies via Jersey to funds controlled by his wife.
I also noted, I think uniquely, that it appeared that the arrangement was not quite as it seemed as a great deal of the apparent dividend appeared to end up as a creditor of the company since it did not have the means to settle a payment of the sum in question. In effect the company was hollowed out, and left indebted to a shareholder with a claim for payment which could be settled without further tax being due. It was, I suggest, part of an exercise to extract maximum reward from the company that showed indifference to its other stakeholders.
Move matters on to today and the company is nearing administration from which I suspect large parts will not rise again. The High Street is no longer where young people buy their clothes. The last time I went near one of his stores it seemed more like a jumble sale than anything else. The drive seemed to have gone.
Maybe Arcadia's time would have come without Covid. The damage its approach to clothing does to the environment is not sustainable anyway. But the question now is what this means.
Tax will not be paid.
Pensioners look as if they will lose out badly.
Job lossses will exceeed the 13,000 being referred to since many suppliers will be impacted.
Most shipping centres in the country will have large amounts of vacant space. That has spillover effects.
Now just suppose that Arcadia had not been run as a private fiefdom? Would it have made a difference? I very strongly suspect so.
UK company law requires that companies be run in the interests of a broader range of interests that the shareholders. That happens to have been true since 2006. Compliance has been patchy to say the least. I strongly suspect that few would argue that Arcadia has been an exemplar of good practice.
And some, maybe many even, will not have read the warning signs that have been there to see for a very long time.
This, though, was avoidable. Suppose auditors were required to report quite explicitly on all the threats to the going concern status of the entities that they report on? Let's suppose the standard was not relatively passive acceptance of the claim if they agree with the director's view on the issue, but to positively provide a risk appraisal?
Would this have helped in this case? I strongly suspect so. The biggest threat to Arcadia was always, I suspect, Philip Green. The balance of priorities within the company always seemed to be wrong. Now many will be paying the price. Audit shoukd be redesigned to give better warning of that.
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I think we can apply Betteridge’s law to the headline question
You are becoming tedious
Add value or leave please
I had been thinking back to Thomas Cook, where your current holiday money was used to pay the trip of someone else from 3 or more months back. I understand that CAA allowed it on the basis that to call it out would have collapsed the company. Or as you might say, delayed the inevitable.
On Arcadia shops; they have long been out of favour, but the financial ‘hollowing out’ seen in this and many companies does need to be addressed.
I agree that auditors do need to add real value for the work that they do.
I don’t see how Green can ever have been a ‘fit and proper person’ so I agree with your post.
But also, what Covid has revealed to me is just how indebted many companies are with the banks and there has to be a better way of running businesses.
I don’t believe better audit would have made much as other stake holders do not exert any power. Employees and suppliers if they look at the accounts at all would continue to take the risk and hope nothing would go wrong. Banks would be complicit and continue to lend. If the loans go bad they simply write them off. In many instances company law is not enforced. Many a private company has directors with overdrawn loan accounts even when the companies in question are largely insolvent.
If the auditors had flagged up any issues with Arcadia the likelihood is that different auditors would be appointed and the issues would persist.
Without the ability of stakeholders to enforce sound management practises and in cases where the main shareholder is in effect the management audit is of very little value.
So we need to change the whole set of rules
I’ve always believed that auditors should be appointed for a set period (say 4 years) and that during that time they cannot be removed, unless they break some major rules. But at the end of that period, they cannot be reappointed. And while we are at it, lets break up the big 4 cartel.
That’s an option
Another is to have them state-regulated, unable to fo anything else and paid by levy on all companies and then subject to rotation – I would have longer than 4 years but definitely not perpetual
Once again I think back to years of reading similar about Mr P Green in issues of Private Eye.