27 September 2016 by Henry Ker
The latest survey of the Governance and Compliance/Core community
The collapse of high-street retailer BHS has brought the issues surrounding pensions firmly back into the public eye. Alongside that, Barbara Lady Judge has called for increased regulator powers to block M&A that are detrimental to employees in defined benefit pension schemes. She explained, ‘If they [the Regulator] had had the power, we would not be in this situation.’
We asked the Governance and Compliance/Core community about Lady Judge’s proposal, with a majority of 64% agreeing that The Pensions Regulator (TPR) should be given stronger powers to block takeovers. Only 15% disagree and 21% answered maybe.
Despite the majority being in favour of this proposal, several respondents voiced concerns. One commented, ‘This is a very dangerous power and would have to be used very carefully … As a final sanction possibly − but it all has to be taken on a balanced view of what is in the best interests of the company as a whole; weighed against the interests of the pension members. It would stifle corporate transactions if pension members had the ability to block all deals and would drive investment out of the UK.’
Several respondents are for greater regulator involvement, although not so aggressively: ‘Not necessarily to block takeovers to safeguard pensions, but certainly to ensure there are robust safeguarding provisions in any takeover agreement’. Another said, ‘I do not necessarily agree that TPR should be able to block a takeover but should have sufficient powers to ensure that pensions’ interests are adequately protected as part of the transaction’, and a third believes ‘Blocking a takeover because of a pension issue is rather a heavy-handed approach. Some method of regulatory approval might be better to ensure that neither pension schemes nor the commercial benefits of takeovers are jeopardised.’
Others suggested treating pension funds as more independent from companies. One individual said, ‘This is not an appropriate fix … The regulator should be scrutinising the management of the pension fund on a standalone basis, rather than the company for whose employees’ benefit the fund is run. It is fundamental that the right people are running such a fund, and there is a strong argument to say that bolstering the independence of a pension fund from the corporate would be a good way of bringing the management issue into the spotlight.’
We also considered another idea, asking whether directors’ duties should be expanded to include a specific duty of care for a company’s pension fund. 55% agree, 31% said ‘no’ and 14% are unsure.
There is an argument that this is already covered under the directors’ duties in s172, which requires them to have regard to ‘the likely consequences of any decision in the long term’, ‘the interests of the company’s employees’, and ‘the impact of the company’s operations on the community and the environment’ among other things. However, there is no specific mention of pensions. One respondent said: ‘This should already be covered by the enlightened shareholder model under s172 of the Companies Act’, and another, ‘It seems to me that once you have decided that a director needs to take into account stakeholders other than just shareholders, including employees, that it is only logical for them to consider pensioners and current employees contributing to the pension scheme.’
Others opposed the expansion of directors’ duties: ‘a significant portion of the issues a number of pension funds are facing are a direct result of Government policy [so] it does not seem appropriate to impose a duty on directors for issues not of their making.’
Conducted in association with The Core Partnership