Oral evidence: The sale and acquisition of BHS, HC 54
Oral evidence, 23 May 2016.
Witnesses
Owen Clay, Partner, Linklaters, Steve Denison, Partner, PwC, and Anthony Gutman, Co-Head, EMEA Investment Banking Services, Goldman Sachs, gave evidence. Mr Wright was called to the Chair.
Chair
We will start the session with the second panel. May I ask you to introduce yourselves, for the purposes of the record, and to tell us the company you work for? We will start with you, Mr Clay.
Owen Clay
My name is Owen Clay. I am a corporate partner at Linklaters, legal advisers to Arcadia.
Steve Denison
I am Steve Denison. I am a partner at PricewaterhouseCoopers. Since 2008, I have been the auditor to Taveta and its subsidiaries, and in 2009 I assumed the same role for BHS, when it came into the Taveta group, until the point at which it was sold.
Anthony Gutman
Anthony Gutman from Goldman Sachs.
Chair
Thank you for being so patient with us. This is a question to you all, but I will start with Mr Clay. What, and to whom, was the nature of your advice regarding the sale of BHS?
Owen Clay
Our advice was given to Arcadia, and its parent company is Taveta. Our mandate was to prepare and negotiate the legal documentation to give effect to the agreed deal. There were—I think you have seen a copy of our engagement letter—a number of carve-outs to the scope of our advice that we were to give during the course of the transaction. The most notable of those exceptions was advice in relation to pensions, and obviously you had Mr Greenstreet from Nabarro, who were advising Arcadia in relation to pensions.
Steve Denison
We had no role in relation to the sale. Our role was as auditors to BHS, the company, although during the sale process we did respond to queries from the purchaser’s advisers in the context of their due diligence into BHS.
Anthony Gutman
We were neither engaged nor paid as an adviser by the Arcadia group. We were asked to provide informal assistance by the Arcadia group as it related to the initial proposals received for BHS, and in particular as it related to funding and intentions.
Chair
Thank you. Mr Clay and Mr Gutman, we may come back to you and probe you further. Mr Denison, why did you sign off BHS’s accounts as a going concern?
Steve Denison
I guess there were two considerations in relation to going concern. One was that, at the time the accounts were signed, no deal had been done, so in the event that a deal did not happen, then financial support would continue to be available from the Taveta group, as it had been in previous years. There is written confirmation of that from the parent company. In the event that a deal did happen, that financial support would fall away, so the factors that were brought to bear at that time were: to what extent would such a deal bring additional cash, assets and resources to BHS to allow it to continue to trade in the future?
Chair
What tests did you undertake as part of the process to satisfy yourself that it was a going concern?
Steve Denison
Just to explain, “going concern” is the ability of a company to trade for the foreseeable future, which is at least 12 months beyond the balance sheet day. It is the responsibility of the directors to form an assessment as to whether a business is a going concern or not and then for the auditors to assess that statement and decide whether it is reasonable or not. As I said, the factors that were at play in relation to any prospective deal were: what cash, assets and benefit would be brought to BHS to allow it to continue to trade in the future from any such deal?
Chair
When you are planning an audit, does having a complex group structure increase the risk?
Steve Denison
Potentially it does.
Chair
Do intra-group transactions also increase the risk?
Steve Denison
Not necessarily, because you can see both sides of those transactions. Obviously if you are the group auditor, you can see one company paying another or one company receiving from another.
Chair
Was the BHS audit—and, as an extension of that, Arcadia and Taveta—seen as a higher than average risk?
Steve Denison
No.
Chair
Why not?
Steve Denison
It is a largely UK retail business. Retailing itself is a relatively straightforward activity—it is buying and selling—and the group structure, although there are lots of entities in that structure, is not particularly complex.
Chair
Did the management charge—£252 million over five years; about 7% of turnover every year—seem excessive to you? That seems very excessive. Did you do tests on that? Did you question management and directors on that?
Steve Denison
We did do work on the management charges. Can I just explain the context of that management charge? You will recall that prior to coming into the Taveta group, BHS was a stand-alone entity, with all of the functions that you need to carry on a business as a large multiple retailer. One of the reasons for bringing BHS into the Taveta group was to achieve cost savings, and from the point at which BHS came into the group, a significant number of functions that had previously been carried on by BHS as a stand-alone entity, and paid for by BHS, were henceforth paid for by Arcadia in the first instance and then recharged to BHS. The sorts of things I am talking about are transport and logistics, HR, IT, finance. If you look at the accounts of BHS prior to it coming into the Taveta group, those costs appear separately in BHS’s own profit and loss account. Subsequent to coming into the group, those costs were initially paid for by Arcadia and then recharged to BHS. In fact, across the whole of the Taveta group, those charges are incurred by Arcadia and then recharged to all the different businesses—BHS and the various Taveta brands. Importantly, there is no mark-up on those services so, whatever the annual cost is, it is just charged out across all the different businesses within the group.
Chair
The 7% of turnover for management charges seems very excessive.
Steve Denison
It depends what you mean by “management charge.” Those management charges represent payment for services that BHS needed: logistics, transport and moving goods around the country, the HR function, the IT function, et cetera. They were services that BHS was simply buying from Arcadia. Arcadia was paying for them in the first instance.
Richard Fuller
Just to quickly follow up on your point, Mr Denison, why did you not issue an emphasis of matter?
Steve Denison
An emphasis of matter is required where the going concern concept applies but where a material uncertainty exists. I guess that would be relevant in the event that there was a deal and the Taveta support fell away. So the factors that were relevant here. As I said before, if a deal was going to happen, what would it bring to BHS? I think there were three factors here to bear in mind. Firstly, the existing management team of BHS had been trying to turn the business around and had been having some success in both driving out cost and reducing the cash requirement to fund BHS as a trading entity. It is important to remember that the accounting losses shown in the profit and loss account of BHS were significantly greater than the cash losses that it was incurring. In other words, the cash requirement that BHS had was lower than the losses shown in the profit and loss account. In terms of the prospective deal, as I understood it and as I saw it develop over the weeks immediately prior to the accounts being finalised, there was both a package of extra cash and assets to be provided by the vendor and new cash to be provided by the purchaser. If you compared those two, additional cash and assets, with the cash requirements of the group, as shown by the plans and normal budgets—you heard earlier about the recovery plan prepared by management—there was no material uncertainty and therefore no need for an emphasis of matter.
Richard Fuller
Just for clarification, on the issue of emphasis of matter, your consideration was made on the expectation that a deal was imminent, or potentially imminent—it was six days later?
Steve Denison
Yes.
Richard Fuller
And your decision and analysis encompassed both BHS remaining as part of the Arcadia Group or being sold to Retail Acquisitions Ltd?
Steve Denison
Correct.
Richard Fuller
Did you do any assessment, other than on the financial issues, of the capabilities of the new management and leadership at Retail Acquisitions Ltd in coming to your conclusions?
Steve Denison
I think it is important to have a distinction between the management of BHS and the shareholders, because prior to any deal, under Taveta, there was an existing stand-alone management team at BHS that was running the business on behalf of its then shareholders. My understanding was that that management team would remain very substantially unchanged in the event that a deal happened. In other words, the team that had been running the business and trying to turn it around would still be doing that same role going forward.
Richard Fuller
So your concerns were mainly on a management level?
Steve Denison
Yes.
Richard Fuller
In the PwC scope of audit—I am interested in an overall assessment, not just from PwC but from others—schedule 1 states: “We will conduct our audit in accordance with international standards on auditing, issued by the Auditing Practices Board, and ethical requirements.” Are you satisfied in your work in signing off the accounts, and in your assessment of the new acquirer, that you have met that last piece—ethical requirements—given what has subsequently happened?
Steve Denison
I am, yes, in terms of the ethical standards that apply to an audit. Absolutely.
Richard Fuller
Okay. Can I turn to Mr Clay? Again, on the individuals, there was an interesting comment on “Newsnight” on 13 May: Linklaters said that “Olswang”—the legal firm advising the acquirers—“confirmed that Olswang had carried out detailed due diligence on their client Mr Chappell and that it had not raised any concerns in relation to impropriety.” As someone who was legally advising the sale of one of our major companies, were you satisfied with that analysis?
Owen Clay
I was asked to confirm that statement. I am happy with it, yes.
Richard Fuller
So from the point of view of Linklaters, which was selling that major firm, the analysis of another legal firm, in terms of the capability of the people, is fine enough by Linklaters.
Owen Clay
Perhaps I can set some context about our role. We were effectively deal counsel. The way it works with deal counsel is that once someone has been chosen as someone to do a deal with, you are brought on by your client to get it done. That’s our job. We obviously have “know your own customer”—it is called customer due diligence—in relation to our own customers, so we are responsible for making sure we know who our client is. We obviously knew Philip Green, so that was fine. We also have legal responsibilities in relation to the Proceeds of Crime Act 2002 and the Money Laundering Regulations 2007. Broadly, those regulations and that law require us to stay alert in relation to the transactions we are conducting to make sure there is no money laundering. There is no single legal definition of “money laundering”. In layman’s terms, it means hiding illicit money. There was no sense of that there. We are also required to stay alert to terrorist financing, and there was no question of terrorist financing here. It is not our responsibly, our duty or, indeed, our practice to do customer due diligence on other people’s customers.
Richard Fuller
You’ve given a very clear delineation of the things that you are responsible for. Let’s say that I want to buy British Home Stores and I’m a complete idiot. From your point of view, your responsibility to the vendor doesn’t require you to assess my capability of running it beyond what you’ve already mentioned. Is that correct?
Owen Clay
Businessmen do not employ deal lawyers to vet the business acumen of their counterparties.
Richard Fuller
So why did you ask Olswang to assess whether Mr Chappelle had any sense of impropriety?
Owen Clay
In the contract that we negotiated with the buyer, there were three important covenants to the seller. I will just go through them, if I may. The first one was that the buyer would retain the cash dowry in the business at completion for the sole purpose of the day-to-day running of the business. The second covenant was that they would retain in the business the proceeds of the sale of any properties for the sole purpose of the day-to-day running of the business, until such time as there was a compromise on the pension scheme. The third one was that they would take no steps that would be reasonably expected to adversely affect the BHS’s ability to continue as a going concern. Those are strong covenants, but clearly the reliance that a seller can place on them depends upon the person giving them and their probity. The purpose of my conversation with my opposite number at Olswang was to establish what customer due diligence they had done on their customer and whether it had given rise to any concerns in relation to impropriety.
Richard Fuller
Looking back at what subsequently happened and what we all now know about the acquirers, are you satisfied that we have the balance right, in terms of the requirements on directors and advisers, on this issue of the competence of the people who acquire businesses?
Owen Clay
In the conversation I had, I learned that Olswang had carried out a very detailed and thorough due diligence process on their customer, that nothing in what they had done had given rise to any concerns in relation to impropriety, that their client had been open throughout and that if they had had any sense that there might have been any impropriety there, it is not something they would have been anywhere near. None of that was a great surprise to me, because they are a very respectable firm.
Richard Fuller
Thank you very much for that clarification. Chair, I am aware that the Chair of the Work and Pensions Committee wants to ask a question.
Frank Field
Owen, we have got people like Sir Philip Green and Lord Grabiner—very busy people who paid professionals to do work for them. If two pukka legal firms checked up on the abilities and proper nature of the person they were selling to, and it turns out that this person was twice or three times bankrupt, where do you think it puts the firms that told those key people in this whole arrangement that this was a good person to sell to?
Owen Clay
I have tried to explain what the role of a deal lawyer is in this context.
Frank Field
Don’t you feel any responsibility? There were people paying you, presumably, very good fees, there were two lots of firms involved and neither of the firms discovered the most obvious thing about this person.
Owen Clay
I can only speak for myself, obviously. I have explained that our duty in relation to those matters that I have described does not extend to inquiries about other people’s customers. I have also explained that in this particular case, given the particular terms of the contract, we did something that was, in my experience, unusual by asking another firm of solicitors what customer due diligence they had done. I was assured that they had done very detailed due diligence on that person.
Frank Field
Do you think it would be fair for other companies that might be looking at selling all or part of their holdings not to use either of your two firms in this due diligence process, given that you failed so sadly on it?
Owen Clay
That would be a matter you would need to ask them.
Frank Field
What would your advice be?
Owen Clay
I never advise myself.
Frank Field
You are replying to me.
Owen Clay
Again, clients choose lawyers, so it would be down to you.
Richard Fuller
If I could bring in Mr Gutman from Goldman Sachs, you said regarding initial proposals on funding that Goldman Sachs was providing informal advice. “Informal advice” is an interesting phrase. What does it mean?
Anthony Gutman
At the initial stages of this transaction in October, we were asked whether we wanted to be engaged as an adviser. We declined for commercial reasons.
Chair
Why was that?
Anthony Gutman
That was largely related to the size of the deal. It was prior to our knowledge of the identity of the buyer. It is ordinary course for us to largely not be involved in deals of this scale, so we turned it down for those reasons.
Chair
It just wasn’t worth your while? It was too small?
Anthony Gutman
We do not traditionally advise clients with deals of this scale.
Richard Fuller
I just want to clarify: is that because it was too small or too big?
Anthony Gutman
It was too small.
Chair
But you do some work for free?
Anthony Gutman
Again, it is perfectly normal for us to provide informal assistance to long-standing clients of the firm, consistent with the relationship that we have with those long-standing clients.
Richard Fuller
You provide advice; “informal advice” means you don’t get paid for it. Can I ask broadly, is that the key difference between formal and informal advice? There is no structured engagement letter or fees attached.
Anthony Gutman
No, I would say that what we did here and what we do quite regularly is that if a client is considering their options, we will provide informal assistance. If we intend to provide advice, then we will be signed up to an engagement letter. Under the terms of those letters and under the scope of that duty, we will carry out the duties associated with that. We will conduct full due diligence on the buyer and seller, do valuation work, do financial analysis and assess funding arrangements. In this scenario, as I said, we did not do that. We chose not to do that. We were clear with Arcadia Group that we were not doing that, nor did they ask us to do that. Our role was therefore limited to providing preliminary observations on the proposals received, nothing more.
Richard Fuller
So they asked your judgment on things.
Anthony Gutman
They asked us to provide our observations on the proposals received from Retail Acquisitions Ltd; they did not ask us to make judgments or provide recommendations, and nor could we in the light of the very limited access we had and the nature of our role.
Frank Field
What was the informal advice, Anthony? If you couldn’t really give any gutsy advice about what they should do, what does informal advice mean?
Anthony Gutman
I would characterise it as observations on the proposals received. When we initially had sight of the proposals received, we went back to Arcadia Group and we gave them some observations on those proposals. We indicated to them that clearly the potential buyer did not have retail experience. We indicated that the proposal was highly preliminary and lacking in detail. We also indicated that the bidder had a history of bankruptcy.
Frank Field
You told them informally what the lawyers could not find—that he was a bankrupt.
Anthony Gutman
We were notified of that by RiverRock, who were advising at that time.
Chair
Forgive me, I’m going to bring Richard back in, but when was that and how was that advice, informal or otherwise, provided? Was it through verbal communication? In a letter? How did you give it to your client?
Anthony Gutman
Again, Chairman, to be clear, we did not provide advice, we provided observations. Those observations related to the nature of the proposal, and all we did was convey them. The initial proposal was received in early December—I can provide you with exact details.
Frank Field
Was that by telephone call to Sir Philip or Lord Grabiner? Did you give them a note?
Anthony Gutman
No, we received their proposal in early December—in fact, Arcadia Group received the proposal. We subsequently attended a meeting with RiverRock, which was at that time an adviser to Retail Acquisitions Ltd—or Swiss Rock, as it was then called. At that meeting, they tabled a written proposal and we then conveyed the observations I gave at that meeting to Paul Budge and to Arcadia Group.
Frank Field
So for no cost at all you told Sir Philip and/or Lord Grabiner, whereas other people charged and could not tell them that information.
Anthony Gutman
We did not have conversations with either Sir Philip or Lord Grabiner; our conversations following that meeting were with Paul Budge, at his request. The identity of the bidder as a bankrupt was made known to us by the adviser.
Chair
And that was done verbally, as opposed to in any written observation.
Anthony Gutman
Correct.
Chair
At a meeting in December 2014.
Anthony Gutman
Yes.
Richard Fuller
December: Mr Budge was driving the process of the potential sale of British Home Stores. That transaction was eventually completed in March 2015. Three months ahead of the date of the sale, you, as an informal provider of observations, said that the potential acquirers had no retail experience, a highly preliminary business plan—I think that’s what you said—and that they were led by a bankrupt. Those were the core observations you provided.
Anthony Gutman
Yes, although, if I may, I should make a few corrections to that. At the point in time that that initial proposal was received, of course neither we nor anyone had any idea as to the point in time at which a deal might close. The proposal was, of course, therefore highly preliminary, but that would not be unusual for any bid at this potential stage in a process as we subsequently understood it. So yes, it was preliminary, and yes, it was lacking in detail, but I wouldn’t characterise that as unusual relative to the timeframe as we subsequently understood it. There were clearly risks attached to the proposal, given the other factors you have referenced.
Richard Fuller
If you looked at other deals where you had been providing that formal advice and you came to a similar series of early observations that this potential acquirer has no experience in your field or the field of the company they are going to buy; that they have a very patchy history in terms of personal bankruptcies and they haven’t really worked out what they are going to do; and you were asked for your advice and recommendations, just on those factors—what sort of advice and recommendations might you give? Proceed, not proceed, proceed with great caution—run for your life?
Anthony Gutman
Again, in this scenario we did not have access to information or give directions.
Richard Fuller
I am talking about in general; you are a very experienced banker, aren’t you?
Anthony Gutman
In general, as I mentioned, when proposals are received at a very early stage in a transaction it is not unusual for them to be as preliminary as this one was; and therefore we would say that it is preliminary; it is lacking in detail; there are risks attached to the proposal but there could be a basis for proceeding.
Richard Fuller
So let me understand; in a formal situation where Goldman Sachs, one of the premier advisers in the world on M and A transactions, is presented to its client with a potential purchaser who is at an early stage of building their business plan, who has got absolutely no experience in the industry that they are going to take over, and has a history of being bankrupt not once but twice or three times, your advice is, “Hey, these are risks; let’s just carry on”?
Anthony Gutman
In every situation it is different. We would identify the risks attached, but—
Richard Fuller
But you wouldn’t say there are substantial problems selling a major business to someone who has no experience of that industry and who has a history of personal bankruptcy. Goldman Sachs’s name means a lot, so I think it is important for you to explain; in a similar situation would you not be waving the red flag? [Interruption.] Not your one, Chair. Would you not be waving a red flag to say “This is a walking disaster; don’t touch it. Goldman Sachs says don’t go there”?
Anthony Gutman
In a situation at an early stage in a transaction with many months to follow before the deal could hypothetically close, we would identify the risks and say “These risks need to be assessed and considered in the round.”
Chair
Mr Gutman, do you mind me asking, what is the nature of your relationship in terms of the client basis with Philip Green? Is it on a monthly retainer call-off contract? Is it a sort of deal-by-deal transaction? Would he phone you up and say “We’re putting the band back together; I’m going to try and buy Marks and Spencer’s—third time lucky. Are you in with me?” What is the nature of the relationship with Philip Green?
Anthony Gutman
Yes, sure. As with the vast majority of our client relationships we do not have retained relationships where we are paid on a retained basis. This is no different to that. On a case-by-case basis a client will call us and ask us to provide advice, and we will make a decision based on those circumstances at the time.
Frank Field
Before Richard comes in; Anthony, I read that Sir Philip does lots of his business by the phone. How many times were you in contact with him over this deal?
Anthony Gutman
The vast majority of my interactions and those of my team were with Paul Budge. I’d say throughout the course of a five-month process there may have been one or two phone calls with Sir Philip. None of them related to the detail of this transaction, and he was not involved in any of the meetings that we attended.
Richard Graham
Just very briefly, Mr Gutman, if I might; you are co-head of UK investment banking.
Anthony Gutman
Yes, that’s correct.
Richard Graham
And you were personally involved in this.
Anthony Gutman
Yes, that’s correct.
Richard Graham
And so on the press release, or on the email correspondence with the Committee, it described the purpose of your involvement as “to get an informal perspective on whether the consortium’s proposal warranted further consideration”. Did it?
Anthony Gutman
We provided a view that there were risks attached to the proposal.
Richard Graham
You said that; I understand that. The advice—you have spelt it out in your email: did it warrant further consideration? The answers, presumably, would fundamentally boil down to yes, no or maybe.
Anthony Gutman
We felt that subject to the limited information we had that at that preliminary stage it was something that they could have progressed—Arcadia Group—if they wished to.
Richard Graham
So it was a maybe.
Anthony Gutman
We weren’t asked to provide a recommendation, if I may. We were simply asked to provide our observations on it, and then—
Richard Graham
“The purpose was to get an informal perspective on whether the consortium’s proposal warranted further consideration”. It sounds like a maybe. Is that a correct analysis?
Anthony Gutman
I would say to you that we outlined the risks attached to the proposal, and other factors related to it, and we then—
Richard Graham
But you didn’t rule it out.
Anthony Gutman
We did not rule it out, no.
Richard Graham
What would be your own interpretation of the lawyers’ analysis that they had carried out detailed due diligence and hadn’t raised any concerns? Would you be surprised at that sort of analysis?
Frank Field
Before we go on, Anthony, we talked about the considerable amount of informal advice over a five-month period. Might you at some stage give us an audit—a log—of each of those occasions on which you were informally in touch with Mr Budge, Lord Grabiner or Sir Philip?
Anthony Gutman
Yes sure. I will go back and check with Brian Hewitt.
Amanda Solloway
We have heard about other third parties being interested in making a purchase and ultimately Retail Acquisitions was the preferred buyer. I am intrigued about what, given its lack of experience and the fact that it was paying £1, made it the preferred buyer? [Interruption.] No answer. Anybody?
Chair
Anybody?
Steve Denison
I have no knowledge from my conversations and information during the period of the deal as to why that was the case.
Craig Mackinlay
I will probably leave Mr Gutman out of this one. Given the informal advice, which seemed to be out there, that this character who was involved with the potential company had no retail experience and no background, and did not seem to have any financial backing, with your professional experience as accountants and lawyers, do you think that was a sensible decision to have taken forward? Can you see how Olswang came to its conclusion that due diligence was appropriately ticked off and that this was a robust deal considering everything in the round, the requirement to look after pensioners, and all that was involved?
Owen Clay
I want to make it very clear that my conversation with Olswang was limited to the propriety of the buyer. It was nothing to do with his business acumen. One way that business acumen is assessed—talking generically—is through the business plan and whether the parties collectively believe there is a business plan or turnaround plan that is viable. That is the first point. The second point is that it wasn’t the case and it would be wrong to leave you with the impression that somehow this business was being handed over to someone without retail experience and no one else. In many ways it was characterised as a management buy-out, so many of the existing retail team of BHS—the management people who actually ran the business—were going with the business. It wasn’t a case of going off with some guy who knew nothing about retail. That is an important distinction.
Craig Mackinlay
That team had managed to accumulate losses over six years. That doesn’t seem like a very good place to start.
Owen Clay
The business was clearly facing challenges, obviously—
Chair
That’s a good understatement.
Owen Clay
Lots of businesses face challenges from time to time—markets change and so on—but these people were good people. One thing I can show you from the contract is that there was an obligation on the buyer to put in place new management incentivisation arrangements with the management team to keep them.
Craig Mackinlay
Mr Denison, you knew this business well. Could you see anything new is what was being proposed that gave you confidence that there would be a bright future?
Steve Denison
Picking up on Owen’s point, there was a business plan in place. The existing management team had been driving that business plan. The cash requirements for the business were lower than the losses and had been coming down, and were projected to continue coming down. There was an action plan—a turnaround plan—in place in an attempt to do that. What the envisaged deal brought was, as I said, significant additional cash into the BHS business through a number of different routes and further assets into BHS which weren’t there before and would provide both cash cost savings going forward and a potential upside opportunity to realise further cash. There was a credible plan in place from the management team that had been running the business before and would be running it going forward, and there were extra cash and assets coming into BHS in the event of a deal to help to fund the business going forward.
Craig Mackinlay
In your view, having audited the old entity for all those years and the accumulating pension problems and the deficit accumulating—it is not just a normal business any more, but one that has to do well plus to finance and get out of the hole that the pension fund was getting into—did you perceive that the plan was so good that it could plug all those holes and get the pension fund out of the difficulties it had got itself into over a number of years?
Steve Denison
The plan, in terms of contributions, was the one that was set back in 2012, which was £10 million a year. Part of the additional cash that was coming with the deal was that for the first three years after any deal there would be £5 million of pension contributions directly from Taveta, as had been the case prior to that. That cash was obviously envisaged to be there. The agreement of that recovery plan—that long recovery plan and the £10 million a year—was the responsibility, as we have heard, of the trustees, the management team and shareholders to agree, using the regulator as appropriate. All I can say is that once that had been agreed and £10 million was set as the contribution level, that is what was paid into the pension scheme, in accordance with that plan.
Craig Mackinlay
Mr Gutman, I know you gave initial—I do not know how you described it—not advice, but observations. Were those sort of things on the table in these casual meetings when you gave observations—about this extra money going into the pension fund, about the team going over, about new money being available? Or what emerged? Was it distinctively different from what you initially commented upon those months before?
Anthony Gutman
The first thing I would say is we are not aware of what emerged, because we weren’t involved subsequently. What was initially provided in the proposals was very light on detail. There were no financials, there was no business plan and there were no indications as to cash flows and how this would be funded. It was simply a proposal to buy the business, with some very broad parameters related to it.
Chair
And that didn’t develop? It didn’t evolve over that five-month process that you were involved in?
Anthony Gutman
We were not involved in any of those developments. We were involved in a subsequent proposal, following the initial proposal in early December, that came in at the end of January. That proposal, again, was broadly the same as the proposal received in early December. In between, we had no involvements with the bidder. Those were being carried out directly between Arcadia Group and the bidder.
Craig Mackinlay
In terms of the time that you did spend with them, how many hours do you think you personally pored over what was on the table from Arcadia Group and discussions with Sir Philip? I am just trying to get when does an observation become advice, really? Is this commonplace to say, “Yeah, we’ve dealt with you before”? I can’t see it’s unusual that you’re asked for some initial observations. When do they become a little bit more formal? How much would you be willing to invest of your time and your team’s time on what might just run into the sand regularly?
Anthony Gutman
Well, it would be commonplace for a client to ask for some perspectives. It would also be commonplace for a client to ask for those perspectives in the context of the client determining that they were actually going to manage an execution—execute the transaction in-house, i.e. using their own resources, as indeed they did here. And it would be common for us to be clear, therefore, as to the limits of what we would do, and that was the case here. As to the exact hours, I can come back to you with that information, but we attended three meetings and that was the sum of it. And there was a small, single-digit number of phone calls. So a very small amount of time.
Craig Mackinlay
What was your assessment of the management team—the existing one—that was looking after BHS? I ask that because we heard earlier on from discussions that were more in-depth about the pension that they seemed to be incapable of doing two things at once. There were discussions about the Thor plan, to try and get the pension back on track, but that process seemed to be suspended because they were very concerned about or getting active into what fashions and articles they were going to be selling in their shops later on that year. Do you think they were capable of doing these things in parallel? Just adding into the mix a potential sale, I’m wondering about their ability to do three things at once.
Anthony Gutman
Again, given our limited role, we never met BHS management. I have never met the BHS management team. I had no engagement or interaction because of the position we took on this, so I cannot give you a comment on it.
Craig Mackinlay
Mr Denison, you would have had to do assessments of management structure and how good they are at managing risk, at looking forward and at putting business plans together. We heard earlier that it seemed very difficult to do two things at once. Is that a fair assessment of the state of management at the Arcadia Group and BHS?
Steve Denison
In terms of what I saw, it was not so much doing two things at once; it was two different groups doing separate things. You had the BHS management team running BHS on a day-to-day basis—taking decisions in consultation with Taveta and, no doubt, members of that management team, but running the business on a day-to-day basis in terms of strategy around what to buy, what price to sell at and all of those normal things in a trading business. Those individuals in that management team, as far I was aware, were not involved at all in the negotiations in terms of the pension scheme.
Richard Fuller
Mr Gutman, did you have any discussions or observations about Paul Sutton?
Anthony Gutman
No. We had no engagement with Paul Sutton and no involvement. We were not aware of Paul Sutton. There was one reference at one stage to Dominic Chappell being associated with Paul Sutton.
Richard Fuller
But prior to giving observations about Retail Acquisitions, there was nothing to do with Paul Sutton?
Anthony Gutman
No.
Jeremy Quin
Steve, there is the £40 million that was offered to go into the BHS pension scheme after the sale. Was that something you had any involvement in at all?
Steve Denison
No.
Jeremy Quin
This is a curious thing, in some ways. It is good that an offer was made subsequent to the event, but that is not something on which you advised.
Steve Denison
No.
Jeremy Quin
More generally—others may have comments on this—there must be many transactions on which you advised in which the pension scheme is a concern. Do you have concerns about moral hazard and the role that the pension scheme plays in people’s deliberations? In what stage of a typical transaction do people get involved in the pension scheme? Do directors focus on that as having a significant impact on value, as part of the transaction?
Steve Denison
Not in terms of the role as an auditor, which was the role we were fulfilling in relation to this transaction. We were not advising on the sale in any capacity at all.
Jeremy Quin
I should say, Chairman, that I have known Mr Gutman in my past life. Anthony, looking at pension schemes in general and not this one in particular, what role do you think they play in the transactions you have seen and the way clients look at them? Do you think there is an issue with moral hazard that needs to be confronted, regarding the PPF?
Anthony Gutman
I would say generally, on both the buyer side and the seller side, that clients tend to be very focused on pension liability as part of their overall assessment of a transaction. Much more than that, it would be very difficult for me to give you a view on.
Jeremy Quin
But there is a focus and an appreciation—they have all had specialist advisers.
Anthony Gutman
Absolutely.
Jeremy Quin
Our concern is that the PPF is there. It fulfils a valuable role, but no one wants to see a situation where it is an incentive for bad things to happen and provides moral hazard. Have you seen examples, in your experience, where that concern has been flagged?
Anthony Gutman
No, I have not.
Steve McCabe
Mr Denison, you talked about two different teams, with one team concerned with the day-to-day retail and running the BHS stores and another team engaged in the Project Thor exercise. Who took the decision to pull the plug on Project Thor or to pause it because they needed to take account of the Christmas sales? Do you know which team or which person or persons would have called that? I am trying to figure out how that decision got taken if there were two different teams.
Steve Denison
I am afraid I have no knowledge at all.
Steve McCabe
Who would know that?
Steve Denison
I would think that Taveta management would know.
Michelle Thomson
Picking up on a question that Richard asked about Paul Sutton, Mr Gutman, you said you heard him informally mentioned. In what context was that, in relation to the deal? Who was that? What were the circumstances?
Anthony Gutman
The only awareness we had was that at one stage early on we were notified that there had been an association between Paul Sutton and Dominic Chappell.
Michelle Thomson
Who notified you of that? Was that part of your informal observations? Did you feed that in or was that given to you? What were the circumstances around that?
Anthony Gutman
We were notified by RiverRock at the time. They advised us that there had been an historic association there. Subsequent to that, we were told that that association no longer existed. That was the limit of what we were told about Paul Sutton.
Michelle Thomson
Did you then relay that as part of your informal observations?
Anthony Gutman
I think that communication was made direct to Arcadia Group as well as to us.
Chair
A final question from me for Mr Clay. On the phone call that you had with Olswang on 10 March 2015, was that the only interaction that you had? You said a number of times in front of the Committee that you were confident that Olswang had done very detailed due diligence. Did you ask for any copies or correspondence to confirm the telephone call, or was that the single point of contact?
Owen Clay
That was the single call I had with my opposite number in relation to that particular issue. It was clear they carried out very detailed due diligence on someone who was a new client.
Chair
How do you take that conclusion from the phone call? How can you say, “Yeah, they carried out very detailed due diligence.”?
Owen Clay
Because they told me the process they had gone through with him. They said they had had statutory declarations from him. He had been very open. They had given him a grilling. They had done some digging. It was a very detailed explanation of the process they had gone through. I had no reason to doubt it, and I still have no reason to doubt what he said to me.
Frank Field
They were wrong, though, weren’t they?
Owen Clay
Hindsight, of course, is a wonderful thing. At the time, they had clearly been given a lot of information. They had done a lot of work and they came away with the impression he had been very open. They clearly had no sense at any time that there was any bad faith or dishonesty or anything like that that would have concerned them.
Chair
Amanda, do you want to come in on the final part?
Amanda Milling
Let me get this clear. Mr Gutman, you provide informal advice. You say, “We have got some reservations: retail experience, history of bankruptcy and the level of detail.” At any point, Mr Clay, did anyone say to you, “We have got these concerns. Can you look into this in more detail?”? Does your client ever have that conversation and go, “You are getting this advice, but we are getting these noises.”?
Owen Clay
You can see I have been helpful with what I have given. I have been as open as I can. In terms of discussions with my client and the advice I have given my client, that is something I am not able to disclose for reasons of privilege. If I may, there was a question earlier about privilege. Privilege is a fundamental legal right, long established in the common law and long established by the European convention on human rights. Given all the other investigations that are going on at the moment, it is completely appropriate that our client should exercise that legal right that he has.
Chair
But your concern was as a deal lawyer; you just wanted to get this through as quickly as possible.
Owen Clay
Why do you say that?
Chair
Because that is what you have told us.
Owen Clay
I haven’t said that at all.
Chair
Well, I’ll look back over the transcript, but you want to get this transaction through with the minimum of fuss and as rapidly as possible. That doesn’t seem unreasonable.
Owen Clay
I didn’t say that at all. I never said anything that could give any impression that that was my intention. If I did, I apologise, because I did not mean to.
Chair
Well, I apologise, too, if I have misunderstood you. Gentlemen, thank you very much for your time. It has been very helpful. Examination of Witnesses
Witnesses
Ian Grabiner, Chief Executive Officer, Arcadia, Lord Grabiner, Board member, Taveta Investments Ltd, Paul Budge, Finance Director, Arcadia Group, Director Taveta Investments Ltd, Gillian Hague, Director, Arcadia Group and Taveta Investments (No. 2) Ltd, and Chris Harris, Group Property Director, Arcadia Group, gave evidence.
Chair
I welcome you to the Committee and also apologise for keeping you. You have been extraordinarily patient. For the record, I ask the panel to introduce themselves and tell us what role they played in the sale of BHS. Let’s start with you, Lord Grabiner.
Lord Grabiner
I am Tony Grabiner. I am the non-exec chairman of Taveta Investments Ltd and Taveta Investments (No.2) Ltd. I have provided the Committees with a written statement that I am sure accurately summarises my involvement in the exercise.
Ian Grabiner
My name is Ian Grabiner and I am the chief executive officer of Arcadia Group. I run the day-to-day business of the Arcadia Group and all the brands within it. We have eight brands.
Paul Budge
I am Paul Budge, group finance director, also the Arcadia finance director. I was on the BHS board as well.
Gillian Hague
My name is Gillian Hague. I am the group financial controller at Arcadia and I was part of the team that was carrying out the work with Grant Thornton and such people during the sale.
Chris Harris
My name is Chris Harris. I am the Arcadia Group property director. I was also responsible for BHS and our ownership.
Chair
May I ask you all who was responsible for the sale of BHS?
Lord Grabiner
The sale was obviously by the vendor, which was TIL (No.2), because that was the immediate holding company—so that board, effectively.
Chair
Anything else to add, in terms of that statement? The Companies Act 2006 states that directors need to exercise independent judgment. Lord Grabiner, how did you demonstrate that independent judgment with BHS?
Lord Grabiner
We appointed a sub-group of the board of executive officers of the board. Apart from Ian sitting immediately next to me, the other three persons in front of you, along with Sir Philip Green, represented that sub-group. We appointed that sub-group to look at the question of the possible disposal of BHS, and they discharged that exercise throughout, which is the real reason why my own knowledge of the various events, as described in my statement, is rather limited.
Chair
But you can’t abdicate responsibility, can you?
Lord Grabiner
No, I wouldn’t dream of doing that.
Chair
You may have delegated to a sub-group, but you needed to be kept informed of what was going on, in terms of what could be a major divestment of a business.
Lord Grabiner
Yes. I am not trying to get rid of any obligations that I may have had. Obviously, the sub-group was full of the relevant expertise. It had pensions expertise; it had real estate or property expertise; and it had detailed financial information about BHS. I had never been a director of BHS at any time. It was entirely appropriate that that group of persons should be responsible for that exercise. At the end of the day, it was necessary for the deal to be done, if it was going to be done, by TIL (No.2) as the vendor. That is perfectly true. In relation to that, I believe that the responsibilities were properly discharged.
Chair
How did you keep yourself up to date with developments regarding the sale?
Lord Grabiner
I can take you through the timeline very briefly. We as a board were told near the end of January 2015 that there had been some expressions of interest from third parties in the purchase of BHS.
Chair
But you weren’t told who they were.
Lord Grabiner
No. At no stage was I told who they were.
Chair
And you did not see fit to ask?
Lord Grabiner
No. There is certainly no point asking at a time when there are preliminary negotiations, which may result in nothing at all, as happened five or six times, I think—I acquired this information subsequently—but I don’t believe that any of those came to a serious fruition stage, for whatever reason. I think Mr Budge will be in a position to tell you something about those matters. On 4 March 2015, which was shortly prior to the deal being done on 11 March, the board of AGL—as it then was, namely Arcadia Group Ltd—resolved that it would no longer provide any more cash for BHS, unless it was secured. The report to the board essentially was, “We’re losing a huge amount of money here”—we had lost a huge amount of money over the six-year period since 2009, when BHS had been acquired under the Arcadia umbrella. On 10 March, there was a night-time board meeting to which I was not invited, but it was quorate—
Chair
The board of which company?
Lord Grabiner
TIL—the top board.
Chair
And you were not invited?
Lord Grabiner
No, I was not invited, and I saw no papers, but it was a quorate board. The quorate board consisted of the people in the executive team, as I have described, so it was entirely appropriate that those people should be making that judgment—
Chair
Forgive me, Lord Grabiner, but there is a complex structure here, and I am getting confused. In terms of the board of TIL, who is chair of that company?
Lord Grabiner
I am.
Chair
And you were not invited to that board meeting?
Lord Grabiner
That is quite right.
Chair
Do you feel aggrieved by that?
Lord Grabiner
No, because—
Chair
I am Chair of the Select Committee on Business, Innovation and Skills. If there was a meeting of the Committee and I was not invited, I would be really angry.
Lord Grabiner
The point is that we had appointed this sub-group to investigate the possibility of disposing of BHS, and it was that sub-group that formed itself into the board meeting on the night of 10 March. They approved the proposed sale. On 11 March, the transaction was done. On 16 March—this was the first time that I came into the story—
Chair
So five days after it happened?
Lord Grabiner
Yes. On 16 March, the Taveta 2 board meeting records, in effect, a technical resolution to ratify the transaction done on 11 March. So that is a technical resolution, which retrospectively authorises the transaction. Then the report, which was in due course made, came to the TIL board on 25 March. At the 25 March board meeting, broadly speaking, in big picture terms, the terms of the deal were described to the full board. As I think I have explained in my note, it was on that occasion Sir Philip Green—I think—described the terms of the deal, and one of the points he made was that the purchaser had produced what I think he called a credible business plan, and the business plan had been examined by the team. I then asked him—it is recorded in the board minutes, as I have set out in my note—what the credible business plan consisted of. The answer was given and is recorded in the notes. It is also recorded in my submission to you.
Jeremy Quin
Lord Grabiner, I totally understand the appointment of a sub-committee of a board to advance the technical detail of the transaction, but did you give them a bracket in which they could do a deal? Was there an understanding? I don’t know what the notice was for that board meeting they held to agree the deal—or whether no notice was given, and they just held the board meeting—but had you given them a circumference within which they could execute?
Lord Grabiner
No, we had not, but that was included, in my view, implicitly, if not explicitly, in the remit that was given to that sub-group. We are talking about very sophisticated people, as you will see as you develop your questioning today, and with Sir Philip Green dealing with the matter as well. We are talking about very sophisticated people, who had a very good understanding indeed of the nature of BHS.
Jeremy Quin
This is not a criticism, but, basically, the board decided that they wished to dispose of BHS. They formed a sub-committee and gave that sub-committee full remit to proceed to execute a sale.
Lord Grabiner
One of the problems with this case is that it is extremely complicated and there are lots of complicated angles. It is not a simple thing and I cannot overstress that. We did not simply give instructions to the sub-group to sell the business. The reality was that we had reached the stage when the whole board had decided that BHS was going to have to go into some insolvency process or, alternatively, it should be sold. Finding a buyer was the most desirable outcome because it would protect the jobs and the position of the business as a going concern. If we could not find an acceptable buyer and could not do that deal, I have no doubt whatever that the business would have gone into administration. What we are discussing is, in my view, for what it’s worth, the most fundamental point in the story. If this deal had not been done with this particular buyer, the BHS business would have gone into administration 12 or 13 months—or whatever the period was—earlier than, in fact, it did. That is my personal view. I do not know whether others will agree with that. That was my understanding of the position we were in as of March last year.
Jeremy Quin
So you were a distressed seller at this point.
Lord Grabiner
Essentially, yes. But one has to recognise that, in order to achieve the sale, the Arcadia Group or TIL was actually investing a huge amount of money in this asset with all these problems. We had made £250 million or so of interest-free loan over a series of years, certainly running since 2009. Every time you come to the meeting and look at the accounts, you can see that the TIL business is very successful, but you are carrying this huge burden on the accounts of the group in the form of BHS losing money. There is only so long that you can do that. I think we did pretty well to try as we did for six years.
Jeremy Quin
I am sure we will come back to the cash flows.
Frank Field
My apologies for being late, Lord Grabiner.
Lord Grabiner
Not at all.
Frank Field
I have heard you twice say that you had, in your mind’s eye, an acceptable buyer. What do you mean by an acceptable buyer?
Lord Grabiner
All I would say about an acceptable buyer is that it is a buyer that—the sub-group were looking at this as carefully as they could reasonably have looked at it. I know and trust these people, and they are very astute. If they found a buyer that they were prepared to sell to on suitable terms, that would be a solution to the problem. That is all I mean by that. I am not suggesting for a moment that I was in a position to do the sort of exercise that I have been listening to in your deliberations today. I certainly did not do it.
Frank Field
But would you trust that same group again, given what they came up with?
Lord Grabiner
I would. You’ll hear, in particular, what Mr Budge has to say and, no doubt in due course, what Sir Philip Green has to say. I believe that they believed that they business plan that was provided to them by the buyer was a plausible, credible business plan. They may have some views as to why that plan failed. My own view is that there is nothing that I have heard or seen that would suggest that they failed to discharge their duties as they should have done.
Frank Field
Do you feel let down by those lawyers who checked on the character reference of the person to whom the business was going to be sold?
Lord Grabiner
Well, I sat in on your earlier hearing and heard the evidence that was given by the Linklaters partner. It seemed to me that he was being assured by his opposite number at Olswang that they had done some suitable due diligence on their client, and that the Linklaters lawyer was actually going beyond what one would normally do in that sort of situation. As I think he rightly pointed out, ordinarily the solicitor acting for the buyer would not be concerned with such an exercise, as it would always be a responsibility of the solicitor on the other side. He was satisfied by what he was told and left it at that. As to what happened at the Olswang end of the story, it is, as was pointed out, a highly reputable law firm. One assumes that it did their job properly.
Frank Field
One assumes.
Lord Grabiner
One assumes. I am not in a position to second-guess that, I’m afraid.
Chair
Can I just ask, m’lord, whether you think that, as chairman of the company, you have provided enough leadership, effective scrutiny and questioning of the strategy going on regarding the sale of BHS?
Lord Grabiner
Yes, I think I have. I was entirely satisfied that we would have to put this company into administration if we could not find a buyer. That was my view, and it was actually the view of the whole board. I was entirely satisfied that the sub-group had found a suitable buyer, and if that had not been the case, I would not have done the things that I did in order to achieve—
Q497Chair
But how do you know that? In your written statement to the Committee you said: “it was not until the press publicity after the transaction was concluded that I learned of his history as having been made bankrupt, possibly on more than one occasion.” You did not know whether it was a reputable buyer, did you?
Lord Grabiner
No, I did not, but we do know that the sub-group did know that he had a bad history in terms of previous bankruptcy—or bankruptcies, as may be a possibility. I have never done the Google exercise myself, but I am assuming that there were three bankruptcies, as I think I have read in some of the press reports. My view is—again, Mr Budge will be able to say something about this—that they must have taken that into account in coming to a judgment about whether this was a suitable buyer. If they did not, they failed in their duty. But we do know that they did know that fact, and if they knew that fact, the next question is: what was the impact of that fact on their overall view about the quality of the deal and the quality of the individual with whom they were dealing for the purposes of the sale?
Richard Graham
Lord Grabiner, thank you for the written statement that you submitted to this Joint Committee. May I just ask a few questions relating to that?
Lord Grabiner
Please do.
Q499Richard Graham
First, you say you are one of several minority shareholders in TIL. How did that come to be?
Lord Grabiner
I originally met Philip Green when advising him in relation to the acquisition of Arcadia. This is back in 2002.
Richard Graham
Did he invite you to be a shareholder, or did he gift you some shares?
Lord Grabiner
Oh no, I paid for them. What happened was that I was advising him in relation to some legal point that had arisen in relation to the takeover panel on the acquisition and he invited me to become the non-exec chairman; part of that arrangement involved my buying some shares, yes.
Richard Graham
Right. Why was the company structured in the way that it is? You were originally chairman of Arcadia Group Ltd but then you became non-exec chairman of TIL. What is the purpose of TIL and TIL (No. 2)? Why were they created? Was this fundamentally a tax wheeze through Jersey?
Lord Grabiner
No, I think they are both UK companies.
Paul Budge
Some 95% of our profits are taxed in the UK. They are UK companies—BHS and Arcadia. What it is important for the Committee to understand is that Taveta is at the top of the group, and BHS and Arcadia are totally separate entities.
Richard Graham
Yes, thank you. That is very kind, but I was just trying to ask Lord Grabiner why—
Lord Grabiner
First, I know that they are UK companies.
Richard Graham
What did you think was the purpose of having Taveta Investments Ltd and the TIL (No. 2) company?
Lord Grabiner
Whatever structure they had adopted, no doubt there were good reasons for it, but I am not aware of what the reasons were.
Richard Graham
They being the Green family.
Lord Grabiner
Yes. But I can tell you about Arcadia Group Ltd because originally that was the holding company and then—[Interruption.] I can answer the question if you would like.
Richard Graham
No, I just wanted to ask you—
Lord Grabiner
I can explain what happened to that company because I was a director of the company, but ceased to be because it then took on a purely FCA function, I think dealing with the credit card business.
Richard Graham
Yes, thank you. You said you were sure that they had good reasons, but you, as chairman of Arcadia Group Ltd, and subsequently of TIL, were not aware of what they were.
Lord Grabiner
No, I have no idea, but I am sure that Paul Budge can explain the history of that.
Richard Graham
Right. You then say—
Lord Grabiner
It is perfectly normal, may I say—perfectly usual—for any group of companies. This is a large business. This is a business that, before the sale of BHS, had something like 40,000 employees. It is perfectly normal to have a series of companies within the group structure. There is nothing surprising about that.
Richard Graham
What qualities did you bring to the party as chairman of both these companies? What did you see your main role as?
Lord Grabiner
Well, I was chairing meetings and I regularly did over the long years that I’ve been there.
Richard Graham
Yes, you said the key feature of your role was that you chaired the monthly board meetings, although not, apparently, the crucial one where the decision to sell BHS was made. Isn’t it rather odd to have as your key role the chairing of board meetings, but not actually the crucial one, where you were not invited and did not receive the papers?
Lord Grabiner
It might be odd until you understand what the circumstances were, and once you understand what the circumstances were, by which I mean in relation to the function of the sub-committee and the fact that it was done by way of after-the-event ratification, it doesn’t become odd at all.
Richard Graham
To what extent do you think that during that process you were able to fulfil the general duties of a director, let alone a chairman, under the Companies Act?
Lord Grabiner
I believe I discharged them properly. My duties in relation to a solvent business, which fortunately this is and always has been, were, first of all, a fiduciary duty to the company and, secondly, a duty to take account of the position of the shareholders. That was my responsibility, and I believe I fully discharged it.
Richard Graham
You said in your statement that Sir Philip Green’s view, which was supported by the TIL board—that is, I assume, you—was that, if possible, BHS should be sold as a going concern, but how could it survive given that you describe the deterioration in the business as so great that the only practical alternative was to place the company into administration?
Lord Grabiner
That would depend upon the quality of the business plan that was being proffered by the buyer, and the assessment of that business plan by the people on my left.
Richard Graham
With which you were not involved at all.
Lord Grabiner
That is exactly right.
Richard Graham
So how could the TIL board take that view, given that you did not know what was going on?
Lord Grabiner
You are suggesting— It’s true, I did not know, but the appropriate persons on the board whose task it was to know what was going on did know what was going on, and we relied upon their judgment and their skill.
Richard Graham
Do you think it is unusual that a chairman does not know what is going on in his board?
Lord Grabiner
Well, you’re putting that in a rather loaded way and I don’t accept the way you have put it.
Richard Graham
So your answer is no, it is perfectly usual for a chairman not to be invited to a board meeting, not to receive the papers and not to know who is the buyer of the company, of which ultimately he is the chairman, being sold?
Lord Grabiner
I think in the particular context of this transaction, bearing in mind the expertise of the people whose task it was to do the exercise on behalf of the board, it is entirely an unsurprising result. This is a private company.
Richard Graham
You have said that you do not believe you are in a position to provide the Committees with any facts or matters that would improve their knowledge or understanding of the facts. Why did you say that? For the chairman of the company that was ultimately the holding company for the company that has gone bankrupt, isn’t that rather curious?
Lord Grabiner
Well, because it’s true. If you are interested in looking, for example, at the dividend position in 2002 to 2004, I was not around and I had nothing whatever to do with it. If you are looking at the negotiations which resulted in the sale, I did not participate in that process. I assume that those are the matters that these Committees are interested in getting to the bottom of, and I am not in a position to give you any factual information about any of those matters, I’m afraid.
Richard Graham
So from 2009 to 2015, which was when the position of the company deteriorated sharply, the pension deficit ballooned, and the company was ultimately sold without your knowledge or understanding—
Lord Grabiner
That’s not true. It was sold with my knowledge.
Richard Graham
Ah.
Lord Grabiner
I just told you that.
Richard Graham
Yes, you have said that—
Lord Grabiner
I was a party to the ratification decision. Of course I knew about the sale. What I did not know was anything about the negotiation process that resulted in the sale, as I have explained.
Richard Graham
And you believe that that demonstrates independent judgment and reasonable care, skill and diligence?
Lord Grabiner
Yes, I do, because of the structure of the negotiating team—a decision that was adopted by the board at the outset.
Michelle Thomson
Just to finish up this point, perhaps we are dancing around accountability and responsibly, so who, in your view, has overarching governance responsibility for Taveta Investments?
Lord Grabiner
Well, the board—the board of the company undoubtedly has responsibility.
Michelle Thomson
And who within the board has overarching accountability for governance?
Lord Grabiner
I am not quite sure what you mean, I am afraid.
Michelle Thomson
My knowledge, based on business life, is that it is usually the chair of the board who has overarching accountability for governance and there may be separate groups that have responsibility. Is that a clear statement?
Lord Grabiner
Well, I am not sure that I understand the definition. My understanding is that we had a perfectly good corporate governance structure, which I have been describing, and that is the structure that we adopted.
Richard Fuller
Lord Grabiner, you have done lot of heavy lifting for the team, so, if I may, I would like to open up a question that perhaps—
Lord Grabiner
I was beginning to wonder why all the others were here.
Richard Fuller
As Members of Parliament, we go home and meet our constituents, and we have to answer for when we mess up—and, occasionally, for when we do the right things. Since the company went into voluntary administration, have any of you had an opportunity to meet and talk to any of the employees of British Home Stores?
Paul Budge
Yes. We are still in touch with a number of the head office people.
Richard Fuller
I meant the people in the stores—the people who are worried today about whether they will carry on having a job and their pensions. Have any of you gone and had a chat to them?
Ian Grabiner
Yes. I speak to regional managers who worked with me for 15, 20 years in the past.
Richard Fuller
What do they tell you?
Ian Grabiner
They are disappointed. Some of the store managers worked there for a long time. A lot of the staff are more transient—as I think was mentioned earlier, turnover was quite high. They are hoping, obviously, that it can be saved, through administration, by another buyer.
Richard Fuller
Are you personally confident? Do you think that is going to happen?