The government's response to the Business, Energy and Industrial Strategy (BEIS) Committee on inquiry into Thomas Cook been published today, with TSSA saying action speaks louder than words on corporate reform.
In the original findings from its Thomas Cook inquiry (in October 2019), the BEIS Committee expressed disappointment the government had not pressed ahead with audit reforms and brought forward legislation to replace the Financial Reporting Council with the Audit, Reporting and Governance Authority (ARGA). On a timetable for action on ARGA, the Government’s response says, “…to create the new Audit, Reporting and Governance Authority will follow as soon as Parliamentary time allows.”
Commenting on the government’s response on Thomas Cook inquiry, Manuel Cortes, TSSA General Secretary, said:
“The BEIS Select Committee is right to say that the government is dragging its feet on corporate reforms. Action has been urgently needed in this area for years. Warm words from government on clawback of directors’ remuneration and bonuses, the need for better diversity of board members, and support for a new Regulator, is welcome but they are not prioritising it. This is foolish given how many other companies could be facing administration in the coming months.
"Thousands of Thomas Cook workers lost their jobs and tens of thousands of holidaymakers were left stranded or without holidays to go on. The lacklustre response of the then Business Secretary was woeful, the compensation bill huge and overall lack of care for the company and its staff was scandalous. It must never be allowed to happen again."
Questions raised by the government’s response:
How serious are they about change?
The government took almost nine months to respond to the BEIS SC report, yet have long been aware of many of these issues given previous reports into audit arrangements. They even say in their response that much of the legislation to set up ARGA to replace the FRC is already in place. In practice, however, the Government has had much more time to respond, committing to replace FRC with ARGA in March 2019.
Is a new Regulator a priority?
Whilst the Government supports the idea of the new Regulator, they are simply not prioritising it. This could be very foolish when the fallout from the pandemic is likely to be other companies going into administration or liquidation. How many more inquiries will report the same audit issues and in the meantime employees will lose their jobs, pay and conditions (and maybe their homes and pensions)?
In whose interests will the new Regulator work?
Whichever Government sets up a regulatory authority confers on it the powers that they want it to have. The FRC was set up in 2006, but is funded by those it regulates – which has the potential to call its independence into question, especially if a small group of audit firms dominate its committees, etc.
Special treatment for Executive Directors?
Government's response in Paragraph 9 suggests taking a different approach for executive directors than for lesser mortals. For most employees, to make a "listed change" to their pension simply means that an employer has to conduct a 60 day consultation after which any responses have to be considered (and often ignored) before implementing the change. Not so for EDs?