Top 3 corporate governance scandals of 2016

Corporate governance hit the headlines a number of times last year, with some of the world’s largest businesses rocked by major scandals at the board level.

 

In the most extreme cases, corporate governance issues led to the downfall of the company in question. But what were the most sensational corporate governance stories of 2016?

 

Let’s take a closer look at some of the biggest scandals from across the UK and abroad throughout last year.

1. BHS goes into administration

Founded in 1928, BHS was one of the UK’s longest-running department store chains when it fell into administration early last year.

 

Sir Philip Green purchased the business and took it private in 2000, but it was his sale of the organisation for just £1 in March 2015 that caused raised eyebrows, particularly when the store failed just 13 months later.

 

BHS going bust left a sizable hole in the firm’s generous defined benefits pension scheme of £571 million, which MPs have urged Sir Philip to plug. He has also faced a grilling over his choice to sell the business to Dominic Chappell, someone who had previously been made bankrupt three times.

 

Last month, Sky News suggested Sir Philip was close to agreeing a £350 million deal to help with the pension deficit. But the lack of transparency at the top of private businesses now remains a key focus for the government following the scandal.

2. Sports Direct

A Business, Innovation and Skills Committee report last year highlighted poor working conditions at retailer Sports Direct, with one MP claiming the company’s worst warehouses were akin to Victorian workhouses.

 

The company was accused of several failings, including how it effectively paid people less than minimum wage, as well as punishing employees for taking water breaks or time off sick. One woman even allegedly gave birth in the toilets because she was afraid to miss a shift.

 

It was claimed that some employees on zero-hour contracts were also forced to work free overtime or risk not being called back for more hours in the future. There were even allegations of permanent contracts being offered in exchange for sexual favours.

 

“It’s seems incredible that (Sports Direct founder) Mike Ashley, who visits the warehouse at least once a week, was unaware of these appalling practices,” said committee chairman Iain Wright.

 

Moreover, Sports Direct was hit by a data breach last September that compromised 30,000 employees’ personal information. The retailer also neglected to tell the affected workers, according to The Register.

3. Wells Fargo

In the US, Wells Fargo had to fire more than 5,300 employees after it emerged that fake bank accounts were being created in order to meet sales targets.

 

Some 2,000 phony accounts were made, including fictitious PINs and email addresses. In many cases, customer money was transferred from their real accounts into fake ones, with some people charged fees for having insufficient funds in their original account.

 

Federal and state regulators fined the bank $185 million in total, while CEO John Stumpf retired. Nevertheless, recent statistics from Wells Fargo show that customers haven’t been quick to forget the scandal.

 

Earlier this month, the bank revealed new checking accounts were down 31 per cent year on year in January 2017, whereas credit card applications had slumped 47 per cent. Clearly, Wells Fargo has some way to go before allaying consumer fears over its previous practices.

Corporate governance focus

One of the positives to arise from the scandals over the last year is that greater emphasis is being placed on corporate governance at large organisations.

 

In the UK, prime minister Theresa May has committed to large-scale reforms that could have far-reaching consequences for the country’s businesses.

 

This could result in increased spending on numerous departments, as employers look to strengthen risk management, compliance, internal audit and more.

 

Our Market Reports combine our review of the prevailing conditions in the corporate governance recruitment market together with the results of our latest employer survey.