The UK needs an “urgent” new law with sweeping business reforms to prevent the next Thomas Cook- or Carillion-style collapse, according to MPs.
A cross-party group of MPs are warning lessons have not been learned and much-needed reforms have not been made despite a string of high-profile business failures.
Cultural change “will not happen” without a more powerful watchdog ensuring accountancy and audit firms spot the warning signs of such failures, according to Rachel Reeves, chair of the business, energy and industrial strategy (BEIS) select committee.
The MPs say in a final report before parliament is dissolved ahead of the election that reforms must “mitigate against the worst impact of corporate failures on employees, consumers, suppliers and taxpayers.”
It claimed the business department had shown an “extraordinary lack of interest” in the days leading up to Thomas Cook’s collapse, which sparked the biggest repatriation of stranded customers in peacetime history.
Several corporate collapses in recent years have sparked anger over senior leaders’ pay packages and incentives, auditors’ failures to flag up problems and suppliers and staff being left out of pocket.
Rachel Reeves wrote in a letter to business secretary Andrea Leadsom: “Political pressure can and does draw attention to faults and flaws, but without regulators with the powers and resources they need, lasting cultural change will not happen.”
She said the current government had failed to act on its previous warnings through new legislation to reform business governance, and “appears not to have learned the lessons from previous high-profile corporate failures.”
She added in a statement that Thomas Cook’s demise was partly down to “the piling up of debt, confused business plans, lack of challenge in the board room and by auditors, and aggressive accounting practices.”
The MP’s report attached to the letter called for reform as soon as possible from the next government, demanding measures including:
More diversity on boards to reduce ‘groupthink’, including the swift launch of existing plans forcing FTSE 100 firms to publish ethnic pay gap data.
An end to the stark gap between chief executives and their staff in the size of pension contributions, which have shown a “flagrant disregard” for fairness.
Transparent bonus criteria that serve companies’ long-term interest, with rewards currently “too easy to achieve” and risking leaders “gaming the system” by using ‘underlying’ profit measures to exclude costs.
New bonus rules that allow all companies to lawfully claw back bonuses in full within a “suitable period.”
Powers for the UK small business commissioner to tackle high levels of lay payments to suppliers, and introduce a legal cap of 30 days for payment.
A review of how insolvency is handled in Britain, seeing how it could be simplified to help workers who have lost their jobs.
A spokesman for BEIS said: “When a large company faces difficulties, it is standard procedure for one department to act as a single government contact, and government officials from a variety of departments had over 100 meetings with Thomas Cook in the run-up to its insolvency.
“We will be responding to the BEIS committee’s report in due course, but have announced plans for reform of the audit market including creating a new regulator with stronger powers.”
He added that the department for transport had led discussions, while the government had swiftly launched a national taskforce to support Thomas Cook employees and areas affected.
Officials have also asked the Insolvency Service to fast-track their investigation into the circumstances around Thomas Cook going into liquidation.