The collapse of Arcadia shows how important corporate responsibility is – we must learn lessons from it

The collapse of Arcadia, the retail group run by Sir Philip Green, is an utter disaster.?

It is a disaster for the 13,000 employees, many of whom are likely to lose their jobs. It is a disaster for the suppliers of the various stores, including Topshop, Miss Selfridge, Burton and Dorothy Perkins, who are set to lose upwards of ?250m if they do not get paid for goods they have shipped.?

It may be a disaster for the group’s pensioners, for there was already a huge deficit on the pension funds even before the collapse.

All this is dreadful. We do not yet know the final outcome and it is possible that some of the brands will be rescued. It is possible that Sir Philip and his wife Lady Green will choose to use part of their fortune to cover the pension deficit, as they were urged to do last year by the MP Frank Field when he was chair of the House of Common’s Work and Pensions Committee. But there are few glints of light to be glimpsed from this dark and distressing story.?

It is impossible not to recall that Lady Green, a Monaco resident who owns most of Arcadia’s shares, received a dividend of ?1.2bn in 2005 – at the time the largest-ever dividend paid by a UK company to an individual. It is equally impossible not to observe the pictures last week of Sir Philip on his ?100m yacht, Lionheart, as his commercial empire crumbled. ?

While no one should deny that successful business people should be able to enjoy their wealth as they see fit, the contrast between such an ostentatious display and the plight of Arcadia’s employees, suppliers and pensioners is deeply distasteful.

It would be easy to blame all this on Sir Philip, and his conduct should be properly examined by the authorities. But this is not just about the weaknesses of one man; it is about the weaknesses of the market economy. No one could have reasonably foreseen the Covid-19 crisis that toppled Sir Philip’s commercial empire.?

Most other businesses have been wounded in one way or another, and sadly many will not make it through. But wise, well-run enterprises build up financial reserves to cope with uncertainty. They seek to be strong enough to survive downturns of course, but they also seek to prosper in very long run, not to make a quiet profit in the short.?

They seek to fulfil their responsibilities to their owners, but they also take into account the proper interests of their other stakeholders, their customers, their employees, their leaseholders, their suppliers and of course their pensioners.

What the crisis has, however, done is to reveal inherent weaknesses in some businesses, such as Arcadia, but it has also revealed fundamental weaknesses in the system. Just as the banking crisis of 2008 showed up the flaws in the ways many of the banks were run, so this crisis has shown up the flaws in corporate governance more generally. Those flaws must now be tackled.

That will be a task that will take time, and will have to be done in a measured and cautious way. Ideally it should be an international effort rather than a national one, for an integrated world economy needs a unified approach. But individual countries, and their taxpayers, have in one way or another to pick up much of the bill when companies fail.?

It is vital that the UK authorities come to a judgement of what has gone wrong at Arcadia, and find ways of trying to make sure that disasters such as this do not happen again.