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Monday, 28 May

Carillion - A Giant And Unsustainable Corporate Time Bomb

Rachel Reeves MP

Carillion's delusional, 'shyster' directors should be struck off, the final report of The Work and Pensions and BEIS Committees says. The report was released on Wednesday May 16.

In the final report of their inquiry into the spectacular collapse of Carillion, the Work and Pensions and BEIS Committees conclude that Government has 'lacked the decisiveness or bravery' to address the failures in corporate regulation that allowed Carillion to become a 'giant and unsustainable corporate time bomb'.

The report calls on Government to carry out an 'ambitious and wide-ranging set of reforms' to 'reset systems of corporate accountability'.

'The mystery is not that it collapsed, but that it lasted so long'.

 

Carillion's board

But it is Carillion’s board, according to the two Committes who are both 'responsible and culpable for the company’s failure' presiding over a 'rotten corporate culture' that led to the company’s devastating and hugely costly failure. Despite clear accountability, the directors presented themselves in Parliament as 'self-pitying victims of a maelstrom of coincidental and unforeseeable mishaps'.

 

Recklessness, hubris and greed

The report states that Carillion's rise and spectacular fall was a story of 'recklessness, hubris and greed'; its business model 'a relentless dash for cash, driven by acquisitions, rising debt and exploitation of suppliers' with at best questionable accounting practices that 'misrepresented the reality of the business'.

 

Chair's comments

The Rt Hon Frank Field MP, Chair of the Work and Pensions Committee, said: "Same old story. Same old greed. A board of directors too busy stuffing their mouths with gold to show any concern for the welfare of their workforce or their pensioners. They rightly face investigation of their fitness to run a company again."

 

Shysters

Field continued: "This is a disgraceful example of how much of our capitalism is allowed to operate, waved through by a cosy club of auditors, conflicted at every turn. Government urgently needs to come to Parliament with radical reforms to our creaking system of corporate accountability. British industry is too important to be left in the hands of the likes of the shysters at the top of Carillion."

 

Delusional directors

Rachel Reeves MP, Chair of the BEIS Committee, said: "Carillion’s collapse was a disaster for all those who lost their jobs and the small businesses, contractors and suppliers left fighting for survival. The company’s delusional directors drove Carillion off a cliff and then tried to blame everyone but themselves. Their colossal failure as managers meant they effectively pressed the self-destruct button on the company."

 

Guilty auditors

Reeves continued: "However, the auditors should also be in the dock for this catastrophic crash. They are guilty of failing to tackle the crisis at Carillion, failing to insist the company paint a true picture of its crippling financial problems. The sorry saga of Carillion is further evidence that the Big Four accountancy firms are prioritising their own profits ahead of good governance at the companies they are supposed to be putting under the microscope."

 

Big Four parasites

Reeves also said: "KMPG, PwC, Deloitte and EY pocket millions of pounds for their lucrative audit work - even when they fail to warn about corporate disasters like Carillion. It is a parasitical relationship which sees the auditors prosper, regardless of what happens to the companies, employees and investors who rely on their scrutiny.

"The Competition and Markets Authority must now look at the break-up of the Big Four accountancy firms to help increase competition and deal with conflicts of interest.

"The collapse of Carillion exposed terrible failures of regulation. The Government needs to stop dithering and act to ensure regulators are up to the job of intervening before companies fail, rather than trying to pick up the pieces when it is too late."

 

The Directors - report statements & recommendations:

  • The Insolvency Service should carefully consider whether Carillion’s former directors breached their duties under the Companies Act and should be recommended to the Secretary of State for disqualification.

  • Richard Adam was the 'architect of Carillion’s aggressive accounting policies'. The sale of all his shares, asap after his voluntary departure a year before its collapse, were 'the actions of a man who knew where the company was heading'.

  • Richard Howson was the figurehead for a business that 'careered progressively out of control under his misguidedly self-assured leadership'.

  • Philip Green was an unquestioning 'optimist' when his role should have been to challenge. He incredibly described Carillion as an 'attractive and compelling proposition' for investors days before its massive contract write-down and believed he was the man to head a 'new leadership team' right until the end.

  • Carillion’s directors elected to increase its dividend payout every year, come what may. Even as the company very publicly began to unravel, the board was concerned with increasing and protecting generous executive bonuses.

  • Long term obligations, such as adequately funding Carillion’s pension schemes, were 'treated with contempt'.

  • The directors’ 'aggressive' accounting practices were described by one major shareholder in Carillion as having 'no place in a healthy audit'.

Picture: Rachel Reeves MP.

Article written by Brian Shillibeer

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