Carillion government report: What now?

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The government has concluded that Carillion's collapse was the result of moral failings on the board. HR magazine asked experts if the tide will now turn on the issue of corporate governance

A damning government report has concluded that Carillion harboured a “rotten culture”, which was the cause of the construction giant’s collapse in January.

The 100-page report, published yesterday by two select committees of MPs, stated that: 'Carillion’s rise and spectacular fall was a story of recklessness, hubris and greed. Its business model was a relentless dash for cash, driven by acquisitions, rising debt, expansion into new markets, and exploitation of suppliers.

'It presented accounts that misrepresented the reality of the business, and increased its dividend every year come what may', the report stated, adding that the company’s pension scheme was 'treated with contempt'.

The construction giant’s collapse left debts of £1.5 billion and resulted in more than 2,300 job losses. The government blamed directors and shareholders for the company's demise, as executives continued to receive bonus payments in the midst of severe profit warnings.

Carillion’s auditors Deloitte, EY, KPMG and PwC – dubbed the Big Four – were also accused of approving Carillion’s accounts despite spiralling debts; accusations which they have denied.

The government itself came under fire for failing to address corporate governance failings at the firm, and for continuing to award large contracts despite being aware of the company's financial troubles.

Prime Minister Theresa May had promised to change the way business is governed in 2016 following David Cameron’s resignation, but has since been accused of watering down planned reforms.

Speaking to HR magazine, MD of Chameleon People Solutions Martin Tiplady said that he agreed with the report, but emphasised that the government must put policy in place to avoid cases of poor corporate governance in the future.

“I think the directors of Carillion had a culture of greed, and didn’t let morality or service quality get in the way of personal gain. I can’t comment on if the Big Four missed things or not, but I think to say it was down to mistakes is a generalisation of what they did,” he said.

He added that the concern is that while well-intended, future tightening of regulations won't be effectively enforced. “In terms of the government’s response, they’ve said that the way Carillion acted was wrong, but so what? What are they going to do about it?" he said.

"The government failed to spot the signs. There is a band of regulation mentioned in the report that could be effective if applied properly, but we’ve frequently seen cases from this government that are policy-rich and implementation-poor. We all know what they did was wrong; when are we going to do something about it?”

Fran Boait, executive director of not-for-profit Positive Money, added that this should be treated as a “watershed moment” in corporate governance.

"From our perspective this is down to faulty, short-term economics. We have to ask ourselves why this was allowed to happen, and why they were allowed to have so much control over our public services,” she told HR magazine.

“The report is certainly damning, and it’s very welcome. It’s really important that we seize this moment, and take action on poor corporate behaviour. It would be right to say that in terms of Carillion’s reliance on low interest rates, there could be nothing to stop other companies doing the same thing again if we don’t take action.

“The fact that Carillion was still paying out a dividend of £78 million in 2016 seems kind of inconceivable. There’s also certainly cause to break up the Big Four who oversaw it. Let’s use this as a watershed moment," she said.

However, senior analyst at Hargreaves Lansdown Laith Khalaf warned that it was important that the response towards Carillion is “proportionate”, and that not all executives should be tarnished as a result of these failings.

“The Carillion collapse was undoubtedly a story of poor governance and mismanagement, though it’s important not to tar every executive and non-executive up and down the country with the same brush when it comes to the roles they perform,” she told HR magazine.

“Any response should therefore be proportionate, taking into account the failings at Carillion and what can be learned from them, but also recognising that in the vast majority of cases the rules that are in place deliver a good outcome. So while the lessons from Carillion can help to boost regulatory oversight and process, it’s a question of making improvements to the existing regime rather that tearing it up and starting again."

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