A report into the sudden, spectacular collapse of Carillion lays both “responsibility and culpability” firmly at the feet of the company’s directors.
This is an extraordinary and savage takedown.
According to the joint investigation by the Business, Energy and Industrial Strategy and Work and Pensions Committee, Carillion’s failure is a “story of recklessness, hubris and greed”.
“Delusional” directors were so focussed on “prioritising bonuses to themselves and increasing dividends” they ran Carillion into the ground. Indeed, MPs conclude that Carillion was so badly run that the government was correct not to bail it out. Taxpayer money “should not be used to prop up companies run by such negligent directors”.
When Carillon went bust in January it caused significant hardship. The company had 43,000 employees, 19,000 of them in the UK. So far, over 2,300 have lost their jobs.
The 27,000 members of Carillion’s defined benefit pension schemes will have to accept less generous income in retirement.
A network of 30,000 suppliers were “treated with contempt” and left owed a staggering £2 billion. The report notes they will recover little of it from the process of liquidation. Some have gone bust, many others have laid off staff.
The taxpayer is also on the hook. At the point of failure Carillion was operating 450 public contracts. The government stumped up £150 million to keep essential services running. This money is unlikely to be returned.
Banks and investors were “deliberately deceived by public pronouncements of health” and have been entirely wiped out.
MPs single out three directors for particular blame: Richard Adam, Carillion’s Finance Director; Richard Howson, the chief executive between 2012 and 2017; and Philip Green, the chairman from 2014 until Carillion’s liquidation.
These men were are the heart of a “rotten corporate culture” that made Carillion’s collapse “inevitable”.
Carillion leveraged-up, acquired companies, embarked on foreign misadventures in what MPs called a “reckless pursuit of growth”. Debt grew, so too did the deficit in Carillon’s pension fund but the company continues to pay out ever-larger dividends to its shareholders. Directors “stuff their mouths with gold” as the company’s performance declined.
“Carillion’s directors took huge salaries and bonuses which, for all their professed contrition in evidence before us, they show no sign of relinquishing”.
Richard Adam “was the architect of Carillion’s aggressive accounting policies” which MPs argue hid the true state of the company’s from investors. He stood down a year before the company collapsed, selling his shares for £776,000 as he left. MPs conclude: “These were the actions of a man who knew exactly where the company was heading once it was no longer propped up by his accounting tricks”.
When Richard Howson appeared before MPs he argued Carillion was essentially a well-run business which hit problems because several clients failed to pay their bills on time. MPs accuse Howson of a “misguided self-assurance” until he was fired in July 2017. Under his leadership Carillion “careered progressively out of control”. Howson was “part of the problem rather than part of the solution”.
The head of Carillon’s board was Philip Green, the chairman. His job was to hold the executive team to account. MPs judge he kept a “delusional, upbeat” assessment of the company’s prospects in the face of overwhelming evidence to the contrary.
MPs reject the notion that Carillon’s directors did all they could to save the company. Indeed, Rachel Reeves MP accuses them of “pulling the wool over the eyes of investors”.
- ITV News Business Editor Joel Hills speaks with MPs Rachel Reeves and Frank Field about failure of Carillion
Were directors dishonest? Did they break the law? “That’s for other relevant authorities to decide” says Ms Reeves. The Insolvency Service is in the process of examining the conduct of Carillion’s directors.
But according to MPs, blame for Carillion’s failure stretches wider than the company’s boardroom.
The Crown Representative was supposed to have the ear of Carillion’s board, protecting the government’s interests. It managed to be a surprised as everyone else by the company’s profits warning last summer.
KPMG signed off Carillion’s accounts for 19 years without once ever raising any concerns. Important contracts were going wrong, debt was ballooning. In the words of MPs “there should have been red-warning signs flashing all over the place”. At best, KPMG was dozy, the report hints at complicity.
MPs point out that all of the “Big 4” auditing companies (KPMG, EY, Deloitte and PWC) have been paid fees by Carillion at some point. More generally, MPs are unhappy with the “stranglehold” the Big Four have on the FTSE 100. They judge the current situation unhealthy and want the Competition and Markets Authority to examine whether the big four auditors should be split up.
MPs also want further reform of both the Pensions Regulator and the Financial Reporting Council who were “united in their feebleness and timidity”. MPs say they don’t have confidence in the effectiveness of either regulator. It sounds like a call for resignations.
The MPs report bristles with anger, indignation and proposes sweeping change. It takes individuals to task but underlines a systemic failure of checks and balances designed to prevent precisely this sort of situation.