The failed outsourcing giant Carillion had a “rotten corporate culture” and a board of directors who were ultimately culpable for its “costly collapse”, a joint inquiry by two Commons select committees has concluded.
Carillion collapsed under a £1.5bn debt pile in January. The construction company “employed 43,000 people, about 20,000 of them in the UK, thousands of whom have lost their jobs”, says the BBC.
It also held numerous public contracts, including the maintenance of schools and prisons, “all of which had to be brought under government control, at a cost to the taxpayer”, adds the broadcaster.
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The joint report by the Commons Work and Pensions and the Business, Energy and Industrial Strategy (BEIS) committees says the firm’s collapse, one of the biggest in the UK in recent times, exposed “systemic flaws” in corporate Britain and its “toothless” and “feeble” regulators.
The MPs say that “the mystery is not that it collapsed, but that it lasted so long”, adding that “even as the company very publicly began to unravel, the board was concerned with increasing and protecting generous executive bonuses”.
They continue: “Long-term obligations, such as adequately funding Carillion’s pension schemes, were treated with contempt.”
Rachel Reeves, chair of the BEIS Committee, told BBC Radio 4’s Today programme: “The directors are culpable for the mess that Carillion got into and drove the company off a cliff.”
She accused the board of a “relentless dash for cash” by taking on low-margin contracts that didn’t make money.
Special criticism was reserved for the company’s finance director, Richard Adam, who the MPs say “was the architect of Carillion’s aggressive accounting policies” and who resolutely refused to make adequate contributions to the company’s pension schemes, which he considered a “waste of money”.
Adam’s sale of £776,000 shares shortly before Carillion’s collapse “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”, the report says.
Work and Pensions Committee chair Frank Field 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.”
Adam rejected the committees’ findings, telling The Guardian: “The reasons for the collapse are clearly complex. However, I reject the unwarranted conclusions the committees have reached concerning my role at the company.”
The report also points the finger at the so-called Big Four accountancy firms, branding them a “cosy club incapable of providing the degree of independent challenge needed”.
The MPs are calling on the Government to refer KPMG, EY, PwC and Deloitte to the Competition and Markets Authority for potential break-up, or “splitting the firms’ audit functions from non-audit services”, says the Financial Times.
“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,” said Labour MP Reeves.
The report accuses regulators of being too “passive” in tackling Carillion’ s problems, adding that the Government had “nurtured” an environment in which the collapse of another outsourcing firm was “a distinct possibility”.
“Carillion could happen again, and soon,” they warn, unless the Government comes up with “radical reforms to our creaking system of corporate accountability”.
