Carillion’s board savaged for recklessness, hubris and greed

Aaron Morby 10 months ago
Share

Carillion’s board presided over a rotten corporate culture and were responsible and culpable for its costly collapse with liabilities of nearly £7bn and just £29m in cash left.

A damning 100-page final report from the parliamentary joint pensions and business committees has laid bare the directors’ failings.

It recommends the Insolvency Service carefully consider whether former directors breached their duties under the Companies Act and should be recommended to the Secretary of State for disqualification.

Carillion’s rise and spectacular fall was brought about by recklessness, hubris and greed, said watchdog MPs

Directors pursued 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”.

Even as the company very publicly began to unravel, the board was concerned with increasing and protecting generous executive bonuses.

The report said Carillion was unsustainable and the mystery is not that it collapsed, but that it lasted so long.

MPs were particularly critical of three key directors.

Richard Adam, Carillion’s finance director for 10 years,  is lambasted as the architect of Carillion’s aggressive accounting policies who resolutely refused to make adequate contributions to the company’s pension schemes which he considered a “waste of money”.

His voluntary departure at the end of 2016 and subsequent sale of £776,000 in shares before the wheels began very publicly coming off and their value plummeted were the actions of a man who knew where the company was heading once it was no longer propped up by his accounting tricks, says the report.

It said Richard Howson, chief executive from 2012 to 2017, was the figurehead as the business careered progressively out of control under his misguidedly self-assured leadership.

The report also described Philip Green, who joined the board in 2011 and became Chairman in 2014, as an unquestioning optimist when his role was to challenge.

He described Carillion as an “attractive and compelling proposition” for investors days before £845m of 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 pay-out every year, come what may.

The report said even as the company began to crumble 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, described by one major shareholder in Carillion as having “no place in a healthy audit”, are highlighted by the case study of the Royal Liverpool Hospital.

A November 2016 internal peer review of the hospital contract reported it was making a loss.

Carillion’s management overrode that assessment and insisted on a healthy profit margin being assumed in the 2016 accounts.

The difference between those two assessments was around £53m, the same loss included for the hospital contract in the July 2017 profit warning.

Carillion used aggressive accounting policies to present a rosy picture to the markets.

Maintaining stated contract margins in the face of evidence that showed they were optimistic, and accounting for revenue for work that not even been agreed, enabled it to maintain apparently healthy revenue flows.

It used its early payment facility for suppliers as a credit card, but did not account for it as borrowing.

MPs said the only cash supporting its profits was that banked by denying money to suppliers.

Whether or not all this was within the letter of accountancy law, MPs accuse Carillion of intending to deceive lenders and investors. It was also entirely unsustainable: eventually, Carillion would need to get the cash in.

The group collapsed owing around £2bn to its 30,000 suppliers, subcontractors and other short-term creditors.

Like the pension schemes, they will get little back from the liquidation.

Creditors have been told they are likely to get back less than 1p for every £1 they are owed while taxpayers face at least £150m in costs associated with the liquidation.

Latest news

Kier slumps to £35.5m loss as problem contracts continue

Workloads wobbling in highways, utilities and housing maintenance markets
10 hours ago

Griffiths to restart Dawnus £14m Swansea road job

Welsh civils firm to take on Kingsway city centre scheme
4 hours ago

Hunt for £6bn Meridian Water phase 2 developer

Up to 250 affordable homes to be built in Meridian Two scheme
9 hours ago

BBC construction skills blasted over EastEnders set woes

Lack of project management skills leads to £27m cost over-run and five-year delay
8 hours ago

Go-ahead for £175m Cumbrian deep coal mine

Plans advance for Britain's first deep coal mine for 30 years
18 hours ago

Hi Vis site wear launched for pregnant women

Clothing designed to make life safer and more comfortable "from bump to baby"
10 hours ago

Speedy buys powered access hirer for £9.6m

Lifterz deal allows Speedy to offer nationwide powered access equipment hire
10 hours ago

Build to rent specialist plans Bolton urban village

Placefirst to use in-house contractor for £27.5m scheme
11 hours ago

Water winners revealed for £2bn Severn Trent spend

More contractors win first lots on AMP7 as client revamps working practices
1 day ago

Stranded Carillion chief takes helm at Kier

Andrew Davies named new Kier chief executive
1 day ago

Interserve £170m prison project to be rebid

Ministry of Justice confirms Glen Parva to be tendered as a publicly funded project
1 day ago

Cabinet Office promises Interserve subbies will get paid

Parliamentary Secretary makes pledge in House of Commons debate
1 day ago

Sir Robert McAlpine commercial director exits

Martin Pitt steps down from board after four years at group
1 day ago

Lakehouse subbies plan showdown with Sureserve bosses

Suppliers owed millions to demand answers at company AGM
2 days ago

Tolent to build first homes at £400m Leeds scheme

Builder gets foot in the door with prototype homes for Kirkstall Forge
1 day ago

Boost your online presence – join the Enquirer Directory

New site for suppliers and buyers showcases products, services and latest stories
11 months ago

Interserve subcontractors told it’s business as usual

Outsourcers circle Interserve support services division
2 days ago

Morgan Sindall wins 20-year Sellafield civils deal

Four teams named for Sellafield decommissioning project partnership
2 days ago

Hunt for quartet to deliver £700m Birmingham Uni pipeline

University is preparing to deliver phase two of its estate masterplan
2 days ago

Stepnell wins £14m Northampton Vulcan works redevelopment

Historic factory to be refurbished for business start-ups
2 days ago

Hunt starts for developer on £200m South Shields scheme

South Tyneside Council looking for housing partner and remediation specialist
2 days ago

Revamp plans for Birmingham Moor Street station unveiled

Transfer deck across the top of station will connect to all platforms
2 days ago

Interserve workers told to report for work as usual

Interserve subsidiaries to trade solvently as PLC business pre-packed
5 days ago

Interserve to file for administration as rescue rejected

Shareholders vote down rescue plan
5 days ago

Dawnus Group goes into administration

Grant Thornton now in charge of contractor which employed 700 staff
5 days ago

Bricklayer killed by collapsing wall

Court hands out £900,000 fine but contractor went into administration six months after tragedy
5 days ago

Dawnus collapse a “Welsh Carillion”

Subcontractors braced for huge losses as administrators poised to take control
5 days ago

Taylor Woodrow losses halve Vinci UK profits

Building operations trade profitably but Taylor Woodrow suffers fifth year in the red
5 days ago

Plans in for £70m Edinburgh botanic garden revamp

New glasshouse features in major overhaul plan
5 days ago

Mace to steer £350m Stevenage town centre revamp

Work set to begin on site next year
5 days ago

Contractor services