The Carillion Case

Last week saw a thorough savaging of just about everyone involved in the collapse of Carillion, the private sector company that ran hundreds of Government contracts. Carillion’s rise and fall was “a story of recklessness, hubris and greed” whose board appeared to be “self-pitying victims of a maelstrom of coincidental and unforeseeable mishaps” hiding behind a “rotten corporate culture”.

These, and many additional damning statements, are contained in a report by the House of Commons Business, Energy and Industrial Strategy and Work and Pensions Committees, a 105-page document that – regrettably – too few in British business life are likely to read. The MPs might have added the famous line by the philosopher George Santayana: “Those who cannot remember the past are condemned to repeat it.”

Carillion’s ugly demise – it left 43,000 workers wondering about their futures and 27,000 of those facing a lower pension, and 30,000 suppliers stuck with debts of around £2 billion – gets a full shakedown in the report, which actually makes for fascinating reading. In the reckless short-termism” which drove the company, its accounts were “systematically manipulated to make optimistic assessments of revenue, in defiance of internal controls”; despite being a signatory of the Prompt Payment Code, the company “treated suppliers with contempt, enforcing standard payments terms of 120 days.” Amid the mess, it paid “big-name firms as badges of credibility in return for lucrative fees”. The report says there is a “crisis of confidence in the audit profession”, which seems slightly odd: it seems much more like a crisis of smug complacency, that the fat fees will carry on rolling in no matter how badly they do their jobs.

What’s interesting in this justifiable assassination of individuals and those who advised them is that one guilty party escapes relatively unscathed: government. Government is rapped over its knuckles – “its responses have been cautious, largely technical, and characterised by seemingly endless consultation” – and it gets a pat on the back for refusing to bail out Carillion. But the report’s savagery peters out when it comes to “lessons” for government. It merely says: “We recommend that the Government immediately reviews the role and responsibilities of its Crown Representatives in the light of the Carillion case. This review should consider whether devoting more resources to liaison with strategic suppliers would offer better value for the taxpayer.”

We’d hoped for more teeth than “more liaison”.

What went wrong right from the start with Carillion was that it was allowed to behave as though it were a private sector company without responsibilities to the public sector. It lacked an authentic and genuine commitment to ensuring that public welfare was at the heart of everything it did – and it didn’t require that its supply-chain sub-contractors sign up to the same principle. Government has tried to out-source as much as possible to the private sector, without simultaneously realising that there will be social consequences (and sometimes social disasters) from a light-touch, or insecure-touch regulatory oversight. Putting profit before genuine partnership, on behalf of the benefit of all, is the real reason Carillion collapsed.