Carillion’s board presided over a “rotten corporate culture” and was both “responsible and culpable” for its catastrophic demise, concluded a report from two influential parliamentary select committees that was published today.
The work and pensions and the business, energy and industrial strategy (BEIS) committees’ joint inquiry final report into Carillion’s collapse attributed much of its failure to its directors’ mismanagement of the construction company – which filed for liquidation in January – fed by complacent auditors and a failed corporate governance system that disproportionately rewarded those at the top.
Frank Field, work and pensions committee chair and Labour MP for Birkenhead, described the board of directors as “too busy stuffing their mouths with gold to show any concern for the welfare of their workforce or their pensioners”.
Meanwhile, Rachel Reeves, BEIS committee chair and Labour MP for Leeds West, attributed Carillion’s collapse to its “delusional directors” who “drove Carillion off a cliff and then tried to blame everyone but themselves”.
The inquiry laid into the directors for presenting themselves as “self-pitying victims of a maelstrom of coincidental and unforeseeable mishaps” when they appeared before parliament. The report’s recommendations called on the Insolvency Service to scrutinise whether Carillion’s former directors breached duties under the Companies Act and consider their potential disqualification.
Carillion employed around 43,000 people, 19,000 in the UK, with many more in extensive supply chains and was a major strategic UK public sector supplier. Its downfall – dubbed a story of “recklessness, hubris and greed” by today’s report – has led to numerous job losses and question marks over its £2.6bn pension liability.
“Long-term obligations, such as adequately funding its pension schemes, were treated with contempt,” concluded the MPs’ report.
“The report is highly critical of the corporate culture that led to Carillion’s collapse and to the watering down of thousands of workers’ pension benefits,” said Nathan Long, senior pension analyst at Hargreaves Lansdown. “Defined benefit pensions are only as strong as the company that backs them, which is why confidence in the strength of the Pension Protection Fund is so unbelievably crucial to a well-functioning pension system.”
The politicians also urged reforms to British corporate accountability rules, as its inquiry found that the government “lacked the decisiveness or bravery” to address the failures in corporate regulation that allowed the construction company to become a “giant and unsustainable corporate time bomb”.
Reeves said: “The collapse of Carillion exposed terrible failures of regulation. The government needs to stop dithering and act to ensure regulators are up to the job of intervening before companies fail, rather than trying to pick up the pieces when it is too late.”
The report also recommended that the competition regulator investigate the audit market and break up the ‘Big Four’ accountancy firms.
Field described the company’s misdeeds as being “waved through by a cosy club of auditors, conflicted at every turn”.