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Carillion corporate culture 'wholly deficient'

Carillion

Carillion’s corporate culture has been branded “wholly deficient” by MPs as an inquiry into the construction giant’s collapse published a report from professional services firm EY that revealed ”pervasive institutional failings”.

The construction company had variability in the quality of project leadership, an inefficient structure and a need for increased accountability, the extracts from the report said.

The documents, which were presented to Carillion’s directors in the months before the collapse, were made public by the work and pensions committee and the business select committee joint inquiry into the firm’s collapse. 

EY found that the business prioritised short term benefits over sustainable performance and said: “Despite many layers of management there is limited visibility and transparency of performance at the appropriate level to make intervention.”

Work and pensions committee chairman Frank Field said: “We have heard a lot about the ‘shock’ profit warning in July 2017, as well as the board’s ‘surprise’ and dismay when they were finally forced into administration on January 15 – at public expense because there was not enough left in the company to even pay for that.

“But these papers reveal a wholly deficient corporate culture, studded with low-quality management more interested in meeting targets than obeying rules. They reveal also pervasive institutional failings of the kind that don’t appear overnight, long term failings that management must have been well aware of.

“Time and again they ignored and overrode the £millions of advice they paid for, while stiffing the suppliers trying to deliver the goods that might actually have saved the company.

“Instead they ran it into the ground. This left unsecured creditors like the pensioners and suppliers high and dry. Would you lend money to Carillion on an unsecured basis? They had no choice.”

EY produced a model that showed £49.6M would be recovered in the event of an unplanned insolvency, with the pension schemes getting £12.6M.

Insolvency on an “enhanced break-up basis” - selling off profitable parts of the business and then entering liquidation - would have secured £364.4M and £218.4M for the pension scheme, EY told the board. The Carillion board said the enhanced break up was not practical and believed the firm could restructure. 

EY was approached by Carillion to manage the administration but refused, as it did not believe there were sufficient assets left in the business to recover the costs of administration.

The Official Receiver appointed PWC as Special Managers, in place of administrators. Estimated costs of administration so far are £50 million, which will be paid out of public funds.

Business select committee chairwoman Rachel Reeves said: “The Carillion directors either took their eye off the ball or they failed to see the warning signs that investors, Carillion staff, and, in this case, EY flagged to them.

“Directors didn’t just drop the ball once, they made a habit of it, giving every indication that it was the long-term failings in the management and corporate governance at Carillion which finally sank the company.”

 

 

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