‘Hubris and greed’ led to the collapse of Carillion
THE board construction giant Carillion presided over a “rotten corporate culture” and was “culpable” for its massively costly demise, MPs have concluded.
A Commons inquiry found that Carillion’s rise and spectacular fall was a story of “recklessness, hubris and greed”, while its business model was “a relentless dash for cash, driven by acquisitions, rising debt and exploitation of suppliers”.
A joint inquiry by the House of Commons Business Committee and the Work and Pensions Committee has laid bare the “greed” and incompetence of managers at the very top of the company that left the hospital in limbo, along with other projects managed by Carillion across the country.
MPs found that the firm, which had around 43,000 employees, including 19,000 in the UK, wasn’t as profitable as it appeared.
But Carillion’s board painted a false impression because they wanted to protect their bonuses.
The MPs said: “Even as the company very publicly began to unravel, the board was concerned with increasing and protecting generous executive bonuses. Carillion was unsustainable.” Explaining how Carillion misled investors, the MPs said: “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 had 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. “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, it was intended to deceive lenders and investors. It was also entirely unsustainable: eventually, Carillion would need to get the cash in.” And the MPs named three senior managers. They said: “Richard Adam was Carillion’s finance director for ten years. He was the architect of Carillion’s aggressive accounting policies and resolutely refused to make adequate contributions to the company’s pension schemes, which he considered a ‘waste of money.’ ”
They added: “Richard Howson, chief executive from 2012 to 2017, was the figurehead for a business that careered progressively out of control under his misguidedly self-assured leadership.”
And they said: “Philip Green joined the board in 2011 and became chairman in 2014.
“He was an unquestioning optimist when his role was to challenge. Remarkably, to the end he thought he was the man to head a ‘new leadership team’. ”