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Chief Bakes

BBC: Carillion board oversaw a 'rotten corporate culture', say MPs

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Chief Bakes

Carillion board oversaw a 'rotten corporate culture', say MPs

  • 16 May 2018
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Media captionRachel Reeves says Carillion directors 'destroyed a British company'

Carillion's board presided over a "rotten corporate culture" and was culpable for its "costly collapse", two committees of MPs have concluded.

They also accused the government and big four accounting firms of failing to stop Britain's second biggest construction firm from going under.

The MPs said regulators should now consider banning the former directors from serving on other company boards.

Carillion collapsed under a £1.5bn debt pile in January.

It employed 43,000 people, about 20,000 of them in the UK, and thousands of jobs have been lost.

It also held numerous public contracts, such as the maintenance of schools and prisons, all of which had to be brought under government control.

Rachel Reeves MP, chair of the business (Beis) committee, said: "Carillion's collapse was a disaster for all those who lost their jobs and the small businesses, contractors and suppliers left fighting for survival.

"The company's delusional directors drove Carillion off a cliff and then tried to blame everyone but themselves."

"However, the auditors should also be in the dock for this catastrophic crash. They are guilty of failing to tackle the crisis at Carillion, failing to insist the company paint a true picture of its crippling financial problems."

What are the directors accused of?

In their report, the Work and Pensions and Beis committees called Carillion's rise and fall "a story of recklessness, hubris and greed".

They singled out former directors Richard Adam, Richard Howson and Philip Green for particular scrutiny, saying the men had expanded the firm through ill-judged acquisitions while hiding Carillion's financial problems from shareholders.

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

"Long term obligations, such as adequately funding Carillion's pension schemes, were treated with contempt."

Image caption Former Carillion chairman Philip Green at a parliamentary hearing

They said the directors had presented themselves during parliamentary hearings as "self-pitying victims" of "unforeseeable mishaps".

But Carillion's former finance director, Richard Adam, said he rejected the committees' conclusions and objected to quotes in the MPs report, which he said had been misattributed to him.

Former chairman Philip Green said: "The board always sought to make decisions on the best available information and with the best professional advice; furthermore we always strived to act in the interests of the company and all its stakeholders."

What are the auditors accused of?

The two select committees also attacked the big four accounting firms for approving Carillion's accounts despite its spiralling debts.

They said Ernst & Young was paid £10.8m for "six months of failed turnaround advice", while Deloitte received £10m to be Carillion's internal auditor, but was either "unable or unwilling" to identify failings in financial controls, or "too readily ignored them".

They also said KPMG had failed to question Carillion's financial judgements, while PwC was "continuing to gain" as its official receiver "without adequate scrutiny".

Ms Reeves said the competition authorities should consider breaking up the big four accountancy firms "to help increase competition and deal with conflicts of interest".

But a KPMG spokesman said it believed it had conducted its audits of Carillion "appropriately", and Ernst & Young said it was "extremely disappointed that despite all efforts the business was not rescued".

Deloitte said it was "disappointed with the conclusions of the committees" while PwC defended its role as official receiver.

"Our priority has been to keep public services running safely across the country while saving thousands of jobs," said PwC chairman and senior partner Kevin Ellis.

Image copyright PA
Image caption Carillion delivered "swathes" of public services, MPs said

What are regulators and the government accused of?

The MPs also accused regulators of being too "passive" in tackling Carillion's problems, adding that the government had "nurtured" an environment in which the collapse of an outsourcing firm was "a distinct possibility".

"When swathes of public services are affected, close monitoring of exposure to risks would seem essential," the report said.

"Yet we have a semi-professional part-time system that does not provide the necessary degree of insight for government to manage risks."

A government spokeswoman said: "Our priority has been the continued, safe running of public services and to minimise the impact of Carillion's insolvency. The plans we put in place have ensured this.

"The government wants to see a strong and varied supplier base where companies of all sizes benefit from long-term and stable government contracts.

She added: "That's why we have recently announced a number of measures to support government suppliers - strengthening our commitment to prompt payment; protecting staff, businesses and small suppliers from irresponsible directors.

"We welcome the report from the joint select committee and will respond fully in due course."

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