Carillion collapse: Who was behind the 'recklessness, hubris and greed' that led to the demise of the government contractor?

The company’s board, auditors and advisers have all been found responsible for the failure by politicians

MPs have singled out a number of parties who played a role in the demise of outsourcing firm Carillion, naming both groups and individuals in their report .

The politicians – from a joint inquiry by the Business, Energy and Industrial Strategy Committee and Work and Pensions Committee – said the collapse of Carillion was a “story of recklessness, hubris and greed” and pulled no punches in their findings as to what led to the firm’s failure, which put 20,000 jobs at risk.

Carillion’s board bears the brunt of the responsibility, the report found, but there were others involved in the behaviour that ultimately pushed the company over the edge.

These are the key characters:

Richard Adam

He was Carillion’s finance director for almost 10 years, from April 2007 to late 2016, and MPs said: “He, more than anyone else, would have been aware of the unsustainability of the company’s approach.”

The committee said Mr Adam was “the architect of Carillion’s aggressive accounting policies” and noted that he “resolutely refused to make adequate contributions to the company’s pension schemes, which he considered a ‘waste of money’”.

Mr Adam retired at the end of 2016 and then sold his entire shareholding for £534,000 in March. In May he sold a vested share award for 2014 for £242,000. “These were the actions of a man who knew exactly where the company was heading once it was no longer propped up by his accounting tricks,” MPs said.

Richard Howson

As chief executive from 2012 to 2017, Mr Howson “was the figurehead for a business that careered progressively out of control under his misguidedly self-assured leadership”, according to the report. MPs found that he demonstrated “little grasp of the unsustainability of Carillion’s business model or the basic failings of governance that lay at the root of its problems” and said Mr Howson “should accept that, as the longstanding leader who took Carillion to the brink, he was part of the problem rather than part of the solution”.

Philip Green

Mr Green joined the board in 2011 and became chairman in 2014. MPs described him as “an unquestioning optimist when his role was to challenge”. “Mr Green appears to have interpreted his role as chairman as that of cheerleader-in-chief,” the committee said.

“Remarkably, to the end he thought he was the man to head a ‘new leadership team’.”

Keith Cochrane

Appointed as a senior independent non-executive director in July 2016, and appointed as interim CEO when Mr Howson was sacked, Mr Cochrane “quickly succumbed to the dysfunctionality prevalent on the board”, MPs said. While they acknowledged that he recognised some of the problems facing Carillion, and told the board that the group had cultural problems, he was “unable to convince investors of his ability to lead and rebuild the company”.

The remuneration committee

MPs criticised the committee for trying to present its remuneration policy as unremarkable: “In the years leading up to the company’s collapse, Carillion’s remuneration committee paid substantially higher salaries and bonuses to senior staff while financial performance declined. It was the opposite of payment by results.”

The report also criticised the committee for making salary boosts and extra payments to senior staff a priority during the company’s collapse, “continuing to ensure those at the top of Carillion would suffer less from its collapse than the workers and other stakeholders to whom they had responsibility”.

Alison Horner

As chair of the remuneration committee, Ms Horner was singled out for her role in maintaining large pay increases while Carillion went under. According to the report, she “showed no indication that she believed she had made any mistakes. Other than being ‘sorry for what has happened’ she accepted no culpability.” The MPs noted: “Ms Horner continues to hold the role of chief people officer of Tesco, where she has responsibilities to more than half a million employees. We hope that, in that post, she will reflect on the lessons learned from Carillion and her role in its collapse.”

Zafar Khan

Mr Khan held the role of finance director for nine months between 2016 and 2017, during which time he “failed to get a grip on Carillion’s aggressive accounting policies or make any progress in reducing the company’s debt”. The committee noted that he took on the job as FD when the company was already in deep trouble, but added that he “should not be absolved of responsibility” as he signed off the 2016 accounts, which “presented an extraordinarily optimistic view of the company’s health”.

One Carillion exec was singled out for praise by the committees:

Emma Mercer

The MPs described Ms Mercer, who returned to the UK business after three years working for the outsourcer in Canada, as “the only Carillion director to emerge from the collapse with any credit”.

“She demonstrated a willingness to speak the truth and challenge the status quo – fundamental qualities in a director that were not evident in any of her colleagues,” the report states. “Her individual actions should be taken into account by official investigations of the collapse of the company. We hope that her association with Carillion does not unfairly colour her future career.”

The auditors

KPMG audited Carillion’s accounts for the entire 19 years of its existence, a relationship that made the accounting firm £29m. The committee noted that KPMG never qualified its audit opinion, “instead signing off the figures put in front of them by the company’s directors”.

MPs said: “In failing to exercise – and voice – professional scepticism towards Carillion’s aggressive accounting judgements, KPMG was complicit in them. It should take its own share of responsibility for the consequences.”

Advisers

KPMG was not the only audit firm to get a mention in the report. Deloitte was responsible for advising Carillion’s board on risk management and financial controls, and MPs found the firm was “either unable to identify effectively to the board the risks associated with their business practices, unwilling to do so, or too readily ignored them”.

The committee highlighted Erenst and Young’s (EY) role in advising the company on how to make £123m in cost savings, which did not happen – but the firm was still paid £10.8m for its efforts.

EY was not alone in its position as an ineffectual adviser. The report states: “By the end, a whole suite of advisers, including an array of law firms, were squeezing fee income out of what remained of the company.” Slaughter and May, Lazard and Morgan Stanley were all named in the document.

The Pensions Regulator

The committee criticised the watchdog for its “feeble” response to Carillion’s underfunding of its pension schemes – the regulator had threatened to impose a contribution schedule but never did. “The Pensions Regulator failed in all its objectives regarding the Carillion pension scheme,” the report states, with the result that scheme members will receive reduced pensions and the Pension Protection Fund (PPF) will pick up its largest ever bill.

MPs also noted that “without any sense of irony, the regulator chose this moment to launch an investigation to see if Carillion should contribute more money to its schemes”.

The Financial Reporting Council

The FRC was “far too passive” on the subject of Carillion’s financial reports, and “timid in challenging” the group on the information it provided. The committee also said the FRC was “wholly ineffective in taking to task the auditors who had responsibility for ensuring their veracity”.