Carillion’s sudden rise and its spectacular collapse is a story of greedy recklessness shrouded in corporate deception. As two select committees point out in a joint report today its business model was a “relentless dash for cash, driven by acquisitions, rising debt, expansion into new markets and exploitation of suppliers”.
This disaster capitalism was enabled by dodgy accounts and executive avarice. In the end Carillion, which held £16bn of government contracts, was unviable. In retrospect the surprise was not that it went under but that it lasted so long. The public is left holding the bill: 2,000 have lost their jobs; 27,000 current and former employees will get smaller pensions; and £150m of government cash has been spent to prop up essential contracts.
The two Labour chairs – Frank Field and Rachel Reeves – have done everyone a service in exposing the scale of the tragedy; and they should also be congratulated for pointing the finger of blame. First at Carillion’s board, who are culpable for the bankruptcy and responsible for the rotten corporate culture. Executives in charge should be disqualified from corporate life. Who allowed these people to use aggressive accounting policies to present a rosy picture to the rest of the world? Step forward the professionals who preferred to rubber-stamp accounts rather than audit them.
Big accountancy too often works for itself but fails the wider economy. MPs are right to call for the audit sector to be referred to the competition regulator, with the option to break up the largest firms. MPs also correctly identified the systemic weakness of light-touch regulation. When essential services are outsourced, the public sector’s function shifts to commissioning contracts and managing them. If regulation is ineffective then it is surely time to reconsider the benefits of outsourcing.
Carillion’s fall reveals the inadequacy of corporate oversight. It is no way to run the state. The company easily evaded toothless watchdogs and crown representatives that “served no noticeable purpose in alerting the government” to the unfolding crisis. Theresa May once claimed her “mission” was to “make this a country that works for everyone”. However, she has balked at taking tough measures to deal with corporate malfeasance. Parliament is showing her how to turn rhetoric into reality.