Carillion’s directors were responsible for a “rotten corporate culture” that drove the company to its devastating and hugely costly collapse, MPs have said
In a damning joint report, the Work & Pensions and Business, Energy & Industrial Strategy committees said directors elected to increase their dividend pay-outs every year and even as the company began to unravel, the board was “concerned with increasing and protecting generous executive bonuses”. Long-term obligations, such as adequately funding Carillion’s pension scheme, were “treated with contempt”.
The report calls on the Insolvency Service to “carefully consider” whether Carilion’s former directors should be recommended for disqualification.
MPs also criticised the Big Four audit firms, saying Carillion’s auditor, KPMG, was “complicit” in the company’s questionable and aggressive accounting practices, signing off “fantastical figures” over its 19-year tenure.
Deloitte, which acted as Carillion’s internal auditor, comes under fire for being “unable or unwilling to identify its “terminal failings”, along with Ernst & Young, which was tasked with turning the company around, and PwC, which advised the company, its pension schemes and the government on Carillion contracts. MPs said as advisers to both Carillion and the government, and as Carillion’s special managers after its collapse, PwC “benefited regardless of the fate of the company”.
The report describes the UK audit market as a “cosy club” incapable of providing the independent challenge needed and it calls on the government to refer the sector to the Competition & Markets Authority, with the possible outcome of breaking up the Big Four’s audit arms.
Furthermore, MPs highlighted “terrible failures” in regulation and calls on the government to carry out an “ambitious and wide-ranging set of reforms” to corporate accountability.
Rachel Reeves, chair of the 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. Their colossal failure as managers meant they effectively pressed the self-destruct button on the company.
“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.
“The sorry saga of Carillion is further evidence that the Big Four accountancy firms are prioritising their own profits ahead of good governance at the companies they are supposed to be putting under the microscope.
“The collapse of Carillion exposed terrible failures of regulation. The Government needs to stop dithering and act to ensure regulators are up to the job of intervening before companies fail, rather than trying to pick up the pieces when it is too late.”