Carillion’s board presided over a “rotten corporate culture” and was culpable for its “costly collapse”, two committees of MPs have concluded.
They also called for a potential break-up of the big four audit firms, after they “waved though” the indebted construction firm’s accounts.
And they attacked the government for lacking “decisiveness and bravery” to tackle corporate regulation failures.
They suggested the directors should now be banned from 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, thousands of whom have lost their jobs.
It also held numerous public contracts, such as the maintenance of schools and prisons, all of which had to be brought under government control, at a cost to the taxpayer.
In a damning 97-page report, the Work and Pensions and Beis committees also said:
- The Big Four accountancy firms were a “cosy club incapable of providing the degree of independent challenge needed”
- Carillion’s collapse had exposed “systemic flaws” in corporate Britain and showed regulators were “toothless”
- And warned “Carillion could happen again, and soon”
Rachel Reeves, chair of the business committee, told BBC Radio 4’s Today programme: “The directors are culpable for the mess that Carillion got into and drove the company off a cliff.”
She accused them of a “relentless dash for cash” by taking on low-margin contracts which didn’t make money.
“And when we had the directors in front of our Select Committee, they seemed to be in total denial about what happened to their company. They seemed almost surprised to be in front of us,” she said.
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.”
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.
Michael Izza, chief executive of the Institute of Chartered Accountants, told the Today programme the report felt like a watershed moment for the industry.
“It gives us an opportunity to think again about what we need to do to fix this. Because if we don’t fix this I don’t think we’re going to have a profession in 20 years time.”
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.”
Frank Field, chair of the Work and Pensions Committee, said: “Government urgently needs to come to Parliament with radical reforms to our creaking system of corporate accountability.
“British industry is too important to be left in the hands of the likes of the shysters at the top of Carillion.”
A Cabinet Office spokeswoman said: “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.”