By Andrew MacAskill
LONDON (Reuters) – Bosses of the collapsed construction firm Carillion should face an inquiry into their fitness to serve as directors after they masked the company’s financial ill-health with accounting tricks before its failure, Members of Parliament said on Wednesday.
Carillion, which employed 43,000 people to provide services in defence, education, health and transport, collapsed in January, becoming the largest construction bankruptcy in British history. It left creditors and the firm’s pensioners facing steep losses and put thousands of jobs at risk.
The executives were more concerned with protecting bonuses than finding problems at the firm and presided over a “rotten corporate culture” that led to its costly demise, an investigation by two parliamentary committees found.
The failure of Carillion was a story of “recklessness, hubris and greed” and could happen again, a 101-page report by the Work and Pensions committee and the Business, Energy and Industrial Strategy select committee said.
“Same old story. Same old greed. A board of directors too busy stuffing their mouths with gold to show any concern for the welfare of their workforce or their pensioners,” said Frank Field, who chairs the Work and Pensions select committee.
“British industry is too important to be left in the hands of the likes of the shysters at the top of Carillion,” he added.
The Insolvency Service, which is carrying out an investigation into potential misconduct by former directors at Carillion, should carefully consider whether the executives should be banned, the report said.
Former finance director, Richard Adam, was the architect of Carillion’s aggressive accounting policies and refused to make adequate contributions to the company’s pension scheme, which he considered a “waste of money”, the report said.
Carillion misrepresented its accounts, for example, by leaning on small suppliers to delay receiving payment in an attempt to conceal the true scale of its debts, the report said.
The company kept some companies waiting to be paid for 120 days unless, in exchange for more prompt payments, the companies would accept a discount on their invoices, the report said.
This meant Carillion was effectively able to keep more cash on its books by holding on to money owed to suppliers.
Adam’s decision to sell almost 800,000 pounds ($1.08 million) of shares after he retired last year, a few months before Carillion collapsed, were “the actions of a man who knew where the company was heading”, the report said.
In a statement, Adam rejected the committee’s conclusions, said the reasons for Carillion’s collapse were complex and said the authors of the report wrongly attributed quotes to him.
The report said the government should also ask the competition commission to investigate the break-up of Britain’s big four accountancy firms after a series of scandals that accountants appear to have missed.
The aim would be to increase competition and eliminate conflicts of interest arising from the dominance of the largest accountancy firms.
The government needs to do more to tackle the regulatory and legal environment that allowed Carillion to become a “giant and unsustainable corporate time bomb”, the report said.
“Carillion was unsustainable,” it added. “The mystery is not that it collapsed, but that it lasted so long. Carillion could happen again, and soon.”
(Editing by Stephen Addison)