With former board and management facing MPs questions and an investigation by the Financial Conduct Authority, and auditors KPMG under Financial Reporting Council scrutiny for its work on the books, the collapse of Carillion plc has once again put UK plc’s corporate culture and the treatment of different stakeholders, namely shareholders and pensioners, into the spotlight. 

On January 15, 2018, Carillion plc announced that it had filed for compulsory liquidation; the Wolverhampton-based construction company had reportedly built up approximately £900 million in debt and a pension deficit of £587 million. The downfall of the former FTSE 350 firm followed a series of profit warnings and a change in CEO, and culminated in the dramatic collapse of last-minute negotiations to secure short-term funding – leaving the UK government to prop up the public services carried on by Carillion staff.  

Media outlets have combed through the ashes of the debacle to find perished canaries, and the signals are all familiar topics for corporate governance enthusiasts. High executive pay-outs, poor risk controls, questionable allocation of resources – all reliable indicators of a lack of appropriate oversight. Moreover, where structural safeguards were in place, they were blunted: although the company had adopted a clawback provision to prevent unmerited executive pay, Carillion’s remuneration committee recently relaxed clawback rules so that it would not apply if the company went bust 

These actions, along with the board’s assertion of “substantial liquidity” just months before the collapse and a progressive dividend policy (apparently at the expense of employees’ pension fund contributions), have prompted questions on whether oversight failures relate to coziness with management, or simply competence. Former chairman Philip Green has drawn headlines due to his prior involvement in the collapse of BHS (and similar pension gap), and the reputations of Carillion’s other directors appear to have been tarnished by the debacle. Earlier this week former remuneration committee chair Alison Horner, along with a panel of ex-execs, faced questions (and some grandstanding) from Parliament’s Business, Energy and Industrial Strategy and Work and Pensions committees; John Wood Group have announced that Richard Howson, Carillion’s former CEO until July 2017, would step down as non-executive director; and Andrew Dougal, chair of Carillion’s audit committee for the six years prior to the collapse, reportedly faces calls for his resignation from the board of Victrex. Given that the Financial Conduct Authority is still investigating the “timeliness and content” of the profit warnings that precipitated Carillion’s fall, there may be more sources of scandal in store for the former board. 

Nor is the scope of review into oversight failures limited to the board. KPMG, Carillion’s former long-serving auditor, is facing an investigation by the Financial Reporting Council into its work for the company going back to fiscal year 2014. According to the FRC, the investigation will: 

[C]onsider whether the auditor has breached any relevant requirements, in particular the ethical and technical standards for auditors. Several areas of KPMG’s work will be examined including the audit of the company’s use and disclosure of the going concern basis of accounting, estimate and recognition of revenue on significant contracts, and accounting for pensions” 

Historically, significant corporate failures have prompted UK politicians, regulators and institutions to reflect, react and respond (in varying respective proportions). In this case, if Parliament’s line of questioning this week was any indication, the processes that allowed for dividend and bonus pay-outs but left hundreds of millions in pension liability may bear further scrutiny.  

Carillion shareholders don’t have much to look forward to: “as a result of the liquidation appointments, there is no prospect of any return.” But with investigations underway on several fronts, they should at least get a full accounting of what went wrong, if not full accountability.  

Cian is an analyst covering the UK market.