Carillion redux

I watched with interest the BEIS committee grilling of Carillion directors.

The directors tried to paint a picture of a perfect storm of high debt inherited from acquisitive predecessors, combined with unforeseen problems in major projects, slow paying clients and an uncertain economic environment; of an embattled group trying to manage all these factors beyond their control, who, if given time and support to manage the cash flow problem could have sorted it all out; and who had fully deserved their high pay.

Whoever prepared them for their appearance before the BEIS committee had done a poor job.  The apologies were rehearsed (some repeating almost identical words) but were shown to be sham in the blistering final five minutes faced with Rachel Reeves’ barely contained fury at their unwillingness to put their money where their mouths were.

Here was a company which on the surface complied with corporate governance best practice but with a board apparently not up to the job of grasping the risks inherent in the company’s complexity.  (Watching three successive CFOs expressing surprise at what the numbers under their control revealed was quite bizarre.) Sound corporate governance cannot prevent poor business decisions but code compliance seems to carry an implicit assumption that it can mitigate the negative outcomes of poor business decisions. Is this expectation justified?

To what extent can NEDs be expected to sort out the consequences of poor business decisions compounded by Ponzi-like attempts to plug gaps in the hope of rescue or turn around? Even if NEDs know what is happening – and this board insisted that they were provided with full information, that they challenged management and yet they were all surprised at what happened – at what point should they take action? And what action should they take? This board did sack the CEO and the CFO, actions that the committee did not appear to probe in detail: examining  the background to those decisions might have been revealing.  A NED rolled up his sleeves and took on the CEO role: it would be interesting to know how board dynamics changed at that point.

I have watched many of these hearings. On this occasion committee members, especially the female ones, seemed better prepared and asked more probing follow up questions. The female members of the Carillion board were less impressive (someone should have coached them so that they didn’t start every answer with “So…”).  There was no evidence in this example that the presence of women on the board had had a positive effect.

I think the unravelling of this particular corporate collapse is going to provide clear evidence of the impossibility of our current regulatory system to meet  the expectations placed upon it. Tinkering with the corporate governance code will not help. We need a radical rethink of our assumptions about corporate accountability and the tools needed to achieve it.