Carillion: So many governance questions, so few answers

Now is the perfect time for boards to be asking difficult questions about their own governance and remuneration policies

The Carillion collapse raises so many questions regarding HR and governance approaches. How did such a large global company get into trouble so quickly? Yet there are so few answers. However, the questions should be asked by all executive committees and boards to ensure that other companies are not sleepwalking to a similar ending.

Job losses, sub-contractors laying off staff, and all the while the executive team and the board were at the centre of some pretty poor decision-making. The fact that the company went straight to liquidation rather than administration highlights the mismanagement that took place.

Philip Green, the chairman of Carillion, stated in the 2016 annual report that: ‘Good governance is an essential part of the way we undertake business on a day-to-day basis, while maintaining effective risk management, control and accountability’. Not much sign of these fine words translating into day-to-day action.

Janet Dawson was the HRD of Carillion. She had been at the company for 22 years and had risen through the HR ranks. She may well have been the voice of sanity but as she was not part of the executive it is possible her voice was lost. We don’t yet know, but was she asking the difficult questions and challenging appropriately? These should have been questions such as:

  • Why did the leadership team take significant bonuses at a time of profit warnings?
  • Where was the leadership from the CEO in refusing these and requiring his executives to follow suit?
  • Why were they signed off by the board's remuneration committee and what role did they have in approving this?
  • Why did they approve significant performance-related pay when the company was issuing profit warnings?
  • Why did they allow a clawback condition to be changed a year ago striking out corporate failure as a reason to take back bonuses?
  • Why were departing executives allowed to be paid salary beyond their termination dates and/or why were the termination agreements in their contracts overly generous?
  • How did the board believe a £500 million pension black hole was sustainable and what steps were they taking to manage this?
  • What was the role of the company secretary in holding the board, the various subcommittees and the executives to account?
  • Despite a clearly stated line of accountability, how did the subcommittees of the board fail to maintain effective risk management?
  • How did the company manage to achieve the Investors in Integrity award, and how lacking in leadership has their executive team been in leading on ethics and integrity?
  • Is this part of a wider cultural issue that the fine words on Carillion's website and annual report were completely at odds with the way the executive and board operated?
  • Were the auditors complicit in any way with these decisions?

And finally: what next for the board? They have presided over one of the largest collapses of a UK company with massive implications for all those employed by them and by their sub-contractors. Many staff directly and indirectly have been laid off, will struggle to make ends meet over the next few months, and some may find gaining new work difficult.

Will the board members be resigning from their other board roles? Will companies want to be tainted by these individuals presiding over such a collapse? Does this collapse mean they fail the fit and proper test as directors? And what of the executive team – will they walk into other roles as if nothing has happened or will criminal charges be brought against them for their actions?

Now is the perfect time for all other boards to be asking the difficult questions about their own governance and remuneration policies. If they can do so and learn from these mistakes then the collapse of Carillion will have resulted in some positives.

There are so many questions, but as yet so few answers.

Guy Pink is former interim chief executive at Addaction