The board of Carillion dismissed a proposal that could have poured £218m into the government contractor’s ailing pension scheme, believing a month before the company’s collapse that they could still revive its fortunes.
Details of a plan drawn up by accountancy firm EY, but rejected by directors, emerged as MPs conducting an inquiry into Carillion’s failure released evidence they said proved “pervasive institutional failings” at the company.
They published extracts from a presentation made by EY to the board in August 2017 as part of an exercise called “Project Ray”, which they said cast doubt on directors’ claims of a sudden descent caused by several external factors.
The presentation highlighted longstanding company-wide failings including a shortage of expertise and transparency, inefficient corporate structures and a lack of “commercial acumen”.
After presenting its findings, EY monitored Carillion’s cashflow on a month-by-month basis, warning in October that the company was in danger of insolvency by March 2018.
The accounting firm produced two scenarios, one of which was an unplanned insolvency that would see just £49.6m recovered from the business, including £12.6m for pensioners.
It also offered a second option that could have raised £364m by breaking up the company and selling profitable assets prior to liquidation, securing £218m for a retirement scheme now estimated to be nearly £1bn in deficit.
MPs on the work and pensions committee and business committee said the board “dismissed a break-up as not practical, instead choosing to believe they could successfully restructure [the business].”
A spokesperson for the company’s former executives said: “The recommendation of the company’s advisers was to start to progress a debt for equity transaction with financial stakeholders and this was supported by the board.”
Documents released by the committee detailed EY’s many concerns about Carillion’s corporate culture after completing Project Ray.
The accountants flagged up a “lack of professionalisation and expertise”, as well as the “consistent use of quantity of people to compensate for limitations in quality or skill set (particularly commercial acumen).”
There were also too many layers of management, according to EY, while short-term benefit was prioritised over sustainable performance amid a “culture of non-compliance”.
Work and pensions committee chair Frank Field said the papers “reveal a wholly deficient corporate culture, studded with low-quality management”.
“They reveal also pervasive institutional failings of the kind that don’t appear overnight; long-term failings that management must have been well aware of,” he added.
Minutes of an August 2017 board meeting show that Carillion directors admitted the possibility that the longevity of some of its staff had led to “wilful blindness” about the firm’s shortcomings.
Business committee chair Rachel Reeves said directors “either took their eye off the ball or they failed to see the warning signs that investors, Carillion staff and […] EY flagged to them.
“Directors didn’t just drop the ball once, they made a habit of it, giving every indication that it was the long-term failings in the management and corporate governance at Carillion which finally sank the company.”
Separately, former Carillion chair Philip Green has stepped down from his role as chair of Sentebale, Prince Harry’s charity dedicated to supporting children in southern Africa affected by HIV.