Directors at collapsed engineering giant Carillion were too busy “stuffing their mouths with gold” to worry about employees and should face the possibility of disqualification, according to a scathing report by MPs.
In the final report of an inquiry into the spectacular failure of the company, two select committees also attacked the government for “lacking” decisiveness and bravery to tackle failures in corporate regulation.
Carillion became a “giant and unsustainable corporate time bomb”, said the Work and Pensions and Business Select Committees.
The MPs said that following a series of hearings into Carillion’s liquidation, it was clear that the board presided over a “rotten corporate culture”.
They said the Insolvency Service should carefully consider whether former directors breached their duties under the Companies Act and should be recommended for disqualification.
Frank Field, chairman of the Work and Pensions Committee, said: “A board of directors too busy stuffing their mouths with gold to show any concern for the welfare of their workforce or their pensioners. They rightly face investigation of their fitness to run a company again.
“This is a disgraceful example of how much of our capitalism is allowed to operate, waved through by a cosy club of auditors, conflicted at every turn.
“Government urgently needs to come to Parliament with radical reforms to our creaking system of corporate accountability.
“British industry is too important to be left in the hands of the likes of the shysters at the top of Carillion.”
Rachel Reeves, who chairs the Business Committee, said: “Carillion’s collapse was a disaster for all those who lost their jobs and the small businesses, contractors and suppliers left fighting for survival.
“The company’s delusional directors drove Carillion off a cliff and then tried to blame everyone but themselves. Their colossal failure as managers meant they effectively pressed the self-destruct button on the company.
“However, the auditors should also be in the dock for this catastrophic crash. They are guilty of failing to tackle the crisis at Carillion, failing to insist the company paint a true picture of its crippling financial problems.”
“The sorry saga of Carillion is further evidence that the Big Four accountancy firms are prioritising their own profits ahead of good governance at the companies they are supposed to be putting under the microscope.”
Ms Reeves said the Competition and Markets Authority should look to break up the so-called Big Four accountancy firms - KMPG, PwC, Deloitte and EY -which she added had pocketed millions of pounds for their lucrative audit work.
“It is a parasitical relationship which sees the auditors prosper, regardless of what happens to the companies, employees and investors who rely on their scrutiny.”
The committee said Ernst & Young was paid £10.8 million for “six months of failed turnaround advice”, while Deloitte received £10 million to be Carillion’s internal auditor, but were either “unable or unwilling” to identify failings in financial controls, or “too readily ignored them”.
Thousands of jobs have been lost as a result of Carillion’s collapse in January.
Former finance director Richard Adam, who was named in the MPs’ report as the “architect of Carillion’s aggressive accounting policies” and was previously accused of “dumping” shares worth hundreds of thousands of pounds at the first possible moment, said in a statement: “’Despite retiring over a year before Carillion went into insolvency, I am deeply saddened by the events that have since overtaken the company.
“The reasons for the collapse are clearly complex; however, I reject the unwarranted conclusions the committees have reached concerning my role at the company
“I have objected to the committees about quotes that they have misattributed to me. I look forward to contributing to the due process and conclusion of the various investigations that are still ongoing.”
Unite union assistant general secretary Gail Cartmail, picking up the report’s summary that Carillion could happen again, and soon, said: “The fall of Carillion was the inevitable outcome of a business model that embodies a ‘race to the bottom’ on bidding for contracts.
“The public sector can change that. National and local government have the power to transform outsourcing disasters by bringing services in house where profit is no longer the ideological master and for service contracts that are let to apply standards on quality and workforce concerns.”
Roger Barker, of the Institute of Directors, said: “The report confirms that, far from being a natural market failure, the demise of Carillion came about as a result of individual failings by the company’s board and other actors in the governance chain.
“What makes this all the more painful is that many of those who bore the brunt of its collapse - its employees, suppliers and other stakeholders - were among those who helped keep company on its feet for as long as it did.
“Carillion’s collapse undermined the already low level of public trust in business. The majority of UK businesses and business leaders bear little relation to the companies we have seen fail due to poor corporate governance in recent years, yet unfortunately they are tarnished by the same brush.”