Carillion Collapse Shows Government Cannot Ignore Company Culture and Governance
The collapse into administration of the construction and services company Carillion has significant implications for government oversight, with major public sector contracts being given to an organisation with a culture of adversarial practices and poor supplier management.
Carillion, despite struggling when major construction contracts hit overruns, changed bonus rules in 2016 to give more benefits to senior managers. It is also under investigation by the Financial Conduct Authority over the “timeliness and content of announcements” made between December 2016 and July 2017. Searching questions should be asked about Government oversight, when contracts worth billions were given to the firm in the same 6 months as it issued three profit warnings.
Carillion's demise reflects multiple strategic communication failures, not least the Board's recent decisions to continue dividend payouts to shareholders and to award and protect bonus payments to key executives, while their debt mountain continued grew and failing contracts exacerbated the problems.
Sadly, the business has retained an unfortunate reputation as an old-school, often adversarial, contractor. Its involvement in employee blacklisting and late subcontractor payment scandals, for example, highlight a poor business culture at multiple levels within the company, and set back attempts to improve the image of construction.
Trust in business and government is, according to the Edelman Trust Barometer and other sources, at an all time low. It is not hard to see why when organisations overreach themselves and apparently no-one – either in the firm or managing the relationship for the Government – seems to have been prepared to speak out. Good Governance, in particular internal transparency and accountability, must be a bigger part of due diligence when major public sector contractors are put to the market.
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