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Carillion corporate culture 'wholly deficient' say MPs

MPs have launched a fresh attack on bosses at Carillion, saying there was a "wholly deficient" corporate culture at the collapsed infrastructure giant.

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A report from accountants EY flagged up weaknesses in Carillion's management

The Work and Pensions and Business Select Committees said new evidence submitted to their joint inquiry into the spectacular demise of the Wolverhampton-based construction and support services firm revealed "pervasive institutional failings".

The committees published extracts from a presentation made to Carillion's board last August by accountants EY, which included comments such as:

- Lack of professionalism and expertise.

- The value that the group provides to the performance of the business is not clear.

- Culture of non-compliance.

- The business prioritised short term benefits over sustainable performance

- "Inefficiencies of structure with excessive layers of management"

- Lack of transparency of performance at the appropriate levels

Frank Field, chairman of the Work and Pensions Committee, said: "We have heard a lot about the 'shock' profit warning in July 2017, as well as the board's 'surprise' and dismay when they were finally forced into administration on January 15 - at public expense because there was not enough left in the company to pay even for that.

"But these papers reveal a wholly deficient corporate culture, studded with low-quality management more interested in meeting targets than obeying rules.

"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.

"Time and again they ignored and overrode the £millions of advice they paid for, while stiffing the suppliers trying to deliver the goods that might actually have saved the company. Instead, they ran it into the ground. This left unsecured creditors like the pensioners and suppliers high and dry. Would you lend money to Carillion on an unsecured basis? They had no choice."

Rachel Reeves, who chairs the Business, Energy and Industrial Strategy Select Committee, said: "The Carillion directors either took their eye off the ball or they failed to see the warning signs that investors, Carillion staff, and, in this case, 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."

A total of 1,371 Carillion workers have been made redundant since the company went into liquidation in January. The jobs of around 8,000 more hang in the balance, including around 400 working at the headquarters offices at Salop Street in the Wolverhampton city centre.

In the joint committee's assessment of the minutes it found that, from the end of October last year, EY was producing weekly cashflow forecasts which, by mid-December, showed that the company would have no “headroom” left by March 2018 and would therefore effectively become insolvent.

The committee said: "EY produced modelling showing how Carillion’s assets would be realised in two scenarios: on an 'enhanced break-up basis' (i.e. selling off profitable parts of the business and then entering liquidation), and on an unplanned insolvency.

"Results showed that on an unplanned insolvency, EY were estimating just £49.6m would be recovered, with the pension schemes getting just £12.6million.

"By contrast, insolvency on a break-up basis would have secured £364.4million, with the pension schemes getting £218.4million. The Carillion board dismissed a break-up as not practical, instead choosing to believe they could successfully restructure."

Carillion was forced to apply for liquidation on January 15. EY had been approached by Carillion to manage the administration but refused, as the accountancy firm did not believe there were sufficient assets left in the business to recover the costs of administration.

The Official Receiver appointed PWC as special managers, in place of administrators. Estimated costs of administration so far are £50 million, which will be paid out of public funds.