44. Corporate governance is the process by which a company is directed and controlled.176 Its purpose is "to facilitate effective, entrepreneurial and prudent management that can deliver the long-term success of the company".177 The UK Corporate Governance Code, held by the Financial Reporting Council (FRC), states that the "underlying principles of good governance [are] accountability, transparency, probity and a focus on the sustainable success of an entity over the longer term".178 Philip Green told us that Carillion's board upheld these standards, describing a culture of "honesty, openness, transparency and challenging management robustly, but in a supportive way".179
45. The documents we saw, however, showed a very different picture:
• A June 2017 lessons learned exercise following an accounting review found the need for a "cultural audit" and "review of values", which should make changes "where necessary such that staff fully understand that behaving with transparency, honest[y] and integrity is as important as achieving, improving and delivering".180
• EY, appointed on 14 July to support a strategic review of the company, quickly identified a "lack of accountability […] professionalisation and expertise", an "inward looking culture" and a "culture of non-compliance".181
• Minutes from a Carillion board discussion of strategy in August 2017 identify "a culture of making the numbers" (hitting targets at all costs) and "wilful blindness" among long-serving staff as to what was occurring in the business. The board concluded that the culture of the organisation required "radical change".182
• Carillion's January 2018 turnaround business plan stated that the group had "become too complex with an overly short-term focus, weak operational risk management and too many distractions outside of our 'core'".183
46. Carillion's management lacked basic financial information to do their job. A January 2018 review by FTI Consulting for Carillion's lenders found the "presentation and availability of robust historical financial information", such as cash flows and profitability, to be "extremely weak".184 This accorded with a presentation by Keith Cochrane to the board on 22 August 2017 which identified "continued challenges in quality, accessibility and integrity of data, particularly profitability at contract level".185 For a major contracting company, these are damning failings.
47. Such problems were not restricted to financial information. When it collapsed in January 2018, the total group structure consisted of 326 companies, 199 based in the UK,186 of which 27 are now in compulsory liquidation.187 Sarah Albon, Chief Executive of the Insolvency Service, told us that the company's "incredibly poor standards" made it difficult to identify information that should have been "absolutely, straightforwardly available", such as a list of directors.188 Responsibility for ensuring the company is run professionally is the responsibility of the board. Stephen Haddrill, Chief Executive of the FRC, said "there must be enormous cause for concern about how the company was governed".189
48. Corporate culture does not emerge overnight. The chronic lack of accountability and professionalism now evident in Carillion's governance were failures years in the making. The board was either negligently ignorant of the rotten culture at Carillion or complicit in it.
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176 Institute of Chartered Accountants of England and Wales, What Is Corporate Governance?, accessed 1 May 2018
177 Financial Reporting Council, UK Corporate Governance Code, para 1
178 As above, para 4
179 Q418 [Philip Green]
180 Carillion plc, Lessons Learned Board Pack, June 2017, p 66
181 Carillion plc, EY presentation to Board, 22 August 2017
182 Carillion plc, Minutes of a meeting of the Board of Directors, 22 August 2017
183 Carillion plc , Group Business Plan, January 2018, p 6
184 Carillion plc, FTI Consulting, Independent Business Review, Januaury 2018
185 Carillion plc, Strategy Proposition Board Presentation, 22 August 2017
186 Q17 [Sarah Albon]
187 PwC, Carillion Group website, accessed 23 April 2018
188 Q110 [Sarah Albon]
189 Q17 [Stephen Haddrill]