57. Carillion's five NEDs had the same legal duties, responsibilities and potential liabilities under the Companies Act 2006 as their executive counterparts.211 The distinction is that NEDs are responsible for constructively challenging the executives responsible for the day-to-day running of a company, and develop proposals for strategy. The Corporate Governance Code states:
Non-executive directors should scrutinise the performance of management in meeting agreed goals and objectives and monitor the reporting of performance. They should satisfy themselves on the integrity of financial information and that financial controls and systems of risk management are robust and defensible.212
58. The Carillion NEDs who gave evidence to us told us they performed well in this role. Alison Horner, a NED from December 2013 until the company's collapse, said "we were there to provide oversight and challenge, and we were able to do that effectively".213 Philip Green, a NED since June 2011 and non-executive Chairman since May 2014, agreed, saying "we challenged; we probed; we asked".214 When we asked him for a concrete example of this challenge, he cited the company's level of debt in 2016 and 2017, stating "the board consistently challenged management on debt, and management then developed a so-called self-help plan to reduce debt".215 Yet debt rose from £689 million to £961 million over that period.216 Mr Green also pointed to board scrutiny of how executives were managing large, failing contracts:
Some people challenged by sending questions in advance by email; some people challenged in the meeting. I would say that it was a board that constructively challenged management.217
However, Mr Green later cited those same contracts as a "very significant factor" in the company's collapse.218 Murdo Murchison, of former Carillion shareholder Kiltearn Partners, doubted whether the non-executive directors had been able "to exercise any effective check on the executive management team. It appears that they were hoodwinked as much as anybody else".219
59. Non-executives are there to scrutinise executive management. They have a particularly vital role in challenging risk management and strategy and should act as a bulwark against reckless executives. Carillion's NEDs were, however, unable to provide any remotely convincing evidence of their effective impact.
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211 The five NEDs in place at the end of 2016 were: Philip Green, Andrew Dougal, Alison Horner, Ceri Powell and Keith Cochrane. As Chairman, Philip Green was paid £215,000 per year. All the others were paid £61,000. Carillion plc, Annual Report and Accounts 2016, p 66
212 Financial Reporting Council, UK Corporate Governance Code, para A.4
213 Q417 [Alison Horner]
214 Q423 [Philip Green]
215 Q420 [Philip Green]
216 The collapse of Carillion, Briefing Paper 8206, House of Commons Library, March 2018
217 Q423 [Philip Green]
218 Q537 [Philip Green]
219 Q1036 [Murdo Murchison]