1. Carillion's business model was an unsustainable dash for cash. The mystery is not that it collapsed, but how it kept going for so long. Carillion's acquisitions lacked a coherent strategy beyond removing competitors from the market, yet failed to generate higher margins. Purchases were funded through rising debt and stored up pensions problems for the future. Similarly, expansions into overseas markets were driven by optimism rather than any strategic expertise. Carillion's directors blamed a few rogue contracts in alien business environments, such as with Msheireb Properties in Qatar, for the company's demise. But if they had had their way, they would have won 13 contracts in that country. The truth is that, in acquisitions, debt and international expansion, Carillion became increasingly reckless in the pursuit of growth. In doing so, it had scant regard for long-term sustainability or the impact on employees, pensioners and suppliers. (Paragraph 14)
2. The perception of Carillion as a healthy and successful company was in no small part due to its directors' determination to increase the dividend paid each year, come what may. Amid a jutting mountain range of volatile financial performance charts, dividend payments stand out as a generous, reliable and steady incline. In the company's final years, directors rewarded themselves and other shareholders by choosing to pay out more in dividends than the company generated in cash, despite increased borrowing, low levels of investment and a growing pension deficit. Active investors have expressed surprise and disappointment that Carillion's directors chose short-term gains over the long-term sustainability of the company. We too can find no justification for this reckless approach. (Paragraph 21)
3. Honouring pension obligations over decades to come was of little interest to a myopic board who thought of little beyond their next market statement. Their cash-chasing acquisitions policy meant they acquired pension scheme deficits alongside companies. Their proposals for funding those deficits were consistently and resolutely derisory as they blamed financial constraints unrecognisable from their optimistic market announcements. Meeting the pension promises they had made to their rank and file staff was far down their list of priorities. This outlook was epitomised by Richard Adam who, as Finance Director, considered funding the pension schemes a "waste of money". (Paragraph 35)
4. Carillion relied on its suppliers to provide materials, services and support across its contracts, but treated them with contempt. Late payments, the routine quibbling of invoices, and extended delays across reporting periods were company policy. Carillion was a signatory of the Government's Prompt Payment Code, but its standard payment terms were an extraordinary 120 days. Suppliers could be paid in 45 days, but had to take a cut for the privilege. This arrangement opened a line of credit for Carillion, which it used systematically to shore up its fragile balance sheet, without a care for the balance sheets of its suppliers. (Paragraph 42)
5. 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. (Paragraph 48)
6. Richard Howson, Carillion's Chief Executive from 2012 until July 2017, was the figurehead for a business model that was doomed to fail. As the leader of the company, he may have been confident of his abilities and of the success of the company, but under him it careered progressively out of control. His misguided self-assurance obscured an apparent lack of interest in, or understanding of, essential detail, or any recognition that Carillion was a business crying out for challenge and reform. Right to the end, he remained confident that he could have saved the company had the board not finally decided to remove him. Instead, Mr Howson should accept that, as the longstanding leader who took Carillion to the brink, he was part of the problem rather than part of the solution. (Paragraph 53)
7. Keith Cochrane was an inside appointment as interim Chief Executive, having served as a non-executive on the board that exhibited little challenge or insight. He was unable to convince investors of his ability to lead and rebuild the company. Action to appoint new leadership from outside Carillion came far too late to have any chance of saving the company. (Paragraph 56)
8. 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. (Paragraph 59)
9. Philip Green was Carillion's Chairman from 2014 until its liquidation. He interpreted his role as to be an unquestioning optimist, an outlook he maintained in a delusional, upbeat assessment of the company's prospects only days before it began its public decline. While the company's senior executives were fired, Mr Green continued to insist that he was the man to lead a turnaround of the company as head of a "new leadership team". Mr Green told us he accepted responsibility for the consequences of Carillion's collapse, but that it was not for him to assign culpability. As leader of the board he was both responsible and culpable. (Paragraph 64)
10. In the years leading up to the company's collapse, Carillion's remuneration committee paid substantially higher salaries and bonuses to senior staff while financial performance declined. It was the opposite of payment by results. Only months before the company was forced to admit it was in crisis, the RemCo was attempting to give executives the chance for bigger bonuses, abandoned only after pressure from institutional investors. As the company collapsed, the RemCo's priority was salary boosts and extra payments to senior leaders in the hope they wouldn't flee the company, continuing to ensure those at the top of Carillion would suffer less from its collapse than the workers and other stakeholders to whom they had responsibility. (Paragraph 69)
11. Nowhere was the remuneration committee's lack of challenge more apparent than in its weak approach to how bonuses could be clawed back in the event of corporate failures. Not only were the company paying bonuses for poor performance, they made sure they couldn't be taken back, feathering the nests of their colleagues on the board. The clawback terms agreed in 2015 were so narrow they ruled out a penny being returned, even when the massive failures that led to the £845 million write-down were revealed. In September 2017, the remuneration committee briefly considered asking directors to return their bonuses, but in the system they built such a move was unenforceable. If they were unable to make a legal case, it is deeply regrettable that they did not seek to make the moral case for their return. There is merit in Government and regulators considering a minimum standard for bonus clawback for all public companies, to promote long-term accountability. (Paragraph 73)
12. A non-executive director and chair of Carillion's remuneration committee for four years, Alison Horner presided over growing salaries and bonuses at the top of the company as its performance faltered. In her evidence to us, she sought to justify her approach by pointing to industry standards, the guidance of advisors, and conversations with shareholders. She failed to demonstrate to us any sense of challenge to the advice she was given, any concern about the views of stakeholders, or any regret at the largesse at the top of Carillion. Ms Horner continues to hold the role of Chief People Officer of Tesco, where she has responsibilities to more than half a million employees. We hope that, in that post, she will reflect on the lessons learned from Carillion and her role in its collapse. (Paragraph 75)
13. The Carillion board have maintained that the £845 million provision made in 2017 was the unfortunate result of sudden deteriorations in key contracts between March and June that year. Such an argument might hold some sway if it was restricted to one or two main contracts. But their audit committee papers show that at least 18 different contracts had provisions made against them. Problems of this size and scale do not form overnight. A November 2016 internal peer review of Carillion's Royal Liverpool Hospital contract reported it was making a loss. Carillion's management overrode that assessment and insisted on a healthy profit margin being assumed in the 2016 accounts. The difference between those two assessments was around £53 million, the same loss included for the hospital contract in the July 2017 profit warning. (Paragraph 95)
14. Carillion used aggressive accounting policies to present a rosy picture to the markets. Maintaining stated contract margins in the face of evidence that showed they were optimistic, and accounting for revenue for work that not even been agreed, enabled it to maintain apparently healthy revenue flows. It used its early payment facility for suppliers as a credit card, but did not account for it as borrowing. The only cash supporting its profits was that banked by denying money to suppliers. Whether or not all this was within the letter of accountancy law, it was intended to deceive lenders and investors. It was also entirely unsustainable: eventually, Carillion would need to get the cash in. (Paragraph 96)
15. Emma Mercer is the only Carillion director to emerge from the collapse with any credit. She demonstrated a willingness to speak the truth and challenge the status quo, fundamental qualities in a director that were not evident in any of her colleagues. Her individual actions should be taken into account by official investigations of the collapse of the company. We hope that her association with Carillion does not unfairly colour her future career. (Paragraph 100)
16. Zafar Khan failed to get a grip on Carillion's aggressive accounting policies or make any progress in reducing the company's debt. He took on the role of Finance Director when the company was already in deep trouble, but he should not be absolved of responsibility. He signed off the 2016 accounts that presented an extraordinarily optimistic view of the company's health, and were soon exposed as such. (Paragraph 102)
17. Richard Adam, as Finance Director between 2007 and 2016, was the architect of Carillion's aggressive accounting policies. He, more than anyone else, would have been aware of the unsustainability of the company's approach. His voluntary departure at the end of 2016 was, for him, perfectly timed. He then sold all his Carillion shares for £776,000 just before the wheels began very publicly coming off and their value plummeted. These were the actions of a man who knew exactly where the company was heading once it was no longer propped up by his accounting tricks. (Paragraph 105)
18. Carillion's directors, both executive and non-executive, were optimistic until the very end of the company. They had built a culture of ever-growing reward behind the façade of an ever-growing company, focused on their personal profit and success. Even after the company became insolvent, directors seemed surprised the business had not survived. (Paragraph 107)
19. Once the business had completely collapsed, Carillion's directors sought to blame everyone but themselves for the destruction they caused. Their expressions of regret offer no comfort for employees, former employees and suppliers who have suffered because of their failure of leadership. (Paragraph 108)