Three months after the collapse of construction giant Carillion, with its billions of pounds of public sector contracts, the Conservative government has been lacklustre in its response.
Before going bust, Carillion had issued three profit warnings in the months leading up to its demise. It was a company clearly in trouble. Yet, following these warnings, the government went ahead and awarded nearly £2bn worth of additional public sector contracts to Carillion despite the government’s own strategic risk management policy dictating that entirely the opposite should have occurred.
In the aftermath, news about the mismanagement of Carillion by a small group of executive managers continues to emerge. Its financial directors are set to be investigated by the accounting watchdog, and last month it was revealed that bosses believed that paying into the firm’s pension deficit was a “waste of money”.
The revelations are indicative of the reckless corporate culture that was allowed to develop and of a Tory government either too distracted or, worse, deliberately ignoring bad behaviour.
The government failed to answer serious questions.
Today, Greg Clark had the opportunity to explain what the government was doing to help the sub-contractors, many of them small local businesses. But no clear answer was forthcoming – rather it was a display of ducking and diving to the questions posed by the select committee.
Why, despite these numerous profit warnings, did they continue risking taxpayers’ money by awarding contract after contract?
Was the government really oblivious to the gross levels of mismanagement and general lack of regard shown by senior managers and shareholders, who protected themselves at the expense of the workers?
Why after Carillion’s collapse did the government fail to protect the pay, conditions or pensions of workers on Carillion contracts? Over 1,500 people have already lost their jobs, with more still unsure as to what the future holds for them. Thousands of pension holders are still in the dark as to what will happen to their hard earned pensions.
Sub-contractors were being mistreated again and again by Carillion and exposed to extreme risk. Both the Federation of Small Businesses and SEC Group warned that Carillion was transferring risk to the thousands of small business within its supply chain. Why did the government take no action?
Despite the government’s own 30-day payment procurement policy and the Prompt Payment Code, the company doubled its payment period for business in the supply chain to 120 days. Now many are at risk of bankruptcy.
The future of corporate governance
Carillion’s collapse has shown that it is not simply the Tories’ privatisation dogma that risks lurching our public services from crisis to crisis. Their approach to corporate governance has been deliberately silent, underwhelming and damaging.
For too long the Tories have turned a blind eye. Scandals such as the collapse of BHS and Carillion showed how the future prosperity of a company and its workforce can be sacrificed for the sake of a quick buck. In both of these instances, the government failed to step in, even as the warning bells rang time and time again.
Labour understands the urgency of the situation. We launched our own review into corporate governance earlier this year to question the big challenges that must be addressed. It is about time the government stops waxing lyrical with the rhetoric and plays catch up.