The HoC Select Committees' report into the collapse of Carillion pulls no punches, and they were right so to do. Why then did the CBI feel it necessary to criticise the report?
If you only have a few minutes spare after reading this short blog, then you are urged to read just the summary findings of the Select Committee’s report into the collapse of Carillion. It starts with the sentence, “Carillion’s rise and spectacular fall was a story of recklessness, hubris and greed…..” and it just gets worse thereon in. From all that has been made public to date, there is little to dispute the findings, yet the CBI appeared so offended by the report that they released their own short statement saying, “The language of the report suggests committee members think business in general is greedy and reckless. This is irresponsible and wholly inaccurate.”
The strange thing is that the summary makes no claims about business in general. In fact, it is very specific about those ones that it does cite, such as the Carillion directors and ‘the big four’ accountancy firms that carried out audits, consultancy and liquidation services, and the key Government regulators. Quite rightfully, the CBI was then put firmly back in its box by the Institute of Directors (IoD), stating that the Select Committees’ report was fair. In order to understand this taking of sides, it is important to understand three things:
Firstly, this is by no means the first time that a public company has collapsed with the directors appearing to walk off into the sunshine with huge pay offs, leaving the company with extreme debts and pension liabilities. Thus, one can understand that politicians, who are accountable to the electorate, are angry that parts of big business seem to keep getting away with it. This may not representative of all of business, but there are certain sectors or instances where at the director level, failure is handsomely rewarded and where there has been scant regard for the long term good of the company and all its stakeholders including workers, investors, customers pensioners and suppliers.
Secondly, the very different reactions from both the CBI and the IoD can be explained by a fundamental difference in their objectives. Whilst both organisations are ultimately trying to help UK business succeed, the CBI does this by helping to create an environment that is good for business, whereas the IoD is principally there to uphold the professionalism and accountability of the role of a director, which is both ethical and legal. Whilst in a healthy business environment one might say that the two objectives go hand in hand, sadly in the world of big business, this is not always the case.
Thirdly, although both organisations represent business both large and small, it would appear in general that the CBI is influenced and guided more by larger businesses, such as those in the FTSE 100 & 250, whereas the majority of the IoD’s members represent small to medium size businesses (SMEs). In the case of the Carillion collapse, many of the suppliers who lost out (and it would have been even greater if the Government had not stepped in) would have been SMEs. So what sort of behaviours does this lead to? Unsurprisingly, bigger businesses find themselves supported by the CBI, whereas the IoD concentrates on ensuring that the code and standards of directors are upheld in all British businesses, large or small, a practice that so clearly failed in the case of Carillion’s directors.
There is no excuse for the CBI to have reacted in the way they did and it has demonstrated a lack of leadership at the top, and a misunderstanding of how seriously Parliament is taking this issue. Furthermore, it gives the perception that the CBI are supporting bad practice in business, which is unlikely to be the case, but nevertheless, the perception will be there. One has to ask, where is the CBI’s code of ethics? Where are their values? They are certainly absent from their website.
Instead of criticising the Select Committees’ report, the CBI should have supported the findings and offered to be part of the solution, committing themselves to consult their members about how this situation ‘can never happen again’. It is no good to claim that “Knee-jerk soundbites on Carillion risk locking out innovation and investment at a time when it’s needed most”, when clearly the report is aimed fairly and squarely at the Carillion board, the weak Government regulatory bodies, and the accounting firms that helped prop up a board and a culture that should have been called out and changed long ago. Surely innovation would thrive better in an environment where all the stakeholders knew that the board leadership of a big company was well governed and not just in it for themselves?
In this last year of the commemorations for World War One, a particular quote springs to mind, taken from the then German Chancellor of 1916, Bethmann-Hollweg, when he enquired of the plan that had resulted in the pointless mass slaughter of both Germans and French troops at the Battle of Verdun. He asked, “Where does the incompetence end and the criminality begin?” In the case of the Carillion collapse that still has to be answered. With the Select Committees’ intent to take this further and demand action from the Government, this situation is far from over. Their report is likely to be a watershed moment for business and it is time for influential bodies like the CBI to show better judgement and stronger leadership, and look to the long term sustainable success of British industry.
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