A letter to the editor of the Financial Times agrees.
"This situation has been caused, in part, by the unprofessional, fatalistic and blasé attitude to contract risk management of some senior executives in the UK construction industry."
By no means the first company brought low by delusion (I've talked some about Enron on this blog, as well as in my book on organizational intelligence), and probably not the last.
And given that Carillion was the beneficiary of some very large public sector contracts, we could also talk about delusion and poor risk management in government circles. As @econtratacion points out, "the public sector had had information pointing towards Carillion's increasingly dire financial situation for a while".
As it happens, the Home Secretary was at the London Stock Exchange today, talking to female executives about gender diversity at board level. So I thought I'd just check the gender make-up of the Carillion board. According to the Carillion website, there were two female executives and two female non-executive directors in a board of twelve.
In the future, Amber Rudd would like half of all directors to be female. An earlier Government-backed review had recommended that at least a third should be female by 2020.
Lombard: Sir Philip to review why so few female senior executives. He could use a beefed up UK's governance code to propel women to top jobs— kate burgess ft (@katebur95633594) February 9, 2016
But compared to other large UK companies, the Carillion gender ratio wasn't too bad. "On paper, the directors looked well qualified", writes Kate Burgess in the Financial Times, noting that "the board ticked all the boxes in terms of good governance". But now even the Institute of Directors has expressed belated concerns about the effective governance at Carillion, and Burgess says the board fell into what she calls "a series of textbook traps".
So what kind of traps were these? The board paid large dividends to the shareholders and awarded large bonuses to themselves and other top executives, despite the fact that key performance targets were not met, and there was a massive hole in the pension fund. In other words, they looked after themselves first and the shareholders second, and to hell with pensioners and other stakeholders. Meanwhile, Larry Elliott notes that the directors of the company took steps to shield themselves from financial risk. These are not textbook traps, they are not errors of judgement, they are moral failings.
Of course we shouldn't rely solely on the moral integrity of company executives. If there is no regulation or regulator able to prevent a board behaving in this way, this points to a fundamental weakness in the financial system as a whole. As @RSAMatthew writes,
"There are many culprits in this tale. Lazy or ideologically blinkered ministers, incompetent public sector commissioners, cynical private sector providers signing 'suicide bids' on the assumption that they can renegotiate when things go wrong and, as always, a financial sector willing to arbitrage any profit regardless of consequences or ethics."
There is a strong case that diversity mitigates against groupthink - but as I've argued in my earlier posts, this needs to be real diversity not just symbolic or imaginary diversity (ticking boxes). And even if having more women or ethnic minorities on the board might possibly reduce errors of judgement, women as well as men can have moral failings. It's as if we imagined that Ivanka Trump was going to be a wise and restraining influence on her father, simply because of her gender.
As it happens, the remuneration director at Carillion was a woman. We may never know whether she was coerced or misled by her fellow directors or whether she participated enthusiastically in the gravy. But we cannot say that having a woman in that position is automatically going to be better than having a man. Women on boards may be a necessary step, but it is not a sufficient one.
Martin Bentham, Amber Rudd: 'It makes no sense to have more men than women in the boardroom' (Evening Standard, 15 January 2018)
Mark Bull, A lesson on risk from Carillion’s collapse (FT Letters to the Editor, 16 January 2018)
Kate Burgess, Carillion’s board: misguided or incompetent? (FT, 17 January 2018) HT @AidanWard3
Larry Elliott, Four lessons the Carillion crisis can teach business, government and us (Guardian, 17 January 2018)
Vanessa Fuhrmans, Companies With Diverse Executive Teams Posted Bigger Profit Margins, Study Shows (WSJ, 18 January 2018)
Simon Goodley, Carillion's 'highly inappropriate' pay packets criticised (Guardian, 15 January 2018)
Nils Pratley, Blame the deluded board members for Carillion's collapse (Guardian, 15 January 2018)
Albert Sánchez-Graells, Some thoughts on Carillion's liquidation and systemic risk management in public procurement (15 January 2018)
Rebecca Smith, Women should hold one third of senior executive jobs at FTSE 100 firms by 2020, says Sir Philip Hampton's review (City Am, 6 November 2016)
Matthew Taylor, Is Carillion the end for Public Private Partnerships? (RSA, 16th January 2018)
Explaining Enron (January 2010)
The Purpose of Diversity (January 2010)
Organizational Intelligence and Gender (October 2010)
Delusion and Diversity (October 2012)
Intelligence and Governance (February 2013)
More on the Purpose of Diversity (December 2014)
Updated 25 January 2018