All the day’s economic and financial news, as MPs blast the ‘recklessness, hubris and greed’ that led to the collapse of UK outsourcer Carillion
- Introduction: MPs lift lid on Carillion collapse
- ‘Recklessness, hubris and greed’ caused firm’s demise
- ‘Rotten corporate culture’ slammed…but whistleblower Emma Mercer praised
- Reeves: Big Four accountancy firms failed
- Japan’s economy shrank in last quarter
- Coming up: eurozone inflation figures
Ben Broadbent, the deputy governor of the Bank of England, is facing heavy criticism this morning after declaring that the UK economy is entering a “menopausal” era.
Broadbent said the term applied by economic historians to describe such a slump was “climacteric”, which he said essentially means “menopausal, but can apply to both genders. You’ve passed your productive peak.”
His comments drew criticism on Twitter. Robert Peston, political editor of ITV, tweeted that Broadbent’s language was “sloppy and potentially offensive”.
Sloppy, empirically unsound and potentially offensive use of language by Bank of England deputy governor. There is no reason to think menopausal people are less productive or past their peak in any sense other than the bleedin’ obvious one https://t.co/g7pplOyNHi
Splutter. Bank of England Ben Broadbent’s “menopausal economy” comment definitely brings out my inner Kate Reddy. Unintentional casual sexist ageism with yer cornflakes, anyone? Of course it might just be my age 😉
Ben Broadbent of The Bank of England used the “menopausal” metaphor for economies that were “past their peak and no longer so potent” – tell that to all the successful women over 50 #menopausalmoment https://t.co/wovvxqbtrj
For all the talk of change at the Bank of England these comments by deputy governor Ben Broadbent about a “menopausal economy” reveal how little culture change Mark Carney has actually delivered … https://t.co/5X72adFwXy pic.twitter.com/1TjCtL0psR
“Mr Broadbent said financial experts used the ‘menopausal’ metaphor for economies that were past their peak.”
Mr Broadbent et al. clearly need to grow up and conjur up some less sexist economic jargon. https://t.co/JRN0Hd6WOP
Deputy Bank of England governor talks about the economy being “menopausal”. Besides the offensively gendered language, this suggests economy’s woes are natural and unavoidable.
The body which governs Britain’s auditors has announced that it is making ‘good progress’ in its probe into Carillion.
Britain’s Financial Reporting Council is examining Carillion’s financial statements and audits over several years, to decide whether any disciplinary action is needed.
Given the clear public interest in this matter, the Financial Reporting Council (FRC) is providing an update on its investigation into Carillion. The main areas of focus for the investigations of KPMG’s audit of Carillion (2014 – 2017) and of two finance directors Richard Adam and Zafar Khan are: contract accounting; reverse factoring; pensions; goodwill and going concern.
Good progress with the investigation is being made by the FRC’s team of lawyers and forensic accountants.
Chronically passive, they do not seek to influence corporate decision-making with the realistic threat of intervention. Action is part of their brief. They require cultural change as well.
Labour MP Rachel Reeves, who chairs the BEIS committee, is calling for Britain’s Big Four accountancy firms to be broken up in the light of the Carillion crisis.
Today’s report concludes that the auditors failed to spot Carillion’s crippling financial problems because they were too focused on their own fees.
KMPG was paid £29 million to act as Carillion’s auditor for 19 years. It did not once qualify its audit opinion, complacently signing off the directors’ increasingly fantastical figures.
In failing to exercise professional scepticism towards Carillion’s accounting judgements over the course of its tenure as Carilion’s auditor, KPMG was complicit in them.
“The auditors should also be in the dock for this catastrophic crash.
“The sorry saga of Carillion is further evidence that the Big Four accountancy firms are prioritising their own profits ahead of good governance at the companies they are supposed to be putting under the microscope.
Carillion’s board lined their own pockets, boosting bonuses and dividends even when the company was on the brink of disaster. The thousands who lost their jobs and the small businesses facing ruin won’t thank them for rewarding their own failure. https://t.co/0WHYtHPLnX
We’ve gathered some of the best quotes from the report:
Former Carillion finance director Richard Adam isn’t best pleased with the MPs’ report.
Adam, who was FD between 2007 and 2016, says:
Despite retiring over a year before Carillion went into insolvency, I am deeply saddened by the events that have since overtaken the company.
The reasons for the collapse are clearly complex, however, I reject the unwarranted conclusions the Committees have reached concerning my role at the company.
You can read the full report here.
The MPs are especially critical of three top directors who steered Carillion towards its demise.
As the report puts it:
“The problems that caused the collapse of Carillion were long in the making, as too was the rotten corporate culture that allowed them to occur”.
Good morning, and welcome to our rolling coverage of the world economy, the financial markets, the eurozone and business.
Four months after UK outsourcing group Carillion spectacularly collapsed, the people behind its demise are being held to account.
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.
A damning 100-page report compiled by two select committees, published today, found that directors prioritised senior executive bonus payouts and dividends for shareholders even as the firm neared collapse, while treating pension payments as a “waste of money”.
Frank Field, who chairs the work and pension committee, said: “Same old story. Same old greed. A board of directors too busy stuffing their mouths with gold to show any concern for the welfare of their workforce or their pensioners.”
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.
Carillion was the most spectacular corporate collapse for some time. The price will be high, in jobs, businesses, trust and reputation. Most companies are not run with Carillion’s reckless short-termism, and most company directors are far more concerned by the wider consequences of their actions than the Carillion board.
But that should not obscure the fact that Carillion became a giant and unsustainable corporate time bomb in a regulatory and legal environment still in existence today.