Carillion, and on, and on.

A week or so ago, I wrote an article about the importance of diversity in decision making groups and how “tokenism” is counter-productive. “Groupthink” – the term coined by Irving Janis in the 1960s – is one of the consequences and leads groups of otherwise smart people to collectively make dumb decisions. Since then the UK Parliament´s work and pensions and BEIS committees have produced their report on Carillion, the large facilities management and construction company which collapsed at the start of the year. The Times said: “As corporate tragedies go, there was never a story of more woe” and then proceeds to list the multiple failures of oversight stated in the report. Ultimately Carillion´s failure comes down to a significant number of contracts that ended up costing Carillion significantly more than it was able to recover from customers. The Directors said yes to deals that would end up sinking the company under an ocean of debt and then seemed to exist in self-denial until disaster was almost inevitable. In May 2017 the then Chairman Richard Howson told the AGM that Carillion had made an “encouraging start to the year”. Just two months later the group took an £845 Million hit as a result of bad contracts. The MPs say the board “exhibited little challenge or insight”.

When you look at the behaviour of the Carillion Board members during the key period, you can see the symptoms of “groupthink” (“illusions of invulnerability”, “self-censorship of conflicting ideas”) coming through loud and clear. The composition of the board shows a lack of diversity at this time and was dominated by middle-aged white men from similar backgrounds. There were a number of non-executive directors appointed to the board, including one woman heading the remuneration committee – this looks like “tokenism”. Although some changes were made to the board in 2017 the “aggressive accounting policies” continued, and resulted in the last published accounts “presenting an extraordinarily optimistic view of the company´s health”. The MPs have also been very critical of the accountancy companies acting as auditors of these accounts. Carillion ran out of money at the start of 2018 and went into compulsory liquidation on January 15. The fallout and recriminations continue.

There is a hero in this story, however. Emma Mercer, who became the Finance Director of Carillion´s construction services arm in March 2017 after working as Carillion´s CFO in Canada for 3 years, is documented as raising the alarm in May 2017 regarding “sloppy accounting”. This prompted the contracts review that resulted in the £845 Million write-down. It is notable, though, that Emma remained excluded from the Carillion board. The MPs say that Emma “demonstrated a willingness to speak the truth and challenge the status quo”. She would not be subject to tokenism. Perhaps if Emma had been taken seriously earlier then Carillion could have been saved. I hope stories like this will encourage organizations to “do diversity properly” and select and promote brave women like Emma to provide the challenge so desperately needed to improve the quality of decision making in our organizations and institutions. I hope….

2 thoughts on “Carillion, and on, and on.

  1. This is a really useful insight, thanks John. I will share this with my groups going forward and use it to encourage them to speak up and make a difference 🙂

    Liked by 1 person

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