I doubt that anyone listening to the findings of a report following the investigation by the Department for Work and Pensions and the Business, Energy and Industrial Strategy committees will not be horrified at the way the board of directors at Carillion behaved. The way they conducted themselves in front of the Select Committee just goes to show the lack of business knowledge and management ability they collectively have.
A new appointment at large businesses, like a bank, often makes the headlines because of the large salary that is being paid. We are told, time and time again, that to get the best these ridiculous packages have to be offered, which I have always thought a complete fallacy. I think the collapse of Carillion highlights the real reason, in my opinion it is because the ‘old boys’ network continue to bring in their pals to whatever board they find themselves on and hike the package so that they can all continue to benefit.
As a reminder to all companies, the idea of your directors is for them to bring useful skills and benefits to the company not just their mates to ‘rape and pillage!’ Sadly this appears to have been the case at Carillion. One example is that the board changed the wording of its pay policy in 2016 to relax the clawback conditions for executive bonuses should the company run into trouble. Hardly the actions of a board of directors who were confident in their company or striving to do everything ‘in the best interests of the company’ words used by former chairman Philip Green.
Whilst I believe that it is right to be remunerated for the skills you bring to a company, how did Richard Howson, the Chief Executive when the collapse happened, justify a salary of £660,000? Also I believe you should be rewarded for doing a good job. Mr Howson is understood to have earned £6 million in pay and perks during the 5 years he held this position!
It wasn’t just bosses who were paid well, despite the firm’s looming problems the board agreed dividends to shareholders between 2012 and 2016 of £400million. The directors of most SMEs pay bonuses and dividends from profit i.e. when all debts have been paid, why do the directors of large companies not stick to the same principles?
As a shareholder when you invest in a company you hope that you will get a return for the money that you have paid, however, there is no guarantee it is the risk you take. Too many times I hear the comment ‘oh we have to pay some dividends otherwise our investors will sell up’. Rubbish! Dividends should only come from profit. You are not making a profit if your pension scheme is in deficit, you are not making a profit if you owe your staff or contractors money.
Whilst the directors may argue that they did not do anything intentionally to ruin the company, they are certainly guilty of not acting with due care and attention to promote the success of Carillion. When considering what is most likely to promote the success of the company, the legislation states that a director must have regard to:
- the likely consequences of any decision in the long term – fail
- the interests of the company’s employees – fail
- the need to foster the company’s business relationships with suppliers, customers and others – fail
- the impact of the company’s operations on the community and the environment – unknown
- the desirability of the company maintaining a reputation for high standards of business conduct – fail
- the need to act fairly as between members of the company – fail
There are two outcomes I would like to see from this mess. I want a change in legislation so that if a company has a pension scheme which is in deficit, regardless of what arrangement it has with TPR, that dividends cannot be paid until the debt has been satisfied. I would also like to see directors held culpable for their actions with the ability to have bonuses repaid if shown to have acted illegally or without due regard for the company they are meant to be overseeing. Yes this would put off some people from being a director but I believe that individuals who truly want an organisation to benefit from them being on their board will have no problem with such changes. These are the people that will provide a real benefit for companies and that can only strengthen the UK markets.