Carillion.

A new year and new corporate death: once again an organisation employing tens of thousands of people with revenues measured in billions, that, according to its last published corporate accounts, was in rude health has collapsed into bankruptcy and insolvency in indecent haste and to the apparent astonishment of all the wise heads who are expected to know and understand these matters – boards of directors, pension trustees, auditors, financial regulators, and the government itself.

Consider these few facts: in March 2017 the board of directors approved the statutory accounts of Carillion for the year ended 2016. The same accounts, of course, were given a clean bill of health by Carillion auditors KPMG. Somehow, slightly more than three months later, the same board of directors were moved to issue a profit warning and part company with the CEO who, only a short while before, received generous “performance related” bonuses. By the end of September 2017 the board were presenting the results of a “contracts and strategic review” which identified amongst other things the urgent need to dispose of assets and implement cost reduction measures to buttress operational cash flow. The review highlighted the results of accepting contracts where there was a “high degree of uncertainty around key assumptions”. By January 2018 the board was petitioning Government for an emergency cash bailout. When this was refused the company was placed into insolvency procedures with reported debts of approximately £5 billion and cash reserves of £29 million.

One of our favourite observations is that risk blindness is the result of familiarity with imperfect information. Perhaps the board of Carillion were collectively victims of risk blindness. On the other hand, if reports in the press are true, the board of Carillion has, for some years, been in the practice of raising cash from asset sales to fund both dividend payments and executive compensation. The former, it has been suggested, falls within the definition of paying dividends from capital which is illegal in the UK. One assumes the directors of Carillion individually and collectively were aware of the potential illegality of their decisions. If so, it did not stop them.

Consequently, it might be tempting to regard the case of Carillion, along with many other corporate failures, as being exceptional examples of failures in governance. As the Carillion story unfolds and the wheels of bureaucracy turn to initiate any number of official enquiries, perhaps more evidence will emerge of either individual or collective wrongdoing. In some respects this outcome would obscure what should be general lessons to be learned from the Carillion experience for all company directors and senior executives whose responsibilities include the governance of risk.

According to the Carillion 2016 annual report and accounts, the board of directors maintained a rigorous and robust risk management process. The report identifies what the board considered were the principal risks facing the company. Of interest is the fact that the board considered that there were no significant risks to the future prosperity of the company that might be graded as more than medium on a “net” basis, i.e. after taking into account potential mitigation actions. It hardly bears noting that this supposedly robust system was even at the time of the approval of the 2016 accounts failing dramatically and had probably been failing dramatically for some significant period previously.


As we have observed and commented upon many times, standard approaches to risk management in many organisations are not only inadequate but frequently dangerously misleading as regards existential threats to the company’s existence. The very familiarity of the board with this misleading information leads directly to blindness to the existence of potential or actual existential threats. This is a lesson that all boards and directors can learn from Carillion as well as many other equally painful examples.