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Published by:
Institute for Management Development (IMD) (2019)
Version:
11.02.2019
Revision date:
03-Oct-2019
Length:
14 pages
Data source:
Published sources

Abstract

The UK-based construction and services firm Carillion went into liquidation in January 2018, with debts of over GBP1 billion, just GBP29 million cash in the bank, and a pension deficit of over GBP500 million. It caused a scandal that was political as well as commercial. Public inquiries and a review of UK-based auditors have been direct consequences. Causes of the collapse were high debt levels, a complex company structure and low margins on large public sector contracts. The Board did not respond to the overt warnings of a major shareholder three years earlier. Just 10 months before, the annual report had given an upbeat report on the company's position and prospects. The case study focuses on four dimensions: Strategic management - Carillion's strategy of growth through acquisitions funded by borrowing, was high-risk; Corporate governance - The board did not challenge executives over risk or debt; Financial accounts - Aggressive accounting hid liabilities, that were missed by auditors, and complacent assumptions around the valuation of goodwill were evident; Political risk - The scandal shook the assumption that private sector management was inherently superior, and nationalization gained public support in the UK.

Topics

Finance; Governance; Compliance; Business strategy; Mergers and acquisitions; Accounting; Auditing; Political risk; Public sector; Outsourcing

Setting

The events covered by this item took place in 20 years, but with a particular focus on later period 2015-2018.

Geographical setting

Region:
Europe
Country:
United Kingdom

Featured company

Company name:
Carillion
Employees:
10000+
Turnover:
GBP 5.2 billion
Industry:
Construction and engineering; Services

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