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Published by: Institute for Management Development (IMD)
Originally published in: 2019
Version: 11.02.2019
Revision date: 03-Oct-2019

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.

Time period

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

Geographical setting

Region:
Europe
Country:
United Kingdom

Featured company

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

About

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.

Settings

Time period

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

Geographical setting

Region:
Europe
Country:
United Kingdom

Featured company

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

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