'Bandit Capitalism: Carillion and the Corruption of the British State', by Bob Wylie (published by Birlinn)
This is a whodunnit without that being a mystery at all. After an excellent prologue, this reader's attention flagged, but I ploughed on. Full credit to the author for his research, but there is perhaps too much rhetoric. That said, this book says much about the current state of affairs in the UK.
We live in a corporatist Britain and this is reflected across public and private sectors. Big entities need big auditors and there are only four of these, which sounds like a cartel to start with. They all benefitted handsomely from the Carillion debacle. Carillion used KPMG for the whole 19 years of its existence. When things started to look difficult, KPMG, who had signed off their accounts without any qualification every year, were asked to check their own homework and again found no apparent cause for concern.
I have learned a new accounting term here, that of 'negative accruals'. These were supposed to have been abandoned at Carillion in 2009, but were not, and this is what sunk the drifting hulk the company had already become. An accrual is a cost attributable to the trading period the accounts are being prepared for, such as purchase invoices that have not yet been received. These negative accruals are the opposite, contractual claims that had not been agreed, and not necessarily with any hope of recovery at all.
While a bond issue in Germany in 2016 kept the business afloat, the subsequent failure to get underwriters for a proposed refinancing by issuing more shares meant the company was doomed. Incredibly, its renumeration committee was recommending increasing directors' bonuses at this time. An internal review in July 2017 identified a £695m shortfall on previously stated work-in-progress, etc, value. The new acting CEO topped this up by adding £150m, thus getting almost three quarters of the way to the eventual 'black hole' of £1.2bn.
Carillion had, apparently, 'burned' £850m in only one year, after making purportedly reasonable progress over its previous years of trading, and this only became visible over a couple of months under the review. The company's pension fund deficit had increased to almost a billion pounds by this time, and in addition to lavish and increasingly exorbitant directors' bonuses, £441m had been paid out in dividends between 2011 and 2016, while only £246m had gone towards the pension fund deficit.
Interestingly, between 2009 and 2018, borrowings had gone from £242m to £1.3bn, while in 2015 the board passed a resolution removing any future clawback on their bonuses for corporate failure. When it came to their own interests, they appear to have been prescient.
The circumstantial evidence was always there for all to see, and the author, with the help of a parliamentary inquiry report and a House of Commons Library briefing note, provides the forensics. None has confessed to causing the impoverishment or reduction of means of many thousands of people, whether as employees, subcontractors, suppliers or pension fund beneficiaries. Politicians have exclaimed and sought to provide pithy quotes, but the oligarch's club which the author says the board had either already become members of, or aspired to join, has just sailed on.
The pension fund liability eventually amounted to £2.5bn, and this hole was filled by the taxpayer, except for the 10% the beneficiaries lost off their pensions. Needless to say, the directors had their own pension arrangements, and these were kept fully funded, along with generous pay-offs to directors who were sacked. The UK Government, while reviewing their own contracts with Carillion on the basis it was going to go bust, were still handing out new contracts to them through a consortium-based contracting process.
The UK Government had also warned local authorities to prepare for Carillion's demise. While large institutional investor, Aberdeen Standard, had seen the writing on the wall some time earlier, another Edinburgh investment house, Kiltearn Partners, would only do so later, having been 'flabbergasted' by the Carillion directors maintaining the £845m hole in their accounts had arisen apparently from nowhere. Investors got their fingers burned, but subcontractors got nothing, and no warnings were given to them by the UK Government.
For the Carillion directors to maintain that they couldn't see this 'perfect storm' coming is 'incredible'. They were shrewd enough in safeguarding their own interests when it came to salaries, bonuses, termination payments and pension contributions. Much of the book is taken up with all the financial scandals we have had in recent times, and justifiably places blame for these on the mid-1980's 'Big Bang' in the City of London created by Mrs Thatcher's deregulation, which erupted in the huge financial crisis of 2008. Carillion's directors pleaded desperately with the UK Government, not just for a bail out, but for immunity. Unlike the banks, they got neither.
The long and short of it is that Carillion's directors thought they were members of the inner circle; the oligarch's club. Like the clearing bankers who had blundered into the hugely dangerous territory of speculation undertaken by private equity investment banking, but using their customer's deposits, they likewise thought they were 'too big to fail', and would be bailed out. While clearing banks, now perhaps better known as retail banks, were bailed out, they are diminishing anyway. Their cost base is too high, and they deserve to go given they have, to varying degrees, been abusing their customers for years.
The latter part of the book is simply a reiteration of all the financial scandals and consequent ruination of many thousands of individuals over the past 30 years or so, and flags up the almost universal lack of criminal prosecutions here. Linking all this with the financial wreckage of Carillion seems somewhat tenuous, given it was peripheral rather than at the heart of this insidious financial rot that is destroying the UK. The book posits Carillion as a Ponzi Scheme. We now have government where amorality rules, where no minister or official resigns for improper conduct, and it appears anything can be brazened out with the connivance of a complicit and manipulated media. Certainly not a good place to do honest business.