Much is being made of how Carillion, the outsourcing giant, came apart and rightly so. The thing is it looks like it came apart the right way. Yes, you’re right, that is a strange thing to say. But the wrong way would be for some people external to the company to start shouting that they’ve all been lying and then be proven to be right. The correct way is for people internal to the company to realise that things are going wrong and then say so. Which appears to be just what happened:
Carillion’s most recent finance director was a “whistleblower” who tried to expose the company’s accounting irregularities almost three months before the full scale of its problems were made public, new papers show.
Emma Mercer was six weeks into her job as finance director of Carillion’s construction services division when she raised concerns about the way the business was accounting for work on a number of major projects in April 2017, according to minutes from board meetings the following month.
How you do account for profits on ongoing work is one of those grey areas. Be too conservative about it and you’re not valuing the future order book correctly. Be too aggressive and you’re counting profits you may well not make – things can go wrong with contracts after all. That’s why we don’t have hard and fast rules here, there simply are not rules that can be made hard, it’s a matter of judgement.
Judgement being something that different people have different amounts of, this is the sort of question where different actors can entirely legitimately have different opinions. As it happens, different people did have different opinions. Which is rather how the system is supposed to work.
Now, it is true that one opinion was wrong and the second correct but still, this is where professional views are supposed to count. And as far as the system itself works it was working. It was an internal realisation that things were about to go Kablooie, not external actors. Which is, again, how it’s supposed to be.
Note that the insistence that nothing should ever go wrong isn’t valid. For this, like everything else we do, is something done by humans, error is definitional. It’s how the error is noted and cleared up which matters, not the existence of it in the first place.
This looks worse but is equally defensible:
One of Carillion’s former finance directors thought funding the pension scheme was a “waste of money”, according to the chairman of the company’s pension trustees.
Minutes from a meeting in July 2013 between the trustees and The Pensions Regulator (TPR), which were made public today, showed Robin Ellison had accused then finance director Richard Adams of focusing on the preservation of cash over pension contributions.
The bankruptcy of the company would hit the pensions harder than any delay in contributions would so that’s fair enough. It’s also true that a goodly part of current pensions liabilities is due to quantitative easing. Those low interest rates mean that near all pensions funds are in vast deficit. Something that will disappear as and when interest rates rise again. It really is true that companies shouldn’t be stuffing those funds to full capacity right now because they’ll be grossly overfunded soon enough if they are.
Now, quite how much that is true specifically about the Carillion funds is a matter of conjecture at present but it’s certainly true a little at least. It’s entirely legitimate that the thought be voiced therefore.
No, this isn’t to defend the directors and executives of the company on a more general basis. They did manage to run the company into the ground after all. But even when people do cock up – even if it were done with malice in fact – it’s not true that every decision made is a cock up. Pensions contributions under QE, accounting for profits on future contracts, these are reasonable areas to have disagreements in. That people disagreed therefore isn’t evidence of malfeasance. Even if certain of the views expressed were wrong it’s still not malfeasance.