The Carillion crisis has shone a light on a much broader problem in corporate culture
In a media climate that dogmatically abides by the ‘if it bleeds, it leads’ mantra, the Carillion crisis broke the mould in a striking fashion. For days on end, the crisis stuck to the front pages of broadsheets and tabloids alike; it filled the radio waves on stations from the BBC to LBC and featured as the top story on news channels across the country. Inevitably, it found its way to Parliament.
The ensuing debates in Parliament were far-reaching. As voices grew louder and fingers started pointing, the crisis of Carillion soon became a crisis of capitalism. Describing the liquidation as a “watershed moment” for the privatisation agenda in the UK, Labour leader Jeremy Corbyn cited the £2 billion bailout of Virgin and Stagecoach as further examples of the corporate greed that was rife among large companies.
It is unlikely however, that the Carillion crisis will be the watershed moment that Corbyn yearns for. With a Conservative government in place for the foreseeable future, there will be not be a nationalisation of the UK’s rail service and PFI projects will remain intact. Moreover, Prime Minister May will expend what little political capital she has on Brexit negotiations.
But by the same token, the Carillion Crisis should not be treated as an isolated incident of corporate negligence. The crisis represents something far more systemic in the carousel culture of buck-shifting between governments, corporations, regulators and third parties: the government ignored Carillion profit warnings, awarding the firm with new contracts; Carillion accepted these contracts and knowingly abused the Supply Chain Finance Scheme and KPMG continued to approve its audits even as Carillion’s debt piled up. Without a clear framework of accountability, it will take investigators months, if not years, to determine what and why this happened.
KPMG’s role in the crisis is particularly alarming because it bears a troubling resemblance to the role played by another type of third party in the 2007 US Subprime mortgage crisis. Herein, America’s three biggest credit ratings agencies, Moody’s, Standard & Poor’s and Fitch, gave ‘triple-A’ ratings to pools of debt that amounted to over three trillion dollars’ worth of loans to homebuyers with bad credit. These ratings agencies turned a blind eye to the egregious actions of America’s largest banks much in the same way that KPMG did with Carillion.
While corporate scandal is nothing new, there has been a significant spike over the past twelve months: Apple slowing down older iPhone models; Uber’s use of Greyball software to circumvent local government regulations; Kobe Steel falsifying the data about its metals (its CEO resigned this month); Samsung’s bribery charges and Wells Fargo charging 570,000 customers for auto-insurance that they did not need. These are all examples of firms abusing their clout and it is a problem symptomatic in all industries.
Rahm Emanuel, Obama’s ex-Chief of Staff, said in the aftermath of the Great Recession to “never let a good crisis go to waste”. While Carillion no longer fills the newspaper columns in the way that it did a month ago, the UK government cannot let this crisis go to waste. As the ongoing #MeToo movement highlights, damaging and archaic corporate attitudes towards women are no longer tolerated. Nor should they be for greed. Greed, contrary to Mr Gekko’s earlier wisdom, is no longer good.