Innovation, sustainability and effective directorship
In the past few weeks, we have asked our community to share the lessons that they have learned from the high profile collapse of Carillion. Engagement from the NEDonBoard community has been great and we thank you for sharing your views. In this article, we are publishing some of the answers we received to our question: What is the most important lesson learned from the collapse of the Carillion in your view?
Common themes are:
- Lack of proper corporate governance
- Lack of independence of the non-executive directors
- Lack of competence of the non-executive directors
- Inadequate management information
NEDonBoard hosted a detailed session around the collapse of Carillion in November 2018. You can access the replay at this link.
“Independent Directors, should have an external source of support and advice (NEDonBoard).
Independent directors have to be …. Independent, and not take the easy way out, cosying up to the executives. SME’s in particular have the habit of appointing family or friends as “independent” directors-they are not”.
Mr. Shutes
“Lack of proper strategy and planning, lack of understanding of pricing and costs on the larger contracts, combined with a total lack of proper and rigorous Corporate Governance”.
Mr. Iversen
“We need to look at results not status. Too often I’ve seen unsuccessful business people get appointed to many positions”.
Mr. Fitzsimons
“Adopt ESG50: I mean that the board should give a 50% weighting to Environment, Society & Governance issues within critical decisions and a 50% weighting to financial return issues”.
Mr. Richardson
“[The collapse] demonstrates the importance of independent non-exec directors to provide governance by challenging the Management team and thus protecting the company’s shareholders. Such assurance effectively executed could have provided transparency, early warning and appropriate preventative measures implemented in a timely fashion. […] Competent and independent Non Exec Directors are therefore great value for money!”
Mr. Infante
“CEO and Chairman terms should be capped at four years, non-simultaneous, NEDs at six”.
Mr. Mciver
“No matter how good you think you are, stay grounded in reality, remember your responsibilities to people and never believe your own hype!”
Mr. Taylor
“A failure to triangulate information provided by management with that readily available from other (often public) sources, which among other things would have exposed growing working capital issues and the (accurate) perception of market participants that the company was over-geared”.
Mr. Watson
“The most important lesson in terms of good corporate governance and audit and risk compliance: the non-exec directors should have challenged the executive management in a positive and constructive way and demanded timeous financial and cash flow information to get to grips with the issues and to avoid the debacle”.
Mr. Lewis
“Scale safely … always have a cash buffer for unforeseen circumstances and make sure you have great relationships with your lenders. It is better to get there slowly than never to get there at all”.
Mr. Breakwell
“The most important lesson learned: lowest price is not best price”.
Mr. Pawlyn
Related posts:
Carillion’s lessons learned – Part 1: Why all non-executive directors and board members should complete a training programme
Carillion’s lessons learned – Part 2: back to basics
Additional resources:
Key learnings from Carillion’s collapse
Written by Elise Perraud
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The legislation governing NED’s is not being practiced. Organisations are effectively recruiting executive directors, calling them NED’s. In effect there is no independent governance or calling to account.
The only way to correct this total failure of independent scrutiny and holding the executive to account is to;
1. Change the legislation so that NED’s are independent consultants and who are not held financially responsible for any corporate failure. Whilst NED’s are held to account they have NO INCENTIVE TO FINANCIALLY PENALISE THEMSELVES by holding the executive accountable. Blatantly obvious in my opinion.
2. Stop the current practice of allowing corporations to engage NED’s to provide experience that the board lacks and giving them the title of NED’s when in reality they are part of the managing executive.
The FRC is useless in that they only draft the rules and there is no monitoring of what actually happens in practice. So the rules are ignored.