The report of the select committees on the collapse of Carillion, released on 16^th May has raised a number of important issues, ranging from the company’s corporate culture; its internal control environment; the competence and complacency of its auditors and advisors; the duties of the non-executive directors, chairman and senior executives who were members of the board of directors; the role of the Financial Reporting Council and The Pensions Regulator.

As the Professional Body for non-executive directors and board members in the UK, we have carefully reviewed the findings of the MPs related to the responsibilities of the board of directors. These findings reinforce the message we have been communicating to our audience in the past few years:

1. Taking on a non-executive or board member role entails high responsibilities vis-à-vis the organisation’s stakeholders.
   • “Carillion was an important company. Its collapse will have significant and yet uncertain consequences” (summary, page 3): employees, members of the defined benefit pension schemes, suppliers, sub-contractors and creditors, clients and public trust.
   • “Carillion was the most spectacular corporate collapse for some time. The price will be high, in jobs, businesses, trust and reputation. Most companies are not run with Carillion’s reckless short-termism, and most company directors are far more concerned by the wider consequences of their actions than the Carillion board” (point 218).
2. Taking on a non-executive or board member role also entails duties and liabilities. Both non-executive directors and board members are company directors.
   • “Given that, as far as we know, no indications had been given that a bailout would be forthcoming, and that the board apparently took no steps to minimise the potential loss to creditors, there must at least be a question as to whether individual directors could reasonably be accused of wrongful trading” (point 164).
   • “In evidence to us, Carillion’s board members did not give the impression that they were acutely conscious of the wide range of legal duties they had, nor of the prospect of any penalties arising from failure in this regard” (point 166).
   • “The directors of Carillion, not the Government, are responsible for the collapse of the company and its consequences” (point 216).
3. Non-executive director and board members must fully understand their responsibilities, duties and liabilities.
   • “We recommend that the Insolvency Service, in its investigation into the conduct of former directors of Carillion, includes careful consideration of potential breaches of duties under the Companies Act, as part of their assessment of whether to take action for those breaches or to recommend to the Secretary of State action for disqualification as a director” (summary, page 4).
4. Being effective in the boardroom requires initial training and ongoing investment in directors’ professional development.
   • “The company’s non-executive directors failed to scrutinise or challenge reckless executives” (summary, page 4).

 

NEDonBoard is the Professional Body for non-executive directors and board members. We strongly recommend our acclaimed courses, The NED Accelerator Programme and Modern Board Member Masterclass, which cover the responsibilities, duties and liabilities of company directors.

 

Related posts:

Carillion’s lessons learned – Part 2: back to basics

Carillion’s lessons learned – Part 3: what the NEDonBoard community says

 

Additional resources:

NEDonBoard calls for tougher requirements on NEDs and board members following the collapse of Carillion

Key learnings from Carillion’s collapse

 

Written by Elise Perraud, NEDonBoard COO

 

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