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The Collapse of Carillion - a Failure of Ethical Standards?

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As further details emerge about the collapse of Carillion, it is tempting to put their failures down to a lack of poor strategic leadership and competent financial management. Details supporting that thesis may well emerge over the coming months as various bodies and Select Committees carry out their investigations. But that focus, important though it is, should not detract from an examination of what an absence of ethical leadership, honesty, transparency and accountability has cost the company, government and taxpayer and above all, its employees, subcontractors and those who rely on the public services it was contracted to provide.

The government confirmed in 2013 that companies delivering public services are subject to the Nolan principles – honesty, integrity, accountability, selflessness, openness, leadership and transparency. These well-established and regularly tested standards also guide the conduct of holders of public office.

Our 2014 report looked specifically at how the Nolan principles should be applied to outsourced services and our subsequent guide gave industry examples of how it could be done. 

The demise of Carillion asks us to question whether board members were honest with themselves, each other and their employees about the state of the company’s finances and in particular, its debt levels.

The continuing payment of dividends to shareholders beyond a sustainable point appears to indicate a lack of integrity and transparency about the financial state of the company. And their 2016 changes to management pay policy to make it harder to claw back bonuses has been described as “highly inappropriate” by the Institute of Directors.

We do not yet know, prior to the Official Receiver’s Report, what information was available to the Board and whether it acted in an ethically sound way? What is clearer is that government departments did not routinely receive information about the state of the company as part of their contract management processes, or indeed advice on due diligence procedures when starting new contracts with the floundering company.

It is not clear to me or our Committee what role the Government Commercial Service, a capability still in a growth phase within the civil service, played in best arming departments and their boards to deal with Carillion across its many sectors and consortia. And the absence of a Crown Representative for Carillion at a critical juncture must raise issues on leadership.

Also unclear is what Government Department Boards are doing and what leadership they are providing to ensure that no silos emerge between the policy and the commercial objectives when commissioning complex public services.  

Presently, boards are not recommended by Treasury’s guidance to include ethics in their key areas of focus.

What is clear already however is that there is a gap between public statements and actual practice within companies supplying services, where often - as a result of corporate renewal - they have created the written ethical frameworks, and training, but in some cases failed to go further and develop an ethical culture in these key suppliers. In our 2014 report, Ethical standards for public service providers, we acknowledged that the growth of such a culture is not always easy. Nor does it come about overnight.

In demonstrating how the Nolan Principles of leadership and selflessness can be best applied, Dominic Lawson, in the Sunday Times said it well: “The truth is that no amount of corporate “best practice” seminars, nor even the most lavishly staffed HR departments emitting reams of semi-comprehensible politically inspired jargon, have the force of individual conscience.”

The Committee has been following up on the recommendations we made in 2014 Ethical standards for public service providers. to see what has changed. The evidence gathering process has been deeply interesting – and depressing.  Our report will explore these issues further.

Carillion’s failure serves to highlight the tensions. The government in the UK creates, uses and manages markets simultaneously. It is a position that carries enormous power and also an inherent conflict of interest.  And for companies and government alike to rely on enforcement mechanisms for engendering a culture of ethical standards in public service delivery is to approach the task from the wrong end entirely.  Serious and proactive attention to ethical standards – as well as recognition of financial and legal responsibilities – is required from the outset by those involved in procuring, commissioning and supplying services to the public on the taxpayer’s behalf. Only then will we see fewer failures and better services.

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