Nothing new in the Carillion debacle

Written By: John Holden
Published: January 28, 2018 Last modified: January 28, 2018

“I returned and saw under the sun that the race is not to the swift, nor the battle to the strong, neither yet bread to the wise, nor yet riches to men of understanding, nor yet favour to men of skill; but time and chance happened to them all. There is no new thing under the sun.”

Ecclesiastes 9,11

George Orwell used this verse from Ecclesiastes in his essay “Politics and the English Language” as an example of the English language at its best. Accordingly I am reluctant to suggest that it needs to be updated to reflect today’s all too prevalent social and political chicanery, but I must say what I believe  – so here goes.

 The reference of Ecclesiastes to riches not being acquired by men of understanding is simply wrong. Understanding is a sine qua non in the acquisition of riches – a necessary but not sufficient quality. The other sine qua non is greed. In the following notes I hope to demonstrate the validity of this point.

In the past few weeks there has been a spate of angry reporting and comment in the media about perceived excessive payments to a variety of fortunate recipients together with one notable case of perceived underpayments to senior female BBC employees. The groups in question are the senior managers of some of our major construction companies, including Persimmon, the senior managers of Carillion, the multi tasking company, senior employees of the BBC and, the story that simply won’t go away, the bosses of our Universities, known by the reverential title of Vice Chancellors.

We are barely three weeks into 2018 and here we go again – more examples of how in the UK those at the top have succeeded in enriching themselves at the expense of those unfortunate enough to dwell on the lower slopes of our national economic terrain. They have been filling the headlines in recent weeks – a case of the hogs hogging the news.

But first the pay debate at the BBC. Some senior female BBC employees discovered to their surprise and chagrin that that their male colleagues were paid considerably more for doing what appeared to many outsiders – including me – the same job. This practice was in breach of the law, which specifies that the same rate be paid for doing the same job.

Two solutions were suggested: bring the pay for the women up to the level paid to men, or bring the pay rate of the men down to the level paid to the women. Then a third factor surfaced as the debate warmed up, namely that many licence payers thought that pay rates for the senior women for not especially demanding work was already far too high and that the rates paid to men for the same work was disgracefully high.

My suggestion is that that the BBC be privatized, a move that would allow the free market to decide who was worth what. Both categories – the men and the women – need to be reminded that not all licence payers share the view prevalent across the BBC that the BBC is a national treasure to be funded up to and beyond the readiness of the aforesaid licence payers to foot the bill.

As far as university Vice Chancellors are concerned, the gist of the problem was that it belatedly appeared that they had been busy helping themselves to funds originally intended to improve the financial health of their various institutions, to the extent that I’d suggest the word ‘Avarice’ as the collective noun for them.

I had thought that the Avarice had managed to defuse the public anger, but more and more instances emerged about the commendable and tireless energy displayed by the Avarice in their search for wealth. In the latest story to surface, on January 18, “University Chief complained about cuts… then saw her pay rise by £45k.” The chief in question, Dame Julia Goodfellow, had received a £25k performance bonus, paid presumably in recognition of her tireless efforts to maximise her reward package

Events at Persimmon made the headlines primarily because of the perceived large payments made to senior managers. “Why the housing boss being paid an obscene £131 million must be forced to give his ill-gotten gains away,” was the headline above a report by Alex Brummer in the Daily Mail on January 11. Brummer wrote: “Persimmon’s Chief Executive, Jeff Fairburn, is due a pay and bonus package of £131 million. Other bosses at the firm – which has seen its stock market value soar as it has ruthlessly cashed in on the Government’s controversial Help to Buy scheme – will be given shares worth a staggering £800 million.”

Brummer went on to point the finger at former chairman Nicholas Wrigley, who absent mindedly forgot to impose a cap on bonuses and left Persimmon “in recognition of this omission.” He also left Persimmon with £131,000.

In his fiery piece Brummer neatly analysed the flaws in the Help to Buy scheme, flaws which Fairburn spotted and exploited, with the unintended assistance of the sleepy Mr Wrigley, to the significant benefit of his bank balance. Clearly Fairburn was and is man of understanding.

If there’s no problem in identifying the winners – the top brass – equally clearly the losers were those who will be unable to access the Help To Buy scheme because of the depletion of the allocated funds. I estimate that around 1000 would be home owners have lost out.

But now for the really big issue: what went wrong at Carillion and why?

“Don’t ever work for McAlpine or Wimpey or John Laing,” memorably sang the late Ronnie Drew of The Dubliners as he exhorted his listeners not to work for these well known construction companies because of the combination of appalling working conditions and lack of job security. The message of ‘McAlpine’s Fusiliers’ had already been overtaken by events because many large building companies – including that known as Sir Robert McAlpine – had been absorbed by Carillion. Hopefully a successor to Ronnie Drew will emerge and produce a protest song to be used in the inevitable demonstrations that will be held to draw attention to the misdeeds of those at the top.

So who are the villains? Alex (Bolshie) Brummer was still in splendid form in the Daily Mail on January 18. “Chairmen in the doghouse – Carillion fat cats WON’T get payments.” And he wrote: “(Carillion) Bosses including former CE Richard Howson were due to continue receiving payments despite the construction and outsourcing firm going into liquidation on January 15 owing around £3 billion. Other senior managers said to be still enjoying enviable reward packages were Mr Zafar Khan and Mr Keith Cochrane.”

The report noted that senior Carillion managers had been careful to arrange for their own financial well being whilst Carillion was heading for the liquidators  – possibly their business role model was the captain of the Cruise Liner Costa Concordia who steered his ship onto the rocks and subsequently took care to ensure that he was one of the first into the lifeboat. His conduct in terms of self preservation was prudent but not in keeping with the noblest traditions of the maritime service.

In this article Brummer was dismissive of the announcement from Greg Clarke, an employee of HMG, of a fast track Insolvency Service probe into the collapse of Carillion and its current and former directors. He was dismissive mainly because of the abysmal record of HMG and its associated quangos in getting to the bottom of even simple corporate financial failures, and even less so with failures as labyrinthine as the current spate. He sighed sadly that “Carillion Chairman Philip Green – no relation to BHS Phil Green – can resume his search for honours, former CE Richard Howson can retreat to his Swiss chalet and serial non-executive director and former Tony Blair acolyte Dame Sally Morgan can look for the next job.”

Having got that off his chest Brummer suggests that “a judge led probe with directors required to give evidence under oath would be ideal. One thinks back to the late Bingham enquiry into the collapse of BCCI in 1992 which was completed and published within a year.”

I fully support the Brummer suggestion and his insistence on the need to avoid a languid Chilcot approach and its associated Maxwellisation constraints. I would go further, though, given the required urgency – and urgency and lawyers do not go together: the central issues could be flushed out and the report published within the next three months. An innovation of this kind – making it clear that retribution would be swift and the consequences drastic for those found to be responsible – would be a splendid foretaste of a new resolve to ensure that senior managers did the job properly, or else!

For the record, the Captain of the Costa Concordia was sent to prison for 16 years for his double offence – that of taking an irresponsible short cut and then of leading the rush to the life boat. The lawyer leading the urgent enquiry might well bear the outcome of this nautical malfeasance in mind.

Another Daily Mail report, on January 17, headlined “Hung out to dry by the Carillion fat cats” pointed out that “Up to 30,000 small firms could get just 1p in the pound owed to them by failed contraction giant that paid its bosses millions”. It spelled out the serious consequences to the thousands of companies and the ten of thousands of employees of the downstream companies, which including reduced pensions and for many the loss of jobs in what were rightly assumed to be key national priority activities – the construction of hospitals, schools, roads and additional rail capacity.

I have recently been required to choose between two options for my own modest British Steel pension, so I have every sympathy with those pensioners now at risk from the Carillion scandal. It needs to be highlighted that robbing pensioners of income that they have rightly counted on to be a protection against an impoverished old age effectively robs them for the rest of their lives. I have observed at close quarters the fears and anxieties triggered by the problems with the old British Steel pension scheme and the problems posed by the predatory activities of the vultures – alias financial advisors – circling round the British Steel pensioners as they sought advice about how to invest their pension funds.

In the wake of the Carllion scandal, how did Prime Minister Theresa May respond to queries about Carillion at PMQ on January 17? Her robust rejoinder that the situation was just as bad in Wales and in Leeds – both Labour controlled – was true, but unlikely to be of comfort to the many thousands whose lives and plans have been so savagely disrupted. One of her weakest responses – and most of her responses were pretty feeble – was that HMG was not responsible for the management of Carillion. Quite true – but HMG was by far the biggest customer of Carillion and, as such, HMG was and still is in a very strong position to take prompt effective action if and when it is so minded.

As details of the fiasco emerged, one servant of HMG was reported as requesting that the employees affected should be supplied with the address of their local job centre – a response on a par with suggesting that members of the public injured in a terror attack be given the location of their nearest A&E department.

The fact is, Carillion had a leadership team whose top priority was to ensure that they emerged from what they dimly perceived as the approaching collapse with the maximum of money for themselves and, in working tirelessly to loot the system, sadly had little or no time to manage the business. We also have a government riddled with ineptitude that sought in vain to distance itself from the consequences of its own failure to act., a government so obsessed with and pre-occupied by Brexit that all other issues are relegated to the pending file. Decades of government policy – going back to the Blair years – allowed the private sector to exploit the public sector in this way.

In the various reports about Carillion much has been made of the dubious nature of Private Finance Initiatives – including the extent to which they contributed to the collapse of Carillion. There may be some truth in this and I am sure the High Speed Enquiry, if it happened, would have the item on its agenda. But I would also like to consider just one aspect of the controversial relationship that exists between the public sector and the private sector and the perceived no man’s land in the middle.

There has been a great deal of media discussion in recent years about the so-called ‘revolving doors’ syndrome. The gist of this practice is that senior mangers, including civil servants, leave the public sector and move speedily and seamlessly across into the private sector. We should ask ourselves just what these transferees have to offer the private sector – it’s certainly not the languid approach to management that prevails in the public sector. The appealing feature of those making the move is overwhelmingly their familiarity with the managerial weaknesses that prevail together with the experience that would allow their new employer to exploit the public sector.

Attempts have been made to limit the speed with which these transfers are made but these are more observed in the breach rather than in the observance. Thus knowledge of the naivety of those employed in the framing of major public contracts is of considerable help to those on the other side of the table – the civil service lambs are on the one side and the private sector wolves are on the other. The best of them – those civil servants that are wide awake – will be recruited by the wolves and the outcome will be all too predictable.

Finally, what of the Labour Party’s response? Jeremy Corbyn proclaims that he is in business to govern for the many and not for the few. I take it that the few are the haves and the many are the have nots. Given the likelihood of a General Election in the next few months we need to hear from Mr C and his colleagues as to how exactly they plan to put their admirable campaign slogans into effect. We need some policy flesh on the bare bones of the slogans.

I doubt if there if there is much hope of anything effective from the Prime Minister – I see her sole political aim as being to preserve just one job: her own. Understandable, but lacking in mass appeal. Accordingly I will suggest a few policies for Corbyn and his colleagues to consider:

* Tax rates at or close to 100%  to be set for the corporate thieves – these rates to stay in place until senior managers grasp that they had been appointed to the job to work for the prosperity of the organisation rather than exploiting the various loop holes in the tax and reward package arrangements.

* Outlawing the practice of setting complex bonus arrangements for senior managers. The reward for effective performance should be that the effective managers get to keep their jobs. For the ineffective – prompt P45s with no generous farewell packages.

* Do not use any enquiry into corporate abuse as an excuse to put capitalism on trial – otherwise we will get nowhere very slowly.

* Similarly, do not use any decision to take the railways back into the public sector as an excuse to put socialism on trial – otherwise again we will get nowhere very slowly

* Let us be very clear: the collective group that needs to be on trial is that of the Senior Managers in the private and public sectors who have abused their positions of trust to enrich themselves at the expense of the rest of us. So – get rid of the Arthur Daleys that prosper at the top and replace them with senior managers who can combine competence with integrity

* Senior Managers in all sectors of the national economy are subject to temptation and sadly some will succumb. Like the dog and his propensity to lick his balls – some will abuse the system because they can. Let us try to put in place effective measures to discourage them – those spivs looking for quick easy risk free bucks would soon get the message.

To end on an optimistic note, it is still the case that those senior managers who have converted their organisations into modern versions of the Augean Stables are very much a minority group. So – bring in managerial replacements who can and will do the jobs to the required standard.