Case Study

Carillion: High debt, mismanagement and increased political risk

14 pages
September 2019
Reference: IMD-7-2038

The UK-based construction and services firm Carillion went into liquidation in January 2018, with debts of over £1 billion, just £29 million cash in the bank, and a pension deficit of over £500 million. It caused a scandal that was political as well as commercial. Public inquiries and a review of UK-based auditors have been direct consequences. Causes of the collapse were high debt levels, a complex company structure and low margins on large public sector contracts. The Board did not respond to the overt warnings of a major shareholder three years earlier. Just 10 months before, the annual report had given an upbeat report on the company’s position and prospects. The case study focuses on four dimensions: Strategic management – Carillion’s strategy of growth through acquisitions funded by borrowing, was high-risk. Corporate governance – The board did not challenge executives over risk or debt. Financial accounts – Aggressive accounting hid liabilities, that were missed by auditors; complacent assumptions around the valuation of goodwill were evident. Political risk – The scandal shook the assumption that private sector management was inherently superior, and nationalization gained public support in the UK.

Learning Objective
  • The case study provides a rare opportunity to explore the dynamics of a board that failed to identify strategic risks, and who missed warning signs, both oblique and explicit.
  • There are also learning opportunities around the valuation of goodwill, and auditing of complex accounts. Much detail is in the public domain, following a major Parliamentary inquiry.
Compliance, Business Strategy, Mergers and Acquisitions, Accounting, Auditing, Political Risk, Public Sector, Outsourcing
United Kingdom
Carillion, Construction and Engineering, Services, Facilities Services
20 years, but with a particular focus on later period 2015-2018
Published Sources
© 2019
Available Languages
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