Carillion Collapse What Went Wrong ?
What Went Wrong on Carillion Collapse
On January 15th, 2018, UK construction giant Carillion, a company with a 200-year history, entered compulsory liquidation. How did a company with £5.2 billion in sales collapse so suddenly?
The Anatomy of a Collapse
The fall of Carillion sent a shockwave through the global construction industry. The negative impact was not limited to its 49,000 employees and shareholders; it extended to joint ventures, subcontractors, suppliers, and clients whose projects were delayed or stopped completely.
Despite having top professionals on its boards—in strategic planning, risk management, project controls, and finance—the system failed to provide a timely alert, or the alerts were ignored. The company reported global sales of £5.2 billion in 2016. Only six months later, it issued a major profit warning, citing late payments and a fall in working capital.
The Central Question: Why Did the System Fail?
Since 2010, my research has focused on “Systems Failure To Alert Decision Makers For The Early Proper Actions.” It is still surprising that giant companies with high-quality systems collapse. This leads to critical questions about the root cause.
What was the main factor in the system’s failure to alert leadership?
- Was it rising costs or slow and weak due diligence?
- Did team reports fail to provide the right information and proposed actions?
- Was there a lack of a collaborated, live system for data?
- Were the governing procedures and systems inadequate?
- Was it the result of new regulations, or other reasons?
While every case is unique, a common cause is often improper financial reporting, sometimes done on purpose. In Carillion’s case, with its status as a publicly listed company under tight auditing, the speed of the collapse is particularly alarming. The first profit warning on July 10th, 2017, came just six months after reports of very good profits. When giants like this issue a warning, it’s often at a late stage when they believe they can still fix the situation, only to find the domino effect is unstoppable.
Lessons for a Challenging Market (GCC Focus)
The lessons from Carillion are especially relevant for the GCC market, which faces its own significant challenges. New regulations and taxes are being implemented on short timelines, putting immense pressure on companies still trying to recover from the 2008 downturn.
Companies we know lack proper systems are already struggling. But even companies with established systems need to do a lot more to comply with new costs, laws, and challenges. This requires a new approach.
A Call for Joint Efforts and Better Systems
To avoid similar crises, new initiatives are needed that invite joint efforts between government, public companies, and private companies. Ongoing workshops are required to deal with challenges and make early decisions to avoid negative implications.
Moreover, construction companies must urgently develop their internal systems to be more resilient and transparent, enabling them to avoid the traps that led to this and other similar corporate collapses.
For more related analysis, see the article: What Went Wrong?