Ethics and Carillion

Picture thanks to Metro

The subject of ethics in business is never very far from my mind these days. I am reading Atlas Shrugged by Ayn Rand, which gives an exciting ride through some of the pros and cons of big business and its detractors, and had my first meeting with the board of the North East Initiative on Business Ethics last week. But it is the news of the failure of Carillion and the noise around the use of single use plastics that has pushed the subject most into my thoughts this week.

Both deal with business ethics from different perspectives. The first, the demise of the international integrated support services business, which operated in the UK, Canada and Middle East, is on the face of it an open and shut case. The company had been in trouble for some time yet continued to be awarded contracts while it racked up debt.

When I was in the public sector one of the qualifying criteria before considering awarding a contract was the financial viability of the supplier. It was a simple yes or no qualification. What has happened? The fact that their auditors had signed the company off as healthy only a few months earlier is also questionable.

Whilst PWC has been brought into try and salvage the situation, there must be a lot of worry among the 43,000 employees and the thousands of small companies acting as suppliers and contractors.

It is the latter that raises the interesting ethical question. By stretching credit within the supply chain Carillion must have been able to carry on trading  for much longer than it should have done. If it had been paying on 30 days then its demise would have been sooner and its overall debt would have been much smaller than the reported £1.4 billion.

Ironically, Carillion had introduced an Early Payment Facility (EPF) for suppliers in support of the Government’s Supply Chain Finance Initiative, announced in 2012. Carillion negotiated terms with its suppliers that ranged from payments in advance to 130 days from month end.

The Federation of Small Businesses wrote to the company as far back as July last year after hearing from its members that the company was making small suppliers wait 120 days to be paid. In 2016, Carillion spent £952m with local suppliers.

Carillion continued to spend money it did not have even though it knew it was teetering on the verge of bankruptcy and used credit from its large number of contractors to do so. Its suppliers were unwittingly drawn deeper and deeper into the morass.

Not paying your suppliers on time is unethical and probably illegal. The ripples of the Carillion crash will be felt far and wide.

I will come back to plastics.

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