What happened to Carillion?

What happened to Carillion: A case study of governance gone wrong in what was once one of the UK’s most well-known construction companies, entrusted with several major public projects and employing over 40,000 people globally. 

In early 2026, former Carillion Chief Executive Richard Howson was fined £237,000 by Britain’s Financial Conduct Authority (FCA). The regulator said the penalty was in response to Howson being aware of serious financial troubles at Carillion during his time at the helm, but failing to “respond appropriately to the warning signs.” It also follows similar fines issued weeks earlier to former finance directors Richard Adam (£232,800) and Zafar Khan (£138,900) for misleading investors.

It’s an epilogue to what was one of the biggest corporate collapse stories of the 2010s. It hit major news headlines in Britain, given the number of public contracts Carillion was entrusted with – over 450 in total – including hospitals, bypasses, tram networks and rail links. Many of them saw serious delays because of Carillion’s collapse, and the National Audit Office estimated that it would end up costing the UK’s taxpayers £148 million. 

The latest fines are a good opportunity to look back at what went wrong and what we can take from it as a governance perspective going forward.

Carillion’s collapse came in January 2018 and was quite a public shock. However, the persistence of a “rotten corporate culture”, according to two British MPs, and years of poor financial management meant the groundwork for the colossal failure was developing for years. 

Here’s the summary:

• Aggressive expansion: Established through a de-merger in 1999, Carillion grew rapidly with major acquisitions of similar companies like Mowlem and Alfred McAlpine. 
• Goodwill: Many of these acquisitions included goodwill payments (Carillion paid over and above each company’s tangible value to acquire them). These were part of the aggressive expansion tactics, silencing any competition, and were justified as investments because of positive financial outlooks. When those outlooks didn’t materialise, Carillion took years to record the payments as losses. In the end, the company was estimated to have £1.57 billion worth of goodwill payments on its books: a value that didn’t actually exist.  
• The Eaga disaster: The 2011 acquisition of Eaga for £306 million was intended to diversify the firm into green energy. Still, it resulted in five years of losses totalling £260 million, wiping out cash reserves.
• Hidden debt: The company hid around £500 million in debt through a sophisticated accounting mechanism called the Early Payment Facility (EPF), which was essentially able to classify these debts as “trade payables”.
• The final warnings: Years of financial mismanagement came to a head in July 2017 when a contract write-down decreased the company’s value by £845 million (or 70% of total). Further, similar shocks occurred later that year. The share price collapsed.

Carillion’s downfall was years in the making, and fuelled by a culture that completely ignored the idea of long-term sustainability. In the eyes of the people in charge, looking strong and having immediate market success outweighed any desire to safeguard the broader future of the company. 

The aggressive accounting policies were a main contributor. They manifested in different ways in the years building up to the collapse, with “percentage-of-completion” accounting used to mask bleaker economic forecasts, a steadfast determination to increase dividends each year, regardless of what cash the company made, and negligence over pension deficit, which ballooned to beyond £2.6 billion. 

These practices reeked of over-optimism and a severe lack of in-depth questioning or strategy. So many business collapses have started with this kind of attitude.

Let’s look at the lessons we should learn from Carillion’s collapse, starting with the executives and what paths they should have chosen. 

• Embrace transparency: There’s no denying that ignoring or trying to hide issues, such as serious contract write-downs, was a serious fault. No good corporate leader will do this. Had Carillion’s executives acted on value losses when they occurred, they would have had more time and increased transparency to restructure while retaining some market credibility.
• Risk analysis: As soon as Carillion’s collapse became public knowledge, multiple media outlets and commentators began analysing its most high-profile contracts and pinpointing the ones that went wrong enough to contribute a lot to the collapse. It became apparent that the company didn’t analyse the risk emanating from some of these contracts before accepting them. For example, the company had a contract to deliver a project in Qatar in advance of the 2022 FIFA World Cup. When the company collapsed, it was reported that the Qatari government refused to settle a £200 million bill for this project. Would savvy executives, with thorough risk analysis, especially for this kind of unfamiliar market, have fallen into the same situation?

The board’s ultimate goal is its fiduciary responsibility to stakeholders. In Carillion’s case, it failed in this responsibility. 

• The company’s non-executive directors (NEDs) acted more like tick-boxers and cheerleaders than the scrutineers they were supposed to be. Board independence is vital, especially in such an influential company, which depends on major contracts for success. If the board had asked tougher questions and commissioned more independent audits, it may have had a clearer picture of the company’s risk profile. 
• The board should have never allowed the clear “hands-off” culture around financials to develop. It didn’t gain enough information in time, and when it had the information, it didn’t act on it. Things might have been different if, for example, the remuneration committee got serious about tying executive pay to long-term cash flow or strengthened clawback provisions. These steps demonstrate to stakeholders that, while problems have been identified, those in charge are taking steps to solve them.

The Carillion collapse is a cautionary tale, not just for big companies with public contracts, but for any company that prioritises short-term market success over long-term sustainability. If you do things this way, you increase the risk that everything will come to a shuddering halt at some point in the future. 

The fines for some of Carillion’s leaders in 2026 show the level of personal scrutiny regulators are prepared to pursue to correct past wrongdoings. They should serve as a warning to any corporate leader with a “hands-off” or “keep up appearances” approach to corporate finance.