The collapse of Carillion (Report, 22 January), following the BHS and Sports Direct scandals, indicates a systemic problem with UK corporate governance. The fate of large corporations is a public concern and only wholesale reform will ensure company boards prioritise long-term value creation over short-term profit. Under current company law, there is no positive obligation on directors to take steps to prevent serious impacts on employees, suppliers, customers, the community or the environment. Rather than tinkering, as proposed in its response to corporate governance green paper, consultation, the government should reform the Companies Act to create an obligation of this kind.
An obvious way of strengthening corporate decision-making to take into account the interests of wider stakeholders is to put worker representatives on boards. The government must now reconsider its decision not to move ahead with this proposal. At present directors are rarely held to account. Only individual accountability will address this problem. Presiding over serious corporate failings should be a grounds for directors’ disqualification. Marilyn CroserDirector, Corporate Responsibility Coalition
• The Guardian has provided excellent cover on the Carillion chaos. However, I do not believe you are properly reading the runes. Carillion’s financial problems have been well-known in the city and no doubt with senior civil servants for over a year. I believe in these circumstances the government had no choice but to continue supporting the Carillion Ponzi scheme. Let us speculate what the fallout would have been if Carillion had gone bust in the run-up to the general election in June 2017. This would have cost the Tories their overall majority, even with the support of the DUP. To me it is no coincidence that Richard Howson resigned as CEO in mid-July 2017, shortly after the election. William Rae MccrindleChairman, McCrindle Group, West Kilbride, Ayrshire
• I have been involved in bidding for and delivering small contracts in the charitable and not-for-profit sectors. The waste of resources at this level was shameful. Large outsourcing contracts must be massively worse. Bid preparation extracts enormous, unrewarded investment from unsuccessful bidders. Once awarded, at each link in the contracting chain routinely around 30% of the contract budget may be allocated to “central costs”, for delivery negotiation, feasibility studies, budget oversight and detailed quality assurance. A few layers in a contracting chain and 60% of the original budget could fall into this bureaucratic pit. Add the ludicrous salaries of top private-sector employees and the profit required by investors, and it is a wonder hospitals, schools or roads ever get built, buildings get cleaned or prisons get managed. Unsurprisingly, the salaries of frontline workers are pared back.Liz McGrath Former chief executive, Learning South West and former chair of Home-Start Bridgwater, Watchet, Someret
• The real losers in this affair are the subcontractors who are owed four months’ money by Carillion – and their employees. If Theresa May is really keen to govern for everyone, she could introduce sustainable procurement rules that require companies with government contracts to pay invoices within 30 days. Or is it an essential part of the business model and the others would go bust too?Ben TwistEdinburgh
• Larry Elliott argues (18 January) that “Carillion’s problem was not that its profits were too high but that they were too low when things started to go wrong”. That depends when you think the problems started. Until last year, Carillion was using its substantial annual profits to pay out a relatively high dividend every year (costing £82.7m in 2016). In the investment world it was known as a high-yielding income play, which bolstered the share price on which the bonuses of its top executives were based.
At the same time, Carillion had to use some of its profits to service large debts, which were incurred mainly to make acquisitions. In 2016, this cost a further £39.6m in interest and fees to the banks. If Carillion’s management had done less empire-building, they would have had less debt and could have sustained the dividend without hitting cash problems. As it was, the only way to have stayed out of trouble would have been to cut or scrap the dividend. But that would have hit the share price – and their bonuses.
There seems no question that Carillion had, over many years, been extracting substantial profit from public sector contracts. The problem was that nearly all of it drained out of the business in dividends, interest and bonuses. This in turn points to a broader point: the Tories claim that cutting corporation tax from 28% to 17% of profits will lead to an increase in investment. The Carillion example illustrates why that isn’t working.Steve HowellFormer chief executive, Freshwater, Cardiff
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