The fallout from Carillion’s bankruptcy spreads in slow motion — just as the outsourcing and construction giant’s finances gradually stretched to breaking point over the months before it went down in January. The company’s auditor, KPMG, was rightly under the spotlight this week. But the impact on the ground seems to have been less disruptive than early reports predicted. Receivers have made 1,000 redundancies but have re-let many contracts, securing thousands of other jobs. Construction of the £335 million Royal Liverpool Hospital — one of the overrunning contracts that contributed to Carillion’s cash crisis — won’t now be completed this year, but outsourced services in many other places have been seamlessly reorganised.
The attention of politicians who regard outsourcing as Satan’s work has accordingly focused less on the plight of workers and service users and more on which set of capitalist lackeys to lambast: the overpaid bosses, the eye-off-the-ball accountants, the easy-lending bankers or the footloose shareholders. Among the last, the likes of Standard Life Aberdeen turned out to have been ‘fleeing for the hills’ well ahead of the crash, Labour MP Frank Field observed with asperity this week; MPs on the House of Commons Work and Pensions Committee he chairs aim to find out whether Carillion’s institutional investors had ‘complied with the Stewardship Code’.
That’s an interesting line of inquiry, but surely not a fruitful one. The Stewardship Code (promulgated by the Financial Reporting Council) makes clear that directors carry primary responsibility for companies’ ‘long-term success’ but that investors also have duties which include ‘monitoring and engaging… on matters such as strategy, performance, risk [and] capital structure’. Does that mean an investment manager who thinks a company in which he holds shares is going down has a duty to stick around and persuade its executives to change course, or a more pressing duty to sell as quickly as he can and protect his own clients’ savings?
Common sense says the latter — and the code itself makes clear that compliance ‘does not preclude a decision to sell a holding, where this is considered in the best interest of clients or beneficiaries’.
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