Carillion Collapse Prompts Rules on U.K. Corporate Recklessness
(Bloomberg) -- U.K. Prime Minister Theresa May set out a plan to defend capitalism from capitalists, after the collapse last week of construction company Carillion Plc put at risk public-sector projects from roads to hospitals.
In an article for the Observer newspaper, published Sunday, May pledged new rules to deal with executives “who try to line their own pockets by putting their workers’ pensions at risk.” She attacked a corporate culture that saw “big bonuses for recklessly putting short-term profit ahead of long-term success.”
The newspaper said the new rules could include punitive fines for directors, or giving regulators the power to block takeovers that risk pension pots.
Carillion’s failure has prompted a debate in Britain about both how companies are run and the extent to which the government relies on businesses to provide services. The U.K. spends 10.3 billion pounds ($14.3 billion) a year servicing public-private contracts of the type awarded to Carillion, the National Audit Office said last week.
The opposition Labour Party leader Jeremy Corbyn argues the collapse vindicates his longstanding critique of the free-market system.
May defended both the use of companies like Carillion to deliver services and her government’s rejection of a bailout before its collapse on Jan. 15, saying shareholders, not taxpayers, should bear the costs of bad management. But she said business had to behave responsibly.
“Every successful business is built on a thriving, supportive society,” May wrote. “But that support is conditional –- it can only exist as long as we all playing by the same rules.”
She reiterated her commitment to greater transparency over corporate pay, and to a requirement that companies explain how they take their staff’s interests into account. But that represents a weakening of her 2016 position, when she talked about putting workers onto company boards.
While May is taking a tougher stance with business than most of her fellow Conservative leaders, she is outflanked by the opposition Labour Party, whose Treasury spokesman John McDonnell told the BBC on Sunday that he’d always opposed the “private finance initiative,” which saw the government paying companies -- such as Carillion -- to build schools and hospitals. He quoted a speech he’d made on the subject in 1998.
“I said then that it’s cheaper for us to use the state to borrow funds,” McDonnell said on the “Andrew Marr Show” on the BBC. “In addition to that, we will have control and ownership of the asset.”
McDonnell repeated his desire to take some utilities into state ownership, saying that “Parliament will set the price” at which nationalization would happen.
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