Carillion's collapse was described as sudden. It was not sudden. The pension deficit had exceeded the balance sheet equity for years. The board had paid £333 million more in dividends than it generated in cash between 2012 and 2017. The debt had grown from £242 million to £1.3 billion in less than a decade. And up to £498 million in borrowing had been quietly reclassified as "other creditors" — invisible as debt in the financial statements the board was approving. The warning signs were present at every level. None of them had a governance path to the people who needed to act on them.
What Actually Happened
Carillion was created in 1999 through a demerger from Tarmac. Over the following eighteen years it grew aggressively through acquisitions — Mowlem in 2006, Alfred McAlpine in 2008, Eaga in 2011 — accumulating goodwill on its balance sheet that would eventually reach £1.57 billion, representing value that, as the Parliamentary inquiry found, essentially did not exist. The Eaga acquisition alone generated five consecutive years of losses totalling £260 million.
The business model relied on winning large public sector contracts on thin margins, then stretching payment terms to suppliers — eventually to 120 days — to manage cash flow. By 2013, this practice had drawn enough concern that lobbyists were urging the government to exclude Carillion from future public contracts. The company's response was to create an "Early Payment Facility" — a reverse factoring arrangement with Santander and other banks — that allowed suppliers to be paid earlier in exchange for a discount. What this arrangement also did was reclassify what Moody's and S&P identified as financial debt — money owed to banks — as "other creditors" on the balance sheet, keeping it out of the debt figures the board was reporting to markets.
2009–2016: Carillion pays £554 million in dividends — three-quarters of all cash generated from operations. In the period from January 2012 to June 2017, it pays £333 million more in dividends than it generates in cash, funding the shortfall with debt.
2012–2016: The "other creditors" line in the financial statements grows from £263 million to £761 million as reverse factoring usage expands. The true debt position is significantly understated. By the time of collapse, credit rating agencies estimate that up to £498 million had been misclassified. Total loans had grown from £242 million to an estimated £1.3 billion since 2009.
2013: Pension trustees first raise concerns about the growing pension deficit and seek intervention from The Pensions Regulator. The Pensions Regulator takes no enforcement action. The board makes no material change to its dividend policy or pension funding approach.
2015: Carillion board minutes from April note that UBS analysis — which factored both the pension deficit and the Early Payment Facility into the true debt position — was "disappointing." Board minutes from May record that short-selling of Carillion shares has increased significantly following the UBS note. The board does not act on the substance of the analysis.
2016: Carillion reports higher dividends than the previous year — £79 million, a record — while the pension deficit exceeds the equity on the balance sheet. The goodwill valuation of the former Eaga business is maintained at £329 million despite five consecutive years of losses, allowing the continued payment of dividends and executive bonuses including £1.8 million paid to each of the two most senior executives.
10 July 2017: Carillion announces a £845 million profit warning — described by the Parliamentary inquiry as a "sudden and from a publicly-stated position of strength" collapse in credibility. The CEO and CFO resign. Shares lose 70% of their value in two days. The warning is a surprise to the Cabinet Office — despite Carillion being a designated "Strategic Supplier" with over 450 government contracts.
March 2017: Three months before the profit warning, Carillion's board approves a final dividend for 2016. At this point, directors were subsequently found to have been aware of the deteriorating financial position. The Parliamentary inquiry found that the board "chose short-term gains over the long-term sustainability of the company."
15 January 2018: Carillion enters compulsory liquidation. At the point of collapse: £29 million in cash, nearly £7 billion in liabilities, a pension deficit ultimately estimated at between £800 million and £990 million, 43,000 employees globally, 30,000 suppliers and sub-contractors owed approximately £2 billion. The day before applying for liquidation, Carillion paid £6.4 million to twelve advisory firms.
2026: The FCA fines former CEO Richard Howson £237,000 and former finance directors Richard Adam £232,800 and Zafar Khan £138,900 for misleading investors. Eight years after the collapse, the regulatory accountability process concludes.
The Parliamentary inquiry's description of the directors as "delusional characters" who "maintained that everything was hunky dory until it all went suddenly and unforeseeably wrong" captures the testimony, but not quite the mechanism. The board was not delusional in the clinical sense. It was operating in a governance structure that had no functional pathway for cash reality, pension reality, or contract-level risk to reach the people responsible for dividend decisions — as an integrated, consolidated, actionable picture of the organisation's true financial position.
"Carillion's rise and spectacular fall was a story of recklessness, hubris and greed. Its business model was a relentless dash for cash, driven by acquisitions, rising debt, expansion into new markets and exploitation of suppliers. It presented accounts that misrepresented the reality of the business, and increased its dividend every year, come what may. Long-term obligations, such as adequately funding its pension schemes, were treated with contempt."
The Five NAVETRA™ Domains That Were Failing
NAVETRA™ measures the ten organisational and human domains that determine whether governance functions in practice. Carillion's failure was not a single decision going wrong. It was the structural absence of the conditions that would have made the right decisions possible — and made the wrong ones visible before they became irreversible. Five domains were failing, simultaneously, for years before the collapse.
Are the board and executive team operating from the same shared, accurate picture of the organisation's financial reality — or is the board approving dividends and bonuses on the basis of reported figures that do not reflect the underlying position?
At Carillion: the board approved a record £79 million dividend in 2016 — the same year the pension deficit exceeded the balance sheet equity. Board minutes from 2015 show that the UBS analysis linking the pension deficit and the reverse factoring to the true debt position was described as "disappointing" — meaning the board saw the analysis, understood its implications for their reported figures, and continued on the same course. When Flannery succeeded as interim CEO post-profit warning, he was subsequently described by MPs as having "only a vague grasp of finances." Leadership Alignment failure at Carillion was not a failure of the board to receive information. It was a failure of the board to require that information to be complete, reconciled, and actionable before approving decisions that were draining the organisation of its remaining liquidity.
Is the organisation structurally aligned toward its long-term sustainability — or has an internal culture formed in which short-term financial performance, dividend continuity, and executive compensation are the actual operating priorities, regardless of what the stated values claim?
At Carillion: the Parliamentary inquiry found that "amid a jutting mountain range of volatile financial performance charts, dividend payments stand out as a generous, reliable and steady incline." The board increased the dividend every year "come what may" — in years of declining margin, growing debt, pension deficit, and loss-making acquisitions. The CFO allocation decision — choosing between pension funding, dividends, and reinvestment under constrained cash flow — was resolved every year in favour of dividends and bonuses. This was not an accident of strategy. It was an organisational alignment problem: the entire internal culture was structured around the dividend narrative as the primary measure of health, which made every internal decision that contradicted that narrative structurally difficult to escalate.
Are operations, finance, the board, and external parties — pension trustees, regulators, major shareholders — working from a shared, integrated picture of risk? Or is each function holding a partial view that, taken separately, doesn't trigger action — but combined, would make the solvency risk undeniable?
At Carillion: the Qatar contract was generating £200 million in unpaid bills that the CEO was personally chasing on ten visits per year — described in testimony as feeling "like a bailiff." This operational cash reality was not reaching the board as a consolidated risk that affected the sustainability of the dividend. The pension trustees were raising concerns independently to The Pensions Regulator — not to the board as an integrated financial risk. The major institutional shareholder Aberdeen Standard Investments had begun selling its 12% stake in 2015 because it was "suspicious of Carillion's growing debt" — information that was visible in the market, but was not held by the board as an integrated signal requiring action. Cross-Functional Alignment failure at Carillion meant that operations knew the cash wasn't arriving, finance knew the debt was growing, trustees knew the pension was underfunded, and shareholders were leaving — but no governance mechanism assembled these into a single picture that forced a decision.
Does the organisation have the structural independence and escalation paths to surface financial, operational, and pension risk to the board — including risks that are inconvenient to the prevailing dividend narrative — before they reach a point of no return?
At Carillion: the reverse factoring mechanism was not disclosed in a way that enabled the board — or external analysts — to understand its scale as financial debt. The Pensions Regulator, which had received concerns from trustees as early as 2010 and 2013, was branded by the Parliamentary inquiry as "chronically passive." The auditor KPMG — which the Official Receiver subsequently sued for £1.3 billion in damages — signed off on accounts that MPs later called "increasingly fantastical figures." KPMG maintained the £329 million goodwill valuation of the Eaga business through five consecutive years of losses, enabling the continued payment of dividends that the underlying cash position could not support. The Financial Reporting Council was branded alongside the Pensions Regulator as "chronically passive." Internal Risk Management failure at Carillion was systemic: the risk function, the audit function, the pension regulator, and the statutory auditor all processed signals independently without assembling the integrated picture that would have compelled action.
Is the knowledge that exists about the organisation's true financial position — in operations, in contracts, in pension schemes, in external market signals — travelling to the board in a form that is complete, reconciled, and actionable?
At Carillion: the Insolvency Service's chief executive, reviewing Carillion's 326-company group structure after collapse, described the company's record-keeping as having "incredibly poor standards" — making it difficult to identify information that should have been "absolutely, straightforwardly available," including something as basic as a list of directors. The Parliamentary inquiry found that shareholders including Kiltearn, Standard Life, and Letko Brosseau had repeatedly raised concerns with directors about debt levels, pension deficits, and the sustainability of the dividend model — and received responses that MPs characterised as "contemptuous." When concern about contract profitability, pension underfunding, reverse factoring debt, goodwill impairment, and cash flow constraints existed simultaneously in the business, in the pension schemes, in the market, and in shareholder correspondence — but no governance architecture required that knowledge to be assembled and presented to the board as an integrated solvency risk — Knowledge Transfer had structurally failed.
The Hidden Debt — A Governance Failure in Accounting Form
The reverse factoring mechanism deserves particular attention because it is not merely an accounting technicality. It is a governance failure expressed in accounting form.
Under Carillion's Early Payment Facility, suppliers were forced to accept standard payment terms of 120 days — or pay a discount to receive early payment through the Santander-operated facility. Carillion then owed that money to the banks, not to suppliers, but classified it as "other creditors" rather than financial debt. The result: "other creditors" grew from £263 million in 2012 to £761 million in 2016 while the "trade payables" line remained relatively stable — creating a picture of improving working capital management that was the mirror image of the actual deterioration.
The board saw the UBS analysis in 2015 that revealed the true debt position. Board minutes recorded it as "disappointing." The company was the most heavily shorted stock in the market in December 2016. Aberdeen Standard had been selling its position for two years. The pension trustees had been raising concerns since 2010. The FCA fines issued in 2026 — eight years after the collapse — found that the executives had been "aware of serious financial troubles" and failed to "respond appropriately to the warning signs."
None of these signals produced action at board level because none of them had a governance architecture that required them to be assembled into a single, reconciled picture of solvency risk that the board was obligated to respond to — before approving another year of dividends and bonuses.
£554 million paid in dividends across eight years. £333 million more in dividends than cash generated. A pension deficit that exceeded balance sheet equity. £498 million in debt hidden as "other creditors." A record dividend paid in 2016. A profit warning that destroyed 70% of the share price in 2017. Compulsory liquidation in 2018. Carillion is not a story about reckless executives — though the FCA's eventual fines confirm the executives misled investors. It is a story about a board that had no NAVETRA™-equivalent: no independent mechanism for assembling the leadership alignment, organisational alignment, cross-functional, internal risk, and knowledge transfer signals into a single, reconciled picture of what was actually happening. The board approved dividends it had no structural mechanism to challenge.
MPs called them delusional. The governance record shows they were structurally blind.
The Question for Every Infrastructure and Construction Board
Carillion's failure pattern is particularly instructive for construction and infrastructure companies because the governance vulnerabilities it exposed are structural features of the sector: long-cycle contracts with uncertain cash flows, pension obligations that accumulate over decades, thin margins that require high volumes to remain viable, and a supply chain dependency that creates systemic risk when liquidity tightens.
A board that approves dividends on the basis of reported figures that do not include the full debt position — because the risk architecture doesn't require that consolidation — is not making a bad decision. It is failing to make a decision at all, because the information it needs to make the decision has no governance path to reach it.
NAVETRA™ measures the structural conditions that determine whether a board is receiving a true and complete picture of the organisation it governs. At Carillion, five domains were failing simultaneously — Leadership Alignment, Organisational Alignment, Cross-Functional Alignment, Internal Risk Management, and Knowledge Transfer Gaps — for years before the collapse. None of them was measured. None of them triggered an intervention. The result was 27,000 pension scheme members, 43,000 employees, and 30,000 suppliers left to discover that the "financially strong" company they had been assured of was, in fact, £7 billion in debt and days from extinction.
The dividend was the governance story Carillion was telling. The cash was the governance story that was true. No mechanism existed to make the board see both at the same time.