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The CEO’s view of Corporate Accountability

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“Where now for Corporate Accountability?”

This was just one of the headlines following the collapse of Carillion in January 2018.

September 2019’s collapse of Thomas Cook, involving the largest peacetime repatriation effort in British History, begs the same question. Probably even more so, as many are questioning if there has been any real change in Corporate Accountability post Carillion. Similarly questions of who was held to account for Carillion and who will be held to account for Thomas Cook are being raised.

In a previous discussion in our series of lunchtime events, held specifically for NEDs, the discussion around corporate accountability was lively. So much so, we decided to table the same topic for our CEO guests.

Where must corporate accountability change and how can Boards prevent these collapses? What has to change in your view? Also how accountable should individual Board members (Executive and Non-Executive) be when businesses collapse?

David Bird, former CEO of Co-operative Energy:

A number of these high profile failures could in fact be seen coming a long way off but the way the question is phrased almost implies that companies should not fail. A key part of operating in a market economy is that successful firms survive while poor ones collapse. Perhaps there should have been more accountability in finding alternative solutions, prior to collapse. We have to accept that these were very big company collapses but lots of smaller companies go bust all the time. Nobody sees this as an issue although it has the same knock on effects for their suppliers, staff and communities. We should not just focus on the large companies but see it all as part of a wider market economy and look at safe guards as a whole.

Jeremy Long, CEO of MTR Corporation:

The balance when it comes to risk management for any business is an interesting one. Although hindsight is 20/20 vision, some decisions were ‘correctly judged’ when made. The balance which needs to be struck in any business is about the natural and healthy tension which should exist between those in the senior leadership team who may be very cautious and their counterparts who are maybe not. Today, most managers are very conscious of risk and therefore, if a business is in a very precarious position through no fault of their own, there may be a case for indemnities or waivers so that difficult decisions can be made.

Paul Ludlow, President of P&O Cruises:

The robustness of the auditing function seems to have raised questions both from an internal and external perspective, in that they were allowed to continue to report in the way they did – both in the accounting of goodwill, which has been widely reported and also as reported that they may have been operating using other peoples’ money. In effect, by operating on the payment terms they had with suppliers, e.g. hoteliers. This could have been systemic for a long time, as highlighted when a previous CEO was asked a direct question on the topic by the Commons Select Committee.

Even now after the rigorous review process, unfortunately, in terms of finding an outcome from a Corporate Accountability perspective, there may be none, despite the cascade effect this has had on suppliers and ultimately consumer confidence both now and into the future.

Bill Toner, CEO of CH&Co:

The scenario around Carillion was very similar. In an example from a while ago, we ran big group contracting services and our client had sub contracted to Carillion who in turn said this is the price you now need to do it for and by the way our credit terms are 160 days. We said no to the price and the credit terms and walked away from a very big deal. It was endemic as in, is this the way you now have to do business? The Carillion board should have known what was happening and that ultimately they were staying afloat with other peoples’ money. It is fundamentally wrong and hence if this could have been seen clearly by third party suppliers on the outside, then the Board should have been able to see it from the inside. Changes should have been made but sadly Thomas Cook and Carillion were too far gone.  The fact is you cannot run a business using other people’s money.

Paul Ludlow (P&O) agreed by adding, with companies like Thomas Cook, they would defer payments by three extra days at year end so they could report more cash than they actually had. Questions should have been asked of the auditors with regards to their role in this. 

“So whose role is it to address these issues, Executives or NEDs?”

Mark Arnold, Group CEO, The North Group:

Mark works in Financial Services and has recently returned to UK after 15 years overseas. He has returned into a world operating under the “Senior Managers Regime”. This makes it very clear for both the Executive and Non-Executive, where accountability lies for each individual’s role. Although accountabilities are much clearer than they were in 2008 the impact of the regime is people won’t take risks around new products and business ventures for fear of running counter to the regime. It is however, a very safe environment and the accountability is there.

Damian Lenihan, CEO for Aetna Insurance Company:

Concurred with Mark’s points; the regulation they are working under is extreme and everyone in his organisation knows their responsibility. The downside is, it does make people avoid risk, in fact, “I would say we take very few risks now”. Everyone is concerned about their reputation and what could happen to them individually if something goes wrong.

Karin Sheppard, MD Europe, Intercontinental Hotels Group plc:

If there is sufficient transparency around potential risks then corporations should be able to take the appropriate risk in order to strive. Also there is a difference between risks related to a project in one part of the business versus risks that effect the whole of the business. It is the latter levels of risk that the Board and the auditors should be watching carefully.  

At the end of the day, one needs to be able to look in the mirror and know you did the right thing. Businesses need people who will not cross those lines.

Mark Fox, CEO of RoadChef Motorways:

It is interesting that people looked at these businesses and decided to do less with them as suppliers. That seems shrewd. However it is not always that clear; e.g. the hospitality industry questioned how Patisserie Valerie could achieve such “great EBITDA numbers and growth”. Clearly they were not achieving at the published levels they led the market to believe. If it was a private business, one might take these numbers with a pinch of salt but Patisserie Valerie’s numbers were going to the market which pertains to the point on auditors.

Thomas Cook should perhaps have been allowed to fail gracefully so is a Chapter 11 equivalent right for this market?

Mark Fox continued:

You could argue that the use of CVAs is a sort of equivalent (to Chapter 11), in particular in the retail market. Historically their use was rare but over the last five years their use has increased significantly and to the benefit of many companies. However the market can become distorted with CVAs being used to create competitive advantage in terms of reducing commercial rents which in turn impacts property values.

Karin Sheppard:

It is important to hold auditors to account but it comes back to the principle of what is the role of a board? It is not good enough to say you passed it along to the auditors thereby deflecting accountability.

Should the Auditors be held to account?

Paul Ludlow:

Company culture is an important factor. For example the CEO of Thomas Cook will have driven the culture which in turn drives behaviours. Some of the people responsible for creating the vision were probably doing what they thought would give the best results. Many of those who might have spoken up because they saw things differently, were under enormous pressure not to.

Bill Toner:

It is questionable to what extent NEDs can turn up and compute a month‘s worth of history from the Board papers. While it is down to individuals, the ability for anyone to decipher what’s being presented to them monthly, is almost impossible. As such they can only play a role. 

Keith Greenfield, CEO Whitelink Ferries:

In fairness, the problems that both Carillion and Thomas Cook had suffered were endemic and had been for years and was a whole way of doing business. It doesn’t need an NED to be fully up to speed with the details of any particular month’s performance to be able to stand back and say, this is not looking right. A good NED would flag up things like this and would put their reputation as an NED ahead of the risk of being fired. 

Keith Greenfield continued:

We should not be too prescriptive about the failure of businesses. With regards to the suggestion that directors of companies that fail should not be allowed to sit on future boards. A lot of small and start-up companies will fail and with this idea, no-one would sit on these boards. Any control or regulation should not apply to small start-ups in the same way they might to a company with tens of thousands of employees.

David Bird:

The Patisserie Valerie situation sounds more like fraud and a distinct cover-up and as an NED working a few days a month you are unlikely to cut through that. Conversely in the public sector the time commitment for NEDs almost makes it full time. Having also known one of the NEDs at Carillion, brought in to try and resolve the situation six months before it collapsed; it seems unfair in this example to say or suggest he could never sit on a plc board again.

Jeremy Long:

To an extent you could say we are debating what might be called overt risk versus covert risk – either accidental or deliberate. It could be covert risk right at the top where the MD or CEO is concealing that risk from others or conversely, might be risk hidden within the organisation from the senior management.

Smaller businesses or divisions trying to get a new product to market, may be risky, but if this is overt risk, then investors are able to assess that risk, and then say go for it if they wish. It’s the covert risk which needs to be better identified and a judgement made on whether there is any concealment around the risk assessments.

It begs the question what is the role of the NED and should the number of days an NED devotes to a business be regulated?

Karen Wilson, CEO of Hoggett Bowers:

We raised this whole topic at our recent Chair and NED lunch. Some of the themes were very similar. One of the big areas though, that the Chairs and NEDs focused on, particularly as a number of them came from a finance background, was around the role of the CEOs and CFOs in relation to adjusted profits. With Thomas Cook, a lot of adjusted profits were put through. In the case of Carillion, there were at least 9 significant projects where there were accruals and all sort of adjustments to the stated profits. How much of the responsibility sits with the CEOs and the CFOs of these businesses when they are recording adjusted profits as opposed to traditional accounting profits? One NED told me he reads the notes to the numbers before even looking at the numbers and another told me she was fed up with getting to page 122 of the accounts before seeing real figures.

Keith Greenfield:

Profit might be more difficult to get to the bottom of but cash is very clear isn’t it? It’s there in black and white and all these businesses that go bust, go bust because of cash.

CEO Retail Sector:

There is certainly a role for the Chair and NEDs to challenge Executives and, if they are dotting the I’s and crossing the T’s, surely that is both beneficial and what they are paid to do. There is a fundamental difference between reading the board notes and believing them verbatim. NEDs should read the information and question it and go and talk to the workforce and find out how things are going. This provides invaluable triangulation of information.


The Chair thanked everybody for attending the lunch and for contributing to a lively debate around corporate accountability. In terms of encapsulating the key points of the discussion, there was a consensus around the view that in market economies successful firms will survive while poor ones will fail. Common factors around high profile failures such as Carillion and Thomas Cook included poor corporate governance with blame attributable to both Executive and Non-Executive Directors as well as the Auditors. However, to simply debar those who have sat on failed boards from future Executive or NED roles would be rash and naïve as no one would risk joining a start-up for example. Market forces combined with pragmatic and sensible regulation would appear to be the preferred solution.