Good governance is key to corporate success: Lessons from Carillion fall

In early 2026, Richard Howson, former CEO at Carillion, was fined £237,000 by Britain’s Financial Conduct Authority. The penalty was in response to Howson being aware of serious financial troubles at Carillion during his time at the helm but failing to “respond appropriately to the warning signs”.

It also follows similar fines issued weeks earlier to former finance directors Richard Adam (£232,800) and Zafar Khan (£138,900) for misleading investors.

The latest fines are a good opportunity to look back at what went wrong and what we can take from it as a governance perspective going forward. But exactly what happened? Established through a de-merger in 1999, Carillion grew rapidly with major acquisitions of similar companies like Mowlem and Alfred McAlpine. Many of these acquisitions included goodwill payments.

These were part of the aggressive expansion tactics, silencing any competition, and were justified as investments because of positive financial outlooks. When those outlooks didn’t materialise, Carillion took years to record the payments as losses.

In the end, the company was estimated to have £1.57 billion worth of goodwill payments on its books: a value that didn’t exist.

The 2011 acquisition of Eaga for £306 million aimed to diversify the firm into green energy. Still, it resulted in five years of losses totalling £260 million, wiping out cash reserves.

The firm hid around £500 million in debt through a sophisticated accounting mechanism called the early payment facility, which was essentially able to classify these debts as “trade payables”.

Years of financial mismanagement came to a head in July 2017 when a contract write-down decreased the company’s value by £845 million (or 70 percent). Further, similar shocks occurred later that year. The share price collapsed. Carillion’s downfall was years in the making and fuelled by a culture that completely ignored the idea of long-term sustainability.

In the eyes of the people in charge, looking strong and having immediate market success outweighed any desire to safeguard the broader future of the company. The aggressive accounting policies were a main contributor.

These practices reeked of over-optimism and a severe lack of in-depth questioning or strategy. So many business collapses have started with this kind of attitude.

The board’s ultimate goal is its fiduciary responsibility to stakeholders. In Carillion’s case, it failed in this responsibility. The company’s non-executive directors acted more like tick-boxers and cheerleaders than the scrutineers they were supposed to be.

The Carillion collapse is a cautionary tale, not just for big companies, but for any company that prioritises short-term market success over long-term sustainability.

Board independence is vital, especially in such an influential company, which depends on major contracts for success. If the board had asked tougher questions and commissioned more independent audits, it may have had a clearer picture of the company’s risk profile.

The board should have never allowed the clear “hands-off” culture around financials to develop. It didn’t gain enough information in time, and when it had the information, it didn’t act on it.

If you do things this way, you increase the risk that everything will come to a shuddering halt at some point in the future.

The fines for some of Carillion’s leaders in 2026 show the level of personal scrutiny regulators are prepared to pursue to correct past wrongdoings. They should serve as a warning to any corporate leader with a “hands-off” approach to good and effective governance.

The writer is a corporate governance professional and legal counsel