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Carillion: Director bans and bonus repayment proposed

The Institute of Directors (IoD) has responded to the Carillion joint inquiry’s report with proposals that would see individual directors held responsible for mismanagement at companies.

Describing the collapse of Carillion as a “sorry episode in the annals of UK business”, the IoD said the contractor’s liquidation occurred due to weaknesses in key aspects of its governance framework.

The IoD proposed establishing a code of conduct across all businesses that would set out acceptable directorial behaviour.

Those found to breach the rules would in the most severe cases be struck off as directors and barred from similar roles in the future.

The IoD also suggested greater powers to claw back executive bonuses in cases of gross misconduct by changing the UK Corporate Governance Code to be explicit on this point.

Institute of Directors director of policy Edwin Morgan said: “With the responsibilities, and the scrutiny, being placed on the leaders of our large companies growing at a rapid pace, it’s time to consider what can be done to professionalise the role of the director.

“The creation of a professional standards board for directors, with a code of conduct against which individuals could be held to account, would show that the business community was stepping up and taking responsibility.

“While this proposal comes in the wake of high-profile failures, it has a wider application in sharpening the focus on governance and helping directors and boards to show how they are fulfilling their important duties.”

The IoD also proposed the establishment of a public service corporation to oversee all outsourced public sector contracts, which would feature a business-style governance structure.

The institute’s response acknowledged that there had been an effort to tackle the issue of late payment, but said that more significant action would need to be considered if a cultural shift failed to materialise.

On procurement, the IoD argued that processes needed to be simplified and guidance improved to help attract more small businesses.

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