Ever started a conversation with a stranger or needed an icebreaker in the office? The weather and complimenting attire are stereotypically British starting points. If that doesn’t work, there is one universal language that will – that of gossip! No matter whether it is celebrity bashing, government lashing, or business thrashing, the urge to gossip is tempting to even the most reserved of characters. In this article, we look at some of the juiciest great British business scandals in recent memory.
One in a Carillion
In January 2018, the London Stock Exchange gasped when Carillion Plc announced the largest liquidation in British history. With a £5bn turnover and 43,000 staff, Carillion was the top company for a house of cards spanning four contents. Prior to the collapse, hedge funds had long profited from short-selling the company’s shares; suppliers had extended terms dictated to them, and reverse factoring was utilised. This masked circa £7bn of liabilities in a business deemed too big to fail. Despite warnings from analysts, Crown Representatives continued to ply Carillion with contracts. When government rescue talks failed, the house of cards collapsed. Construction sites and community projects were mothballed overnight. Large suppliers issued profit warnings, and small contractors were left high and dry. It’s no coincidence in the first quarter of Carillion’s liquidation, insolvencies and redundancies in the construction industry increased by 20%. Advocate Commercial Debt Recovery also saw a similar increase in debt collection instructions for CIS subcontractors and suppliers. In the aftermath, directors, auditors and banks were dragged through the mud for their roles.
City Link Christmas Eve Collapse
The path to City Link’s demise on Christmas Eve 2014 began in 2007 when the last franchise site was assimilated back into corporate ownership. As a result, City Link had more depots than it had the capacity to use or service. Parent company Rentokil Initial subsequently sold the loss-making courier to a private equity firm, who paid themselves £350k in consultancy fees as City Link teetered on the brink of collapse. The original plan was to place City Link into administration on 26 December, when there would be just 55k parcels in the network (down from 300k pre-Christmas). The plan was leaked on Christmas Eve, leaving the directors little alternative but to bring the administration forward. Vast numbers of C&D drivers abandoned their routes to limit their losses and held parcels in the lien. Explaining to a child why the highlight of their wish list didn’t arrive, why Santa hadn’t ‘bothered’ or why mum/dad is in pieces on Christmas day was brutal. On New Year’s Eve, administrators rejected a £17m consortium rescue bid, cementing City Link’s fate.
BoJo Covid Contracts
Randox Laboratories was awarded £776.9m of Covid contracts during the pandemic by the Department of Health & Social Care in conjunction with Public Health England. Randox also received upfront capital investment. In 2022 the Committee of Public Accounts published a report into how Randox were awarded 22 contracts during the pandemic. The CPA found significant confusion over the role and authority of civil servants, ministers and the Cabinet Office when reviewing, scrutinising and awarding contracts. The CPA also highlighted a conflict of interest whereby a minister involved in awarding the Randox contracts was also on their payroll. The National Audit Office could not find sufficient audit trails to show compliance or prove misconduct. Randox were unaware the DHSC and PHE were awarding contracts off script, and mostly without a competitive tender process or due diligence. Unlike Carillion and City Link, Randox and its management continue to enjoy an enviable reputation for good reason.
Bankrupt British Home Stores
The loss-making BHS was sold to Retail Acquisitions in 2015 for £1, and its former owner wrote off £215m in the process. RA set about closing stores before engaging a CVA in March 2016, conditional on asset sales and valuations, which then failed to yield the £100m required. Winding down the business cost 11,000 jobs. Creditors totalling £1.3bn ranged from the small boutique giftware company overly dependent on BHS to international distributors and financial institutions. Behind RA stood a serial entrepreneur and thrice bankrupt Dominic Chappell, who, instead of injecting cash, extracted £2.5m by his own admission. In the 3 years following BHS’ collapse Mr Chappell chalked up several reprimands, including a £50k fine from Barkingside Magistrate Court for not cooperating with The Pension Regulator; a £9.5m fine from TPR for his conduct and role in the £571m BHS pension deficit; a 10-year disqualification order; and a 6-year prison sentence for tax evasion. Even if the demise of BHS was inevitable, there must have been a better way for it happen.
Blasts from the Past
In 1980 entrepreneur Asil Nadir took control of London fashion house Polly Peck before building his empire through acquisitions and a stock market flotation. In 1990 a subsidiary company was raided by the Serious Fraud Office. There was a run on PP shares, and the business collapsed. Mr Nadir fled to Cyprus before returning 17 years later only to be found guilty of stealing £29m.
In the 1990s, British Airways paid a £3.5m settlement for two misdemeanours against Virgin Atlantic. The Dirty Tricks campaign involved BA staff hacking Virgin passenger data, offering incentives to rebook with BA, and misinforming passengers of cancelled flights. Operation Barbara involved a dossier of fictitious stories about Virgin Atlantic drip-fed into the press. Virgin Cola also suffered at the hands of a dirty tricks campaign, this time by The Coca-Cola Company, who offered retailers cash in return for exclusivity stocking agreements. In both these scandals, Virgin was targeted because they posed a credible threat to the industry Illuminati.
London’s Barings Bank was brought down by self-confessed rogue trader Nick Lesson in 1995, who went off script in holding stocks rather than selling on for small profits. The Kobe earthquake crashed Asian financial markets revealing the trader’s $1.3bn losses. Incidentally, French bank Société Générale uncovered losses of €4.9bn from their own rogue trader in 2008 and survived! British bank Northern Rock came unstuck when the 2008 financial crash hit, exposing the board for not safeguarding against an aggressive mortgage and borrowing strategy. Savers got wind of trouble, and Northern Rock became the first bank in 150 years to fail because of a run on withdrawals.
When the Chinese government opted not to endorse a joint venture between state-owned SAIC and MG Cars in 2005, the Longbridge manufacturer of reimagined Rovers collapsed, owing £1.4bn. NAC, also Chinese state-owned, then bought the rights to the MG brand, which still exists today. Despite being a profitable business, Phones4U ceased trading when their only remaining network contract expired in 2014. Their demise signalled a seismic shift to direct supply both in-store and online. British supermarket Tesco has had its share of scandals and storms to ride out too. In 2017 Tesco agreed to pay a £129m fine and £85m in compensation to investors for overstating profits by £326m. As of 2022, Tesco is a highly respected business.
Sponsors of Scandal
Scandals can normally be attributed to one or more of the 3 Cs. Competence – or lack of it. Cash – anything from liquidity to bribes, share price targets and profits. Competition – be it the absence of competition or the threat it poses. Carillion, Barings, Northern Rock, and Tesco were about Competence and Cash. City Link and Polly Peck failed due to Cash. Virgin and Phones4U were troubled by their Competition. BHS and MG fell victim to all 3 Cs.
In business, as in life, there will always be decisions which looked right at the time, and then you look back further down the line in despair at making that trade, investing in that deal, or even marrying that certain someone! Hindsight is indeed the mother of all teachers.