DISCUSSION Carillion and its advisors: partners or observers in adversity?

by Mark Goyder _______23rd May 2018

Over 25 years ago I spent a fascinating week in Silicon Valley, invited by an English venture capitalist to go and meet Intuit and Sequoia Capital and other important valley people. I was struck by the way the law firms and investment advisors worked for start-ups for free, in exchange for an equity stake which would pay off handsomely if the venture was successful.

Contrast this with the dynamics of the relationship between advisers and established UK companies like Carillion. Here, my sense is that listed companies feel obliged to pay very large fees and retainers to advisors, but when things go wrong, there is no equivalent sense that the advisor has skin in the game, and therefore an extra incentive to help save the business.

I’m therefore intrigued that, according to the Financial Times, Slaughter and May and the investment banks Lazard and Morgan Stanley have been asked by MPs to give details of their relationship with the collapsed company Carillion. We all have an interest in the survival and revival of companies like Carillion

I would like those MPs like Frank Field and Rachel Reeves to ask simple questions like:

You’ve worked with Carillion as a client for a long time. How do you see your obligations to them? When they started to get into trouble, was there a discussion about deferring payment of some of the fees involved? Or did you become less patient, in the light of your anxieties about their ability to pay you?

And we should all be asking questions like:

What might we learn from the Carillion story about the relationship between advisors and the listed companies who are their clients? Could a different relationship between client and advisor lead to a better result? What if a small proportion of the fees you were paid in the fat years were set aside into a fund that could be called on in times of crisis?

And the most important question of all:

What might we change in advisor relationships to make it more likely that in future a Carillion might survive?