Collapse of Carillion exposes corporate deviance at heart of construction sector

The collapse of corporate giant Carillion in January 2018, highlights a culture of financial deviance embedded at the heart of the UK construction sector, according to research by London South Bank University (LSBU).

The research shows that, following the collapse of a major financial institution like Carillion, individuals and teams in the wider construction sector, often accommodate, explain away or normalize discrepancies and problems. These become part of a culture which unintentionally reduces awareness of the potential consequences of that deviant behaviour. Taken together, these factors can result in a company not following codes of practice while failing to anticipate and manage a wide range of potential reputational issues and structural internal crises.

By performing a qualitative analysis on the collapse of construction giant, Carillion, the researchers have exposed the most common deviant practices and sources of ‘normalization of deviance’ embedded in the sector. The findings suggest that ‘normalization of deviance’ lies not only internally, but also externally, in the wider industry environment in which construction organizations operate. The results sound an alarm bell and call for structural reform of the construction industry to prevent the negative effects of corporate deviance.

The research detected three distinct types of ‘normalization of deviance’ that existed within Carillion before the corporation’s collapse that could also be prevalent in the wider construction sector:

·       Late payment to suppliers;

·       Aggressive accounting;

·       Auditors failing to identify problems.

The researchers categorized these three types of ‘normalization of deviance’ as internal or external, depending on whether they related to the company under observation or its main stakeholders. They observed that, while in hindsight, these practices could be viewed as unacceptable, their emergence was a gradual process that took place over several years. This pattern of corporate behaviour indicates that ‘normalization of deviance’ is likely to be embedded in corporate culture and very difficult to detect in the initial stages of its development.

The researchers found that the business characteristics in the construction industry, with its highly competitive and pressurized culture, low profit margins, complex and uncertain undertakings, have all contributed to the emergence of questionable business practices.

The research project is led by Dr Sara Hajikazemi, Senior Lecturer in Project Management at LSBU’s Business School, in collaboration with co-authors from the Norwegian University of Science and Technology and Nord University in Norway, and the University of Oulu and Tampere University in Finland.

Dr Sara Hajikazemi, said, “Our research shows that ‘normalized deviance’ has always been present in the construction sector.

“What is concerning is that, as happened with Carillion, construction companies currently lack an early warning system that could alert them to emerging signs of deviant corporate behaviour and malpractice. This means that the construction industry is still likely to be at risk of falling prey to ‘normalized deviance’ and its damaging consequences in future.’’