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 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.
LSBU’s 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 that 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.
Deviance embedded in the sector
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 results sound an alarm bell and call for structural reform of the construction industry to prevent the negative effects of corporate deviance.
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.
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.
“Our research shows that ‘normalized deviance’ has always been present in the construction sector.” – Dr Hajikazemi
Dr Sara Hajikazemi added: “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.’’
Carillion posted huge profits, ie £200m per year for the 5 years running up to the collapse. This is money leaving the business as profit. That’s £1bn over 5 years.
This is way higher than any other construction company, most reporting small profit or loss of single figure millions during those years.
Then suddenly Carillion go bust owing £1bn. This really isnt rocket science.
“OUR RESEARCH SHOWS THAT ‘NORMALIZED DEVIANCE’ HAS ALWAYS BEEN PRESENT IN THE CONSTRUCTION SECTOR.” – DR HAJIKAZEMI
Dr Hajikazemi’s term ‘normalized deviant behaviour’ was certainly present in Carillion as far back as 2006. When they took over Mowlem we experienced first hand that there was a huge difference in the culture and its personnel, operational and commercial practices between what Carillion said they did and what they actually did. From supply chain (late) payment practices to centralised ‘supply chain management, ‘Low Cost Country sourcing ‘ (Buying second rate goods from China) and poor construction management they were an entirely dysfunctional corporation akin to a Soviet central committee defying financial gravity by recycling 5 year plans based on half truths and purging anyone senior who espoused a contrary view.