There is a culture of financial deviance at the heart of the UK construction sector.
That is just one of the key take-aways from research carried out by the London South Bank University into the collapse of industry giant Carillion.
The demise of Carillion at the beginning of 2018 was the UK’s biggest corporate failure in decades, affecting hundreds of thousands of people across the country. More than 3,000 jobs were lost at the company, and the collapse affected 75,000 people working in its supply chain.
The new research into that collapse shows that individuals and teams in the wider construction sector often “accommodate, explain away or normalise discrepancies and problems.”
These factors can result in a company not following codes of practice while failing to anticipate and manage a wide range of potential structural internal crises.
The researchers have exposed what they claim to be “the most common deviant practices” and identified three distinct types of ‘normalisation of deviance’ that existed within Carillion before the corporation’s collapse that could also be prevalent in the wider construction sector. These are:
- Late payment of suppliers
- Aggressive Accounting
- Auditors failing to identify problems
The researchers categorised these three types of ‘normalisation 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 ‘normalisation 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 pressurised 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 ‘normalised 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 ‘normalised deviance’ and its damaging consequences in future.’’
