Fairness and executive pay

Question

Context - The Carillion Case

Fairness and executive pay
“Richard Adam, as Finance Director between 2007 and 2016, was the architect of Carillion’s aggressive accounting policies. He, more than anyone else, would have been aware of the unsustainability of the company’s approach. His voluntary departure at the end of 2016 was, for him, perfectly timed. He then sold all his Carillion shares for £776,000 just before the wheels began very publicly coming off and their value plummeted. These were the actions of a man who knew exactly where the company was heading once it was no longer propped up by his accounting tricks.”1

Richard Adam’s total remuneration from Carillion for 2016 was £1,060,000,2 at a time when the
Median weekly earnings for full-time employees in the United Kingdom was £538.60.3

Accounting and ethical failure
“KMPG was paid £29 million to act as Carillion’s auditor for 19 years. It did not once qualify its audit opinion, complacently signing off the directors’ increasingly fantastical figures. In failing to exercise professional scepticism towards Carillion’s accounting judgements over the course of its tenure as Carilion’s auditor, KPMG was complicit in them. … Carillion paid other big- name firms as badges of credibility in return for lucrative fees. Deloitte, paid over £10 million by the company to act as its internal auditor, failed in its risk management and financial controls role. EY was paid £10.8 million for six months of failed turnaround advice. … The key regulators, the Financial Reporting Council (FRC) and the Pensions Regulator (TPR), were united in their feebleness and timidity. The FRC identified concerns in the Carillion accounts in 2015 but failed to follow them up. … KPMG’s audits of Carillion were not isolated failures, but symptomatic of a market which works for the Big Four firms but fails the wider economy. There are conflicts of interest at every turn.4

1. House of Commons (2018) Carillion - Second Joint report from the Business, Energy and Industrial
   Strategy and Work and Pensions Committees of Session 2017– 19, p. 46:
   https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/769/769.pdf
2. Carillion plc, Annual Report & Accounts 2016, p. 66:https://find-and-update.company- information.service.gov.uk/company/03782379/filing-history?page=4
3. Office for National Statistics:
   https://www.ons.gov.uk/employmentandlabourmarket/peopleinwork/earningsandworkinghours/ bulletins/annualsurveyofhoursandearnings/2021
4. House of Commons (2018) Carillion - Second Joint report from the Business, Energy and Industrial
   Strategy and Work and Pensions Committees of Session 2017– 19, pp. 4-5:
   https://publications.parliament.uk/pa/cm201719/cmselect/cmworpen/769/769.pdf

Required - Provide a report (3,000 words) with two parts:
Element 1
Critically discuss whether the very high levels of remuneration paid to many senior executives is ethically justifiable.
You may consider the question from the perspective of one or more than one ethical theory. However, you should include in your answer consideration of the issue from the perspective of John Rawls’ theory of justice, and comment on the justice of Richard Adam’s remuneration and his deservingness of and proper entitlement to the monies he received from Carillion.
(40%)
Element 2
Critically discuss:

1. the suggestion that the ethical failures of accountants played an important part in the collapse of Carillion;
2. the claim that the ethical failings of accountants tend to be systematic, rather than isolated incidents;
3. how the accounting profession might best be reformed or developed, so as to avoid entanglement in scandals, such as the Carillion collapse, in future.
   You should illustrate your discussion with reference to the Carillion case, where appropriate, and explore of notion of “ethical failure” in context of at least two ethical theories you have studied in this course.
   (60%)

Word Limit
The word limit of the report is 3,000 words, taking elements 1 and 2 together, excluding your reference list.
Please note that this is an absolute maximum – there is no additional 10% over the 3,000 word limit. Submissions that are significantly shorter than the word limit are unlikely to address the question fully. Submissions that do not balance the allocation of words between the elements roughly in proportion
to their assessment weighting (40% to Element 1 and 60% to Element 2) are unlikely to address both elements adequately.

Intended Learning Outcomes (ILOs) addressed by this assessment

The coursework is designed to assess the following ILOs:

1. Explain and critically evaluate the ethical foundations upon which accounting and business practice is based.
2. Explain and critically discuss the factors (including psychological factors) that do and should influence ethical decision making within the context of business organisations.
3. Describe and critically evaluate a number of different ethical theories and apply those theories in the analysis of accounting and business ethics issues and dilemmas.
4. Analyse accounting and business situations from an ethical perspective, identifying the key ethical issues emerging and analysing the problem using a variety of ethical theories.
5. Articulate and critically reflect on your own ethical commitments in relation to a chosen ethical issue.
6. Critically evaluate the role that the professions play in maintaining ethical standards in accounting and business contexts.

Assessment criteria

Structure Effectiveness of Introduction including clear statement of aims and approach
Quality / coherence of arguments and logical progression through material
Logical conclusions that relate to, and stem from, previous discussion

Content Understanding and critical application of ethical theory in the context of the issues and case under consideration.
Convincing and appropriate use of the case, with clear identification of ethical issues and their significance.
Understanding of the ethical challenges facing the profession, key past ethical failings, and important steps that can be taken in response.
Application of an appropriate evaluative framework for analysis of the ethical challenges facing the profession and its response to them.

Literature Identification and use of relevant literature
Quality and breadth of reading
For this assignment, a range of sources, including academic journal articles, reports and media sources are acceptable.
Correct use of quotation marks and citation / referencing of sources

Presentation Style and quality of presentation
Clarity and conciseness
Originality