Firms 'doing a Carillion' will murder small businesses, says REED founder James Reed


Source: Getty

There is an adage that the shelf life of a chief executive is around seven years, after which they become complacent and run out of ideas.

The same applies in politics – the third term is about building a legacy, not pushing through drastic, radical reforms.

So on 1 February 2018, 21 years to the day since being handed the baton of chief executive of the Reed group of companies, James Reed, a man often credited as the harbinger of online recruitment, has started a new job.

As chief executive of the Reed group of companies.

“This is my first day in the new job,” he chuckles. “James the First has retired; James the Second started today. I met the three managing directors of our main businesses today, and I played it that I hadn’t met them before, and they were going to tell me about their businesses, their strengths and weaknesses, plans and ideas. It was really good, you just clear your mind. I’ve got a new notebook. I’m finding it quite stimulating.”

Not coincidentally, starting new jobs is the name of his game – he certainly knows a thing or two about recruitment. His is the largest family-owned recruitment firm in the world, turning over £1.2bn a year from 40m job applications. He’s even written a book about interview questions.

I had better make mine good.

Doing a Carillion

Reed is very keen to discuss Carillion – the now-liquidated construction services and facilities management firm was a client of his, until it altered its payment terms and he refused to work with it any longer.

Those who suffer the most from Carillion’s collapse will be the small businesses that won’t get paid, and may collapse as a result. Reed is extremely vocal about big businesses’ unfair treatment of smaller contractors – “bullying” them into accepting 90 and 120 day payment terms, he says, is unacceptable.

James Reed, chairman and executive of REED (Source: Reed)

“I struggle to think that there’s any case for sitting on it for so long. If someone has done the work for you, you should pay them. It’s veryn very damaging to smaller companies. A lot of these firms have been put in jeopardy – had they been paid in 30 or 45 days, their debts would have been half or a third of what they were. And it’s wrecked a lot of businesses.”

In the specific case of Carillion, analysts say small firms are unlikely to be paid what they are owed. Presently the only option a smaller business has is to register as a creditor and engage with the official receiver. But given its £1.5bn debt pile, and the power of its biggest creditors, small firms are unlikely to be a priority.

Clearly a business of Carillion’s size which takes 120 days to pay its smallest contractors is doing so for cashflow reasons. But that should send alarm bells ringing, says Reed.

“I’ve coined this phrase ‘doing a Carillion’,” he says. “If someone says they’re not going to pay for 90 days, I’m going to say: ‘well you’re doing a Carillon’. And that has a sort of double meaning. One that it’s unfair to small businesses, but two, why are you doing this? Maybe we have some other issues behind that.”

Of course, in the case of Carillion, there was an issue under the surface, and Reed was prescient to get out of its orbit unharmed. He realises that the issue of long payment terms isn’t something that’s going to change overnight, but rather is a discussion that needs to be had throughout the business world.

“My thinking is that we should talk about this. It should become commercially unacceptable in the way that drink-driving has become socially unacceptable. Because it’s harmful and it’s selfish and it damages people. I mean the parallel is that drink-driving can kill people, but this practice can kill companies. And this is what we’re seeing now.”

Job’s a good ’un

His Carillion gripe aside, Reed says the UK job market is, by-and-large, something to sing about.

Unemployment is at a four-decade low of 4.3 per cent, but while the job market is buoyant, wage growth is flat. Real wages, growing at just 2.4 per cent, are well short of the 3.1 per cent inflation witnessed due to the weak pound in the wake of the Brexit vote. Despite this Reed is optimistic.

“And I’ll tell you why,” he says. “This year, jobs on our site are up eight per cent. And it was the same at the beginning of last year, up eight per cent. And last year turned out to be a very good year for jobs. We’ve got the same signal at the beginning of this year. Shocks apart, it should turn out well for jobs.”

His primary concern, shared by most of the UK’s working population, is pay. The average real wage is lower now than it was a decade ago, something that Reed has good reason to think will change this year.

“If this trend of record numbers of jobs continues, I would expect pay to rise,” he says. “We’re not recruiting so many people who are out of work now, they’re in jobs, and they’re going to move to another company.

“The company that wants to hire them is going to have to pay a premium to get them to move. So I would expect to see wages rise. I’m hoping that’s going to happen. And I think that needs to happen for the whole economy.”