Should Sir Fred Goodwin surrender some of his pension to appease the government and the public? Whilst it is an emotive subject I have an alternative view that Sir Fred’s contract was known about by the government at the outset of the troubles and they have played both sides of the fence in an attempt to look good in the eyes of both the banking community and the electorate. When their flawed strategy backfired they have tried to make Sir Fred the ‘bad person’, whereas the government leaders may want to look more inwardly.
For me the question is not whether Sir Fred Goodwin should surrender some of his pension. The question is whether Sir Fred Goodwin should rescue the poor leadership displayed by the government at his own expense. Instead he has highlighted the failings of these individuals and I think he is going to enjoy his retirement whilst watching the fallout.
Leadership with integrity?
I have written before about the importance of senior leaders displaying leadership with integrity. I have also acknowledged the difficulty of this kind of leadership, as human beings are involved together with all of their failings. Unfortunately, it becomes all too apparent when ingenuous leadership is shown, especially in times of difficulty and as an example of this I am going to look at the way the government has dealt with the financial bailout of one of the major banks, together with the fallout from one of the Chief executives.
The brief facts are that in October last year it became apparent that the government would have to inject £37 billion of taxpayers’ money to support the Royal Bank of Scotland (RBS), Lloyds TSB and Halifax Bank of Scotland (HBOS). £5 billion of this was going to RBS.
On 8th October 2008 it was announced that the Chief Executive, Sir Fred Goodwin, and Chairman, Sir Tom McKillop, were to leave the bank and be replaced by Stephen Hester and Sir Philip Hampton, respectively. Within weeks the amount of money being pumped into RBS had risen to £33 billion.
In February 2009 there was public condemnation of Sir Fred Goodwin for taking an enormous pension, reportedly in excess of £650,000 per annum. The government asked him to reduce the amount, in light of the amount of public money put into RBS and Sir Fred refused. In March the Prime Minister said that he was going to look in to whether the government could make a legal challenge to this pension.
Now let me look at the ingenuous leadership shown by senior members of the government, where a number of ‘clichés’ become relevant. The first is that a leader cannot run with the hare and hunt with the hounds. Clearly the government had to make a difficult decision to use public money to support the banks and this decision was never going to be popular with the public. Neither was it going to be popular with the boards and Chief Executives of the banks, who would have to acknowledge the failures of the banking system. So, there were tough words from Gordon Brown about how the government would make sure that the taxpayers got their money back, to appease the mass electorate (the hounds) and conciliatory discussions with the banking bosses (the hare) by the Treasury.
Treasury Minister, Lord Myners oversaw this bank bailout and seems to have forgotten the next cliché that he who pays the piper calls the tune. On 8th October 2008, at the same time that it was announced that Sir Fred would be leaving RBS it was reported that, “as part of the deal with Government, there will be a future cap on executive pay and shareholder dividends.” Lord Myners could have quite legitimately discussed the contracts of these executives with them, although whether he could have lawfully amended them would depend on the terms of the bailout. He could have acknowledged that you cannot please all of the people all of the time, been honest and, if the contracts of these executives were watertight, he could have said so.
Later, when the amount of Sir Fred’s pension became known, Lord Myners asked him to return some of it, reportedly saying, “that the scale of his pension was something which people would find extraordinary in the circumstances of a company that had just reported such losses.” After Sir Fred had declined Lord Myners allegedly put in a letter that this refusal was unfortunate and unacceptable. Has anyone considered who leaked the amount of Sir Fred’s pension to the media and why they leaked it? It’s not something that he is likely to have publicised personally.
Lord Myners has now put himself into a more difficult position. If Lord Myners did not look into the contracts of these executives then he appears incompetent and if he did know about them, then asking Sir Fred for some of it back, to save face, doesn’t seem to be fair. It is no good crying over spilt milk. This raises a question of whether Gordon Brown’s tough talk is a way of covering the fact that he didn’t know what his Treasury Minister was doing or whether he was complicit in the decisions too. Sir Fred Goodwin is not rushing to their aide and why should he?
Isn’t it noticeable how, during the good times, the government were happy to ally themselves to this banking system but were very quick to criticise it when things took a downturn. Never once has any member of government accepted any of the responsibility, through poor leadership. What they are doing now is displaying leadership that questions their integrity.
Daily Telegraph 8th October 2008
Wall Street Journal 28th February 2009