By Richard Smith, a recovering capital markets IT expert
We will probably see in the next few days whether the newspapers manage to get the super-injunction by Sir Fred Goodwin, the CEO of failed bank RBS, lifted. Since the facts of the matter, or “speculation” if you will, are now all over the Internet, keeping the super-injunction in place seems pretty pointless, as the Telegraph confirms in Sunday’s Links.
So what’s the real point of this circus? A demonstration of the superiority of the Web over the tabloid press as a mechanism for transmitting salacious tittle-tattle? A grandstanding MP working parliamentary privilege to get a bit of banker-bashing publicity? Naked Capitalism getting into the regulatory arbitrage game and thumbing its nose at the UK court order from the relative safety of its NYC-hosted web server? Or perhaps it is blogger Guido Fawkes sarcastically pointing out that the law is now officially an ass:
So there was this ****** bloke who worked closely with another ****** colleague, they apparently began an adulterous affair not long after the ****ing crisis of 2008. He went to Court to stop it getting out that he had been banging her. Because he is the most notorious ****** of his generation he also banned references to his profession lest he be identified. Guido would be in contempt of Court if he told you his name or profession…
Indeed, the law should not be mocked; but who’s mocking it? The UK certainly needs major overhauls of its privacy (and libel) laws, rather than the current abusive shambles, but in this particular case, one might contend that it’s Sir Fred who’s doing the mocking. This part of a kieronam post calling for a proper privacy law is dead wrong:
So I hope the papers never get to publish any irrelevant details of Fred Goodwin’s private life. Instead they should write about his greed, his irresponsibility and his ultimate failure as a banker, and the harm that he has done to ordinary people. That is all worth publishing again.
Well, I’ll do that, then, by way of a reminder. In the process, you will, I hope, grasp why Fred’s sex life, and this superinjunction nonsense, is very relevant indeed to “his greed, his irresponsibility and his ultimate failure as a banker, and the harm that he has done to ordinary people”, and, indeed has a wider relevance.
- A good 90% of shareholder value was destroyed by dilution and losses during Sir Fred Goodwin’s tenure as Chief Executive 2001-2009, some of it new money introduced via a £12bn share issue in April 2008, a few months before the crisis.
- A £24.1Bn loss, the biggest in UK corporate history, in FY 2008.
- Cumulative losses, FY 2008-2010, £28.8Bn (~$48Bn) . They’re still coming.
- Now RBS is 83% owned by the taxpayer.
Now for the greed. Here’s his remuneration history, from the annual reports
|Year||Salary||Options Exercised||Performance Bonus|
I make that £11,528,000 in cold hard cash, in nine years, plus the “performance bonus”: Fred’s remaining 2 million-odd options, which presumably expired worthless.
By way of consolation, his pension pot, which started 2008 worth a mere £8,370,000, was boosted by an additional £8,260,000, granted by the remuneration committee after it was clear that he had failed miserably and would resign; and, on the other hand, negotiated by Fred, once it was clear to him that his options weren’t going to be in the money any time soon; and then signed off by Lord Myners, the somewhat clueless Treasury minister of the day. So Fred thought that if £12Million in shares wasn’t was the ballpark for his entitlement for the services rendered (listed under “ultimate failure as a banker”), then £8Mn in pension benefits was. One damn way or the other, he’ll get his hands on that cash…
The members of the remuneration committee will be able to say what combination of contract, blandishments, threats, capture and supine habit led to that outcome.
The pension pot was quite a bone of contention: it was going to spit out a £2,700,000 lump sum, plus an income of £555,000 per annum; not too dusty for a 51-year old early retiree with such an eye-popping track record. This didn’t seem quite right to those pesky populists. But it took a cornered Prime Minister with a wave of anger at his back, and voting shares at his disposal, and four months (Feb-June ’09), to unwind the submissiveness of the remuneration committee that had been contentedly “motivating” Fred for a decade, and to overcome a rearguard action by the determinedly entitled Fred himself, who argued, perhaps somewhat insensitively, given his own delivery record, that a contract was a contract.
So, under the less offensive pension agreement established by the P.M., Fred gets to live out the 30+ years of his expected lifespan on a mere £342,500 ($570,000) per annum; plus whatever he’s managed to scrimp out of that £12,500,000 Mn ($20Mn) in salary and cashed-in shares. Oh, and the £2,700,000 lump sum, which he hung on to. All negotiators (except for Fred) declared themselves satisfied with this result. Looks good compared with the standards set by Cayne, Fuld, O’Neal, Prince and Lewis, I suppose.
The harm that he has done to ordinary people? Try RBS’s considerable part in:
- provoking a recession.
- driving the UK debt/GDP ratio from 90% to 160% (RBS contribution: something under half of that, perhaps, in funding commitments, guarantees, and recapitalizations).
- provoking panicky austerity measures that will cost half a million jobs directly, and perhaps the same again indirectly.
So much for greed and failure and the harm that he has done to ordinary people; now for irresponsibility:
- Goodwin took the bank from a position in 2002 where the bank was funding its lending positions fully from deposits, to one in which it required considerable short term funding from wholesale markets (this is what killed Northern Rock and other mortgage banks, and it’s a big part of the HBOS story, too).
- RBS performed something north of 150 acquisitions between 2000 and 2007 – a rate of expansion that guarantees unmanageability. In late 2006 shareholders were so concerned about the likely consequences that they secured Fred’s public promise not to engage in any more big deals; a promise he kept until mid-2007, just when liquidity was vanishing, and when he started his cataclysmic, absurdly complex all-cash international consortium break-up bid for ABN-AMRO.
- Supervised the evolution of RBS Greenwich into the third-largest underwriter of CDOs.
- Spent company money heavily on corporate and personal narcissism, epitomized by the “comically expensive new RBS campus on the outskirts of Edinburgh, the construction of which Sir Fred supervised personally from a Portacabin installed on site for his own exclusive use“, or by crazed expenditure on wallpaper, carpets, corporate jet travel, expensively refurbished but seldom used hospitality buildings and so on, and so on.
How was he able to get away with it? This sums it up (though one might disagree about the exact kind of pathology on display here):
David Buik, partner at City firm BGC Partners, said the demise of RBS was: “All down to a degree of arrogance the like of which you will never see again in your lifetime”.
He added: “Fred Goodwin is a megalomaniac. RBS never had a chance to digest anything they bought and so they’ve never delivered shareholder value. It’s a combination of relentless greed and an inability to deliver shareholder value.
“They were buying companies when their share price was at its peak, rather than when shares were at rock bottom, and they clearly got involved with things they just didn’t understand.
“The ABN Amro takeover was the zenith of their stupidity but the die was cast before that. RBS took over ABN Amro because the mindset was they had to stop Barclays getting their hands on it at any cost, and consequently they paid way over the odds.
“There were people in that boardroom during the ABN Amro takeover who must have thought ‘this is madness’, but no-one was prepared to stand up to Sir Fred. I know people who worked for him, and it was a case of ‘yes Sir, no Sir, three bags full, Sir’.”
Indeed. Fred seems to have been something of a bully. We have public humiliation of the core management team:
He had curious fads, insisting that his executives dress conservatively and that every senior male wear a tie with the RBS logo. Every morning his immediate circle took part in a meeting known as “morning prayers” where on occasions executives could be reprimanded seriously.
Staff lived in terror of invoking the wrath of Goodwin and his colleagues. On one occasion, catering staff were sent an e-mail from senior managers warning that incorrect presentation of tea and biscuits was a disciplinary offence. Headed “Rogue Biscuits”, it railed about the mistaken inclusion of pink wafers in a biscuit selection for executives’ afternoon tea.
A worker who toppled off a ladder while cleaning windows in Goodwin’s office, breaking a small model aeroplane as he fell, received little sympathy from RBS high command. Despite his having written a note of apology to Goodwin, staff simply “went into panic mode” over how to fix the toy.
And in fact according to Ian Fraser’s source just about everyone at the bank is frightened fartless by Fred:
“Most people in the bank were absolutely terrified of him,” said corporate financier Peter de Vink, managing director of Edinburgh Financial & General Holdings. “He treated anyone who had a different view from his own with contempt.”
So it’s not terribly surprising that the board, the non-execs, the remuneration committee and the risk managers had no more success reining him in than the shareholders or for that matter the chorus of journalists who saw the cliff-edge approaching. No one inside the firm blew the whistle.
Does HR ever intervene when the boss is a bully? Seldom; and most particularly not RBS’s Roden, the kind of HR head who says this sort of thing:
Relentlessly, some may still judge him on his views – and they remain strident – on HR’s responsibility for the culture a bank creates. Not so, says a steely Roden: “Culture issues were secondary issues, not primary ones,” he counters. “HR isn’t responsible for the culture of the business; the board and its customers are. It’s the business environment that sets the culture. I’ll take my fair share for some stuff; I’ll take kicks when they’re justified, but I don’t think they’re justified.” Really? “I see all the facets other HRDs won’t have seen,” he argues. “I just think it’s ludicrous putting RBS’s problems down to HR.”
Well, no, it would be, but that’s a straw man, is it not? It was Fred who caused the problems – plus all the people who didn’t stand up to him, including Roden. I wonder what Roden would have to say about the HR, reputational and disciplinary implications of the affair Fred was conducting with his unnamed subordinate. Nothing at all, on the above showing, despite the utterly cavalier nature of such behaviour, with the creepy, potentially abusive power asymmetry at its heart, and the reputational risk, and the toxic undermining of the formal corporate structure that such dalliances involve, whether or not the affair’s a secret. The whole business is irresponsible, manipulative, a betrayal: all of a piece with everything else Fred did while he was at RBS.
This affair is one more data point pointing to the massive failure of corporate governance at RBS during Fred’s tenure. Which is one reason why it should not be covered up by this super-injunction.
Another reason is that Fred’s protestations about the privacy needs of his family, if that is what underlies the injunction, are disingenuous, and fantastically odious. I assume he means the family he deserted, not the new, smaller one that he’s now established. Well – no-one in the media has any beef with Fred’s kids or betrayed spouse. Fred’s the problem. And the broken happiness of his family is his responsibility: he can’t dodge the blame for that.
And the third reason is the source of the funds for the lawyers who brought Fred’s injunction. Fred’s unclawed-back loot, which properly belongs either with the shareholders and taxpayers who are lumbered with paying for the mess he left behind, now funds legal action to deny those same taxpayers access to facts they have a right to know about, and lands journos with extra expense, too. How the hell did that happen? There is public interest in that, for sure.
Since the UK’s great and good are about to consider the regulation of banks, they should bear in mind how much firmness of purpose is required to deal with the likes of Fred.
This super-injunction is an impudent, outrageous, self-indulgent, narcissistic abuse; the hallmark of the remorseless and unrepentant Sir Fred Goodwin, knighted for “services to banking” in 2004.
Let’s hope the injunction is overturned, pronto.