As a general rule, I don’t join in the widespread revulsion about bankers and their bonuses, on the basis that the extreme cases we hear about are not typical of what goes on in most banks; the multi-million bonuses are the extreme cases and are usually earned one way or the other. And, in any case, we can all apply to work in a bank if we want to.
However, it was difficult to watch this fascinating documentary without feelings of revulsion and amazement, particularly when you saw the footage of the shareholders meetings where false assurances were given and misleading statements were made.
The two characters we saw most of were the former CEO and leading hate figure Fred Goodwin and the less well known but equally culpable Chairman Sir Tom McKillop. And hearing these characters talking to their shareholders was enough to explain much of what went on; the Chairman was clearly out of his depth and quite unable to restrain Goodwin and his equally driven henchman John Campbell. It was interesting that no other board members were interviewed but, if they were anything like as hopeless as McKillop, it is no wonder that the company was out of control.
The other big question was how someone with the accounting background and track record of Fred Goodwin could have made such an appalling decision when he persisted with the ABN Amro acquisition despite all the risks involved. One of the main reasons for buying the company had disappeared when ABN Amro sold its American bank but the decision to carry on was still taken, even after Northern Rock had failed.
The programme made it clear that the answers are all about vanity and hubris. There is much evidence that, when it comes to acquisitions, common sense often goes out the window. There is research which quotes many examples of CEOs doing exactly what Goodwin did here, trying to repeat his major career success - the acquisition of NatWest - in another quite different context. Deluded CEOs assume that they cannot fail to repeat the winning formula and they pay the price. And this was combined with a desire to spike the guns of a major competitor - Barclays - who also had their eyes on the prize.
It would have been better if the programme had secured interviews with more of the guilty parties and not those who left before the main events or watched from the sidelines. There was enough evidence to show that a key factor in the decline of RBS was the inability of management and fellow directors to stand up to Goodwin’s tyrannical behaviour and this was an interesting comparison to the programme about Steve Jobs a week or so later. The key difference - confirmed by my book review below - is that Jobs was genius who got most things right, whereas Goodwin was a pretty ordinary banker with delusions of grandeur.
At around the same time as the programme we heard the news that the FSA report shared blame rather widely but did not believe that evidence justified prosecution of those most directly involved. This programme did not provide evidence to back up this conclusion. OK, maybe the government should, in hindsight, have exercised closer control and maybe the FSA should have asked more questions; but the main culprits were a CEO who lost his business judgment and took a colossal gamble, and a board of directors who did not understand what was going on.
7 comments:
dearieme said...The recent programme on the collapse of RBS was very good on this point. In some way the best bits were the excerpts from Fred's press conferences, company meetings and so on. Wot a twat. Just the sort of obvious twat that a decent regulator would have watched like a hawk. Ha, ha.
john b said...I love that the reason Barclays is a Brilliant Success and RBS an Epic Failure is that RBS was willing to pay about 2.5% more for ABN than Barclays was.
The interesting thing about Fred is that he's an accountant by trade, who got into banking after he ended up the lead partner on BCCI's receivership. I suspect everyone in the regulatory world thought "dude's an accountant and dude made his name winded up a crooked bank, he'll probably be OK".
(captcha: fropping. LIKE)
D, I think you fail to understand what the purposes of bank regulation is nowadays.
JB, "gamekeeper turned poacher" is the expression you are looking for.
Doesn't someone need to mention that this was at the instigation of the PM who stated that he would square the Completion Commission and not to worry about all the paperwork?
I can't tell you, the mental anguish it caused to even remember the faux fornicator from Fife...
@john miller
Nope, that was the other insane merger - Lloyds and HBOS. Another fine example of the financial expertise of the SnotGobbler.
They clearly haven't read Parkinson's Law on committees. This is a classic example of that.
And the mendaciousness by the Failed FSA continues. "It was well known to investors, regulators and observers at the time" Erm, no. The Failed FSA was entirely ignorant and complacent about all this despite being told clearly by the rest of the above named that this was a shit deal. In any event, in the great scheme of things, blokes like me couldn't really give a shit as when (as expected) RBS would go tits up we 'knew' that they would NOT be rescued and it would all shake itself out. Clearly we hadn't bargained for the epic stupidity of the snot gobbler.
In any event wasn't Fred previous job as an a book keeper for a grocer?
Why bother with due diligence when you are 99% sure the State will cover you for any fuckup?
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Russell Dominic Peters (born September 29, 1970) is an Indo-Canadian comedian, actor and disc jockey. He began performing in Toronto in 1989 and has been nominated ...
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