Corporate Governance and the Credit Crunch

A couple of weeks ago, I went to a talk by Norman Murray, chairman of Cairn Energy, on corporate governance. He was quite circumspect about his views on corporate governance and both the causes of the economic crisis and what the governance structures and processes might need to be as a result of increased regulation in the future, but it did get me thinking.

Alistair Blair’s column in Investors’ Chronicle, No Free Lunch has been quite critical of governance processes, particularly regarding Fred Goodwin’s pension from RBS (apologies if the IC articles are behind a pay-wall).

After a quiet few weeks, Fred Goodwin’s pension arrangements have returned to the headlines again today, as Paul Myners was grilled by the Treasury Committee. Goodwin, the former chief executive of RBS, has become a public hate figure, the face of grasping bankers and the credit crunch, with the Prime Minister threatening legal action against the disgraced banker, although it became apparent that there were no legal grounds for any action, and deputy Prime Minister Harriet Harman then invoking ”the court of public opinion” and saying that “the Government would step on”. This sounds like a bizarre threat of retrospective legislation simply to get at a single individual – as if Parliament didn’t have better things to do.

Myners described how the deal struck between RBS and Goodwin to ease his departure was negotiated by the chairman of RBS, Tom McKillop, and another director, Robert Scott. Scott, who was the chairman of the remunerations committee, and McKillop ceased to be a directors in February 2009.

The board of any company are there to represent the shareholders’ interests; in November 2008, when Goodwin negotiated his departure from RBS, the shareholders were private institutions and individuals (including myself); today, the Government has a majority stake in RBS, which it operates through the UK Financial Investments Ltd.

In Blair’s column, he says that the non-executive directors of RBS – including Scott – should be answering questions on their conduct and decision-making. He implies that they were too close to the executive directors they were meant to be governing; he lists a series of questions which he believes need answering. Myners today was saying that it was the RBS board who took key decisions.

I have felt for a while that the RBS non-execs messed up: they should have challenged Goodwin’s strategy for the firm – particularly the decision to buy ABN-Amro once it had become clear that something funny was happening to the credit markets. But shareholders were complicit, too: they voted for the ABN-Amro take-over (albeit before the credit crunch raised its head).

Frankly, I think this whole thing is a mess. Blaming Goodwin – or anyone else – for the economy’s woes is understandable but pointless. It distracts from the main issue which is how do we get out of the mess. We need to learn from the mistakes made – by chief executives, bankers, regulators and, dare I say it, politicians and central bankers – but a lot of this won’t be known for many years, when some PhDs have been written and lengthy books have been researched.

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4 thoughts on “Corporate Governance and the Credit Crunch

  1. Francesca

    You know my views on this – only too well – so can’t imagine why I’m actually commenting.

    Yes to all of this, but I do also think it’s important to point out that Goodwin has a fair chunk of responsibility. His leadership of RBS led not only to some very value-destructive business decisions but also to the creation of a culture in which this way of being could not be challenged.

    I do think it would be wrong for the government to go outside or change the law to claw back his pension. But his responsibility is considerable and I entirely understand the outrage at his pension.

    Reply
    1. Patrick Post author

      I wasn’t trying to excuse Goodwin at all, and I hope it didn’t appear as if I was.

      But where the economy is – both in Britain and the world – is bigger than one man – or one group of men. Way, way bigger. I think that trying to pin the blame on one man is just ridiculous. Everyone profited from the recent asset bubbles – whilst they lasted: in Britain, we were richer than ever before (not necessarily happier…), and, frankly, we all share some of the blame.

      (I’m thinking this is the post I should have written!)

      Reply
      1. Francesca

        Also, can we go with ‘people’ rather than ‘men’ please? I know most of them are men, but still.

        Reply

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