Freddie is Shredded

Created on 27/2/2009

There’s a saying that goes around media newsrooms, “you just couldn’t make this up!” and nothing sums this up better than the morality play of Sir Fred Goodwin, until very recently the CEO of The Royal Bank of Scotland.

Like many of his banking colleagues in the USA and UK he has earned a fortune during the fat years and we only really came to evaluate the morality of this system of reward when the house of cards came crashing down around our ears.

This man is the perfect example of the banking Gordon Gecko whose creed was “Greed is Good”.

Goodwin was known as Fred the Shred, because of his ruthless and supposedly successful style of management. He was rewarded with huge payments and dividends but unfortunately, and at the cost of us all, he wasn’t succeeding, in fact he was failing on a scale never before seen in the UK, or anywhere else for that matter.

This was not just failure, but epic disaster, the Perfect Storm of a financial cataclysm. It has resulted, lest we forget, in his bank posting the biggest single one-year corporate loss in the UK’s history. For the record ponder the numbers, he lost us £24 billion in the last twelve months.

There is, apparently, another £350 billion of questionable debt on the same bank’s books. We, the people, have underwritten all of it under the new loan guarantee scheme.

All of these facts were known to the government when the panic button was hit a couple of months back, when, to save our entire banking system, the government had to step in with just hours to spare.

When this quasi-forced nationalization was being consummated the men and women who run the nation’s Treasury had to quickly do some hiring and firing. They realized that the country could not countenance the survival of the senior management who had been, at best, inept, or at worst criminally liable for the disaster that had befallen us.

It transpires that the government ministers responsible for these transactions had sight of the relevant contracts and allowed certain pay offs to take place. Amongst these was the lifetime pension pot for Sir Fred Goodwin in which he was to receive nearly £650,000 (nearly $1 million) per year for the rest of his life with, commencing now, at the age of 50.

The Minister who allowed this is Lord Myners, who is now calling on Sir Fred to not take the money. Goodwin refuses to do this or pay any money back. The Prime Minister and many others in government have also insisted that Sir Fred must not get this money in these circumstances. Remember these are the same people who rubber-stamped his deal in the first place.

It seems as though the crime Goodwin is guilty of is not getting his hands on the money it is getting caught receiving the money while the cameras are aimed in his direction.

This is epic hypocrisy by the most inept and injudicious British government ever.

Of course Goodwin should never have received one penny, in fact he should never have been in a job he was clearly not capable of doing. But he was in that job and he did negotiate a deal with those ministers and they all signed it willingly. There is no justification for a country to break a contract of its own devising. This would be both illegal and amoral. Of course a government could change the law retroactively to stop the knight getting his pension but that would be an act of petty venality that even this bankrupt leadership couldn’t justify. If that kind of thing is to be allowed we have entered a very dark tunnel indeed.

On his own behalf Goodwin wrote to the City Minister Paul Myners arguing that in forgoing his 12-months notice pay when he resigned last October, he had made a sufficient “gesture.” Myners replied in a letter that his position was “unfortunate and unacceptable” and that the executive should think again.

“Such an act would be an appropriate recognition of the failings of RBS under your tenure and subsequent support the government has provided,” Myners wrote.

The Treasury has finally acknowledged that Myners did know all about the pension arrangement when Goodwin resigned last October although there had been some argument previously about the details. His understanding, according to the Treasury, was that the payout was Goodwin’s legal entitlement and unchangeable. Prime Minister Brown said it was only this week that he learned the RBS board had some discretion in awarding the pay.

The government has not yet made it clear what route it will take on this issue. Ministers have, so far, just applied maximum moral pressure on Goodwin to voluntarily give up his pension.

Chancellor of the Exchequer Alistair Darling said, “Sir Fred could resolve this problem very quickly.” Brown said the payout wasn’t acceptable but offered no remedy.

“The anger the public has is the anger I have as well,” Brown told broadcasters. “This is unjustifiable and unacceptable, and I am going to clean up the banks so it doesn’t happen again.”

Or the government might apply pressure on Goodwin by threatening to have him stripped of his knighthood, but that makes the government look ever more like a petty Ruritania than it already does.

Surely of more importance, we must learn the lessons this debacle should teach us. We need people who understand business taking business decisions that have a commercial consequence. Government ministers are demonstrably incapable of this. Our focus must be on the big issues; we cannot allow ourselves to get bogged down on these small but diverting side issues. Maintaining a relentless public focus on our huge problems will stop our leaders avoiding the big elephants in the room.

In the meantime Sir Fred, I hope you suffer the consequences of your actions.