Time Called on Non-Executive Directors?

The role of Non-Executive Directors (NXDs), or perhaps I should say lack of, in the explosion of the banking system has really had little scrutiny. It is perhaps a relief that a Treasury sponsored review by Sir David Walker is finally taking a hard look.

The only real prominence on NXDs was the role that McKillip and Scott played in Fred Goodwin's pension scandal - but it is worth noting that the Government official sent to supervise the whole fiasco was a serial NXD in Lord Paul Myners. They look after their own, those boys. Meanwhile, on the regulatory side, Lord Adair Turner, the Chairman of the FSA, has around 10 jobs, many of which are highly paid NXD roles.

McKillip was castigated for his foul up on Goodwin and because of it he lost one of his prize roles, a place on the Board at BP. You see, in the stratospheric world of high-end NXD roles, once you are on the gravy train, it is very difficult to get off it. And the fact is, once you are on it, you have 'form' and so you are offered many more jobs and build yourself up a nice portfolio of highly paid, very part-time roles where you are responsible for nothing and never held accountable for anything.

Sir David Walker intends, amongst other interesting things like curbing city pay scales, to make NXDs a more accountable role, have them better trained for the job and make them play more of a part in the Governance of the Companies they are paid by. Fat chance.

The whole review thing is too late anyway. The financial gravy train has picked up more fuel and is underway again with no new regulation in sight and big bonus payouts just on the horizon. The chance of getting any kind of controls and checks in place on the City are about as likely as me winning the British Open this week. The astute among you may spot I am not actually playing in the Open and that is my point. Sir David Walker is a side show. The City will ultimately decide what happens because it has the stranglehold over the Government.

In fact, now that we own so much of the banks, they have us exactly where they want us - we pay the bills and they will make enough returns to get the public money back on the share outlay, but only if Government butts out. If the Government does interfere then there is a risk that the money does not get paid back and where would that leave the PM in the run up to an election?

Rest assured, the City will get its way. The Government has sold its soul to ensure that.

Hauntings

I could never be a Politician for the simple reason that some of the embarrassing and occasionally unpleasant things that have happened to me in my life would eventually catch up with me. I dare say that most people are the same as are modern day Politicians. The difference between us and them is generally the thickness of their skin and their sheer front.

I always try to work by the adage that if I do something I would not be proud of others knowing then it's probably a wise idea not to do it. The Max Mosley issue is a case in question and that man has so much front he's going all the way to the Court of Human Rights to have his dignity bought back after his bizarre orgy was filmed.

For Jaqui Smith, expenses had seemed to become a part of family life. Already at the centre of a hubbub over expenses we now find that her husband had claimed for several films to be viewed. She is actually trying the falsely enraged act over the issue that two of the films happened to be blue movies and he got a real ear bashing.

The fact is that there is no earthly reason why she or any of her family should be claiming for watching films at all.

McNulty is one of those great characters too. One of the go getting set of MPs living just outside the limit of the expense line in London and just 11 miles from his 'office' he claims for a second home - which happens to be his parents while he keeps another in Westminster.

It is not a question of whether he does anything wrong on expenses prodecures, as they are as daft as a bag of spanners anyway, but that he has the front to say this is morally right.

Having spent a pleasant weekend in Milan, the local talk is of Berlusconi and how he has had 3 terms in office but continues to front out the dodgy dealings in his business life. Tessa Jowell's husband was not so lucky, having been one of the Berlusconi 'bag men' he took his pay off and blatantly used it to pay off a mortgage while Tessa herself unquestioningly signed off the papers. She later ditched him when the trail led back to the Italian Master and that would be no good for her career.

Blind trusts are another example of good political thinking. Peter Mandelson, a career politician with no other visible source of income, has one set up to keep his investments away from the public eye. To set up such a trust is itself an expensive business, at least £20,000 of keenly attuned accounting and lawyering to make sure 'tax is mitigated'. For such an earner though, it makes you wonder where he gets so much money to have to hide it. The Blairs had one and even though they are not allowed to be accessed, Cherie did so - to buy her young one a flat in Bristol both to accommodate him as a student and as an investment. Good thinking, until we found out she bought not one but two. And there was the small affair of the convicted conman who brokered the mortgages without a licence - and she a QC and all that. There is never smoke without fire and as a lawyer she would have known how indefensible her actions were.

The Blairs courted controversy when Cherie got paid handsomely for dinner speeches about being the 'First Lady' while touring with Tony and latterly in his role as peace envoy to the Middle East, he has visited once after the latest violence because he was too busy lining his pockets on conference speeches, adviser roles and penning the 'story' of his gifted life.

So what is the point of this article today?

Well choosing your friends is one thing but choosing your 'employees' is another. We find that Lord Myners was indeed one of the in crowd of blind trusters who had protected his wealth from public view. Mainly as he was one of the City boys and when it came to understanding how he or any of his clan would deal with Fred Goodwin and the boys at RBS, he was one of the team. We are about to hear the rebuttals from McKillip and Scott, the NXDs who negotiated the pension, and it will assert that Myners and the Government were fully aware of Goodwin's pension prior to him signing the deal.

If the Government is going to lie, do so convincingly rather than just trying to hang a single individual out to dry.

Finally, after his exhausting and wasted trip around the globe, the PM has now told us that tax havens are the next area to be targeted. I do hope he makes sure that all those around him, the likes of Glen Mareno, Lord Levy, Lord Sainsbury, Blair, Mandelson, Myners and the rest have got their books in order. I feel we are yet to hear the full Deripaska story, maybe we will soon.

I feel another set of hauntings coming on.

Man or Mouse?

In the murky world of blameless politicians, Lord Myners takes some beating. Hung out to dry by his superiors who need their scapegoat to distance themselves from the debacle over Sir Fred Goodwin's outrageous pension 'deal', Lord Myners was up in front of the 'beaks' yesterday at the Treasury Committee, explaining why Sir Fred had been rewarded for failure when this was exactly what Lord Myners and the Government had sought to protect us all against - after all, it is our money.

Part of the trouble is that Civil Servants and Politicians have a distorted view of pensions. They are not of the real world - pensions to them are something that are paid out of a limitless public pot contributed freely to by current taxpayers. There is no 'accruing fund' or investment strategy, 'money in equals plenty of money out'. So the concept of Sir Fred and RBS having to bolster a pension pot on behalf of an individual is quite alien to most politicians and civil servants - for their world, this is not a reality. Out here in 'reality 2009' we have to find ways of bolstering our dwindling pension funds in order to get some income in retirement and for poor Sir Fred, if he was to get that, then it would need a hefty increase in his pension pot to buy his future.

This was the start of what was to become a very stupid and embarrassing scenario, and the tactical smokescreen that was thrown up was Sir Fred's apparent gracious waiving of his 15 month salary entitlement as compensation for stepping down early. This was something most politicians understood as being embarrassing - after all, Lord Mandelson had recently received 3 years salary from the EU having voluntarily stepped down to take another job - something unheard of in the Private Sector but well understood by 'Fat Cats' in the world of public service and politics. The thought was clearly that the Government had won a small victory over Sir Fred and everyone joined in saying Sir Fred 'had done the right thing'.

But Sir Fred hadn't got where he had through being stupid or by doing the right thing. In his 20 years service at RBS he had managed to build it to be one of the most profitable and largest banks in the world and then bankrupt it. He had done everything but the right thing in most people's eyes. So the last laugh was on the Government - if they thought Sir Fred would walk away empty handed and full of humility, then they were idiots.

As indeed they were.

The Pension

Fred Goodwin had done 20 years service and RBS had a defined benefits pension scheme. Under the scheme he would be effectively retiring early without full service and at the age of 50. In doing so he would be entitled to a far smaller percentage of his salary than if retired at the right age and had a full 30 years service. So, it was decided that a discretionary award would be made to 'top up' his plan and also took into account things like bonuses even though such schemes are 'final salary' schemes based only on basic salary. It has also been revealed that RBS chose to pay £1.8m of tax on top of the £16.9m in his pension pot, half of which was added in order to achieve a final annual pension or £703,000.

Sir Fred had agreed to pay back a lump sum (his 15 month salary) of £2.7m in order to preserve this lucrative pension and for the generous payment of tax. The negotiators chosen by the Government to hammer out the deal with Fred Goodwin were the Non Executive Directors, Tom McKillip and Bob Scott who were formerly Chairman and Head of the Remuneration Committee at RBS respectively. Quite how they arrived at such astronomic figures is hard enough to believe, but quite how anyone in the Government or UKFI (that would be us, the taxpayer) did not look at this is beyond comprehension.

What They Are Asking Us To Believe

Lord Myners, UKFI and the Government at large are asking us to believe that not one single person who had a vested interest bothered to scrutinise the deal on offer to Goodwin and further, they are trying to claim that McKillip, Scott and Goodwin signed the deal before it could be ratified by the Government. Clearly, in order for the latter to be achieved legally, then the Government and UKFI must have given a free rein to McKillip and Scott to strike a deal no matter what the cost was.

To my mind, the Government and UKFI focused on the pay off not the pension and I would assert this was because they do not understand how much private sector pensions actually cost.

Myners told the Committee yesterday that the pension was 'quite extraordinary' in several respects - no kidding? Because the benefits exceeded the cap set by parliament, 97% of the pot was put into a personal trust called a Funded Unregistered Benefit Scheme (Furbs) which is not allowed to provide a tax-free lump sum. In December 2007, after Sir Fred had been asked to leave and RBS was already in taxpayer hands, the Board decided that if Sir Fred took a lump sum from the Furbs then RBS would compensate him for the tax he would have to pay. Myners claimed this was not disclosed to shareholders (the Board clearly had no Government appointed representative despite owning over 70% of the bank) and was a significant amendment to Sir Fred's contract of employment. It should be remembered that Sir Fred claimed to the Treasury Committee in February that his pension was a defined benefits scheme, the same as all staff received at RBS.

It is clear that the Board members at RBS negotiated this settlement without involvement by the Government or UKFI. However, it was also clear that they did exceed any remit given to them - if so, then clearly there would be legal repercussions. The Government and UKFI allowed this to happen. Quite why Myners or Glen Moreno at UKFI did not ask what the details of the final settlement and particularly the pension would be is baffling to say the least. Given that the whole affair was a political hot potato then surely the PM, who stood to be embarrassed by his friendship with Goodwin, should have taken at least a passing interest.

The Facts

The fact remains that this whole sorry saga is all about due diligence and what Brown himself has recently referred to as 'laissez faire' Government. We are going through an unprecedented period of history which has seen the collapse of the banking system due to authorities allowing long term, systematic greed to drive the financial world. Yet when it comes to solve the crisis having allowed it to develop, it has applied the same principles of lack of attention, lack of diligence, lack of understanding and lack of care. This time around they were using public money to solve their mess and they showed even greater incompetence and lack of care as they handed it out without requirements of receipts to see how it was spent. The magic wand of public money was waived and they expected all to be reassembled as before without anyone understanding how it would be done.

They also overlooked the issue which caused it - greed. There was no way that the banking industry would reassemble itself without the same focus on earnings and that is why Fred Goodwin, Tom McKillip and Bob Scott see they have done no wrong.

In the great scheme of things, the £8m top up to Goodwin's pension pot is only a minor percentage of the £37bn spent by the Government in bailing out RBS, a mere 0.0002% to be exact.

Viewed from that angle it seems the Goodwin pension saga is trivial. We the public, who funded it, have a very different view. RBS clocked up the largest loss in UK Corporate history causing a £37bn bail out plus loans and guarantees for the debts run up - potentially mounting to a number greater than the UK GDP. For that, its former CEO is a) allowed to walk away having negotiated his end deal, b) retire and c) have an annual pension from the age of 50 of £703,000 and have a tax bill of £1.8m paid for.

It really does not matter what excuse Myners, UKFI or the Government come out with or the pathetic attempts to appeal to Goodwin's better nature to rectify the problem. It was caused by the crux the whole financial collapse - incompetence, negligence and lack of understanding. For any other mortal employee that would mean instant dismissal - for the Government and their stooges, it is just a minor blip on the sunny horizon.

Why Was Goodwin Not Sacked?

It still comes as a surprise to many that Fred Goodwin was not sacked.

Breaking Corporate loss records spring to mind as a decent cause and you would think that even if he felt that due procedure had not been followed in terms of HR governance, no tribunal would support him and even if they ruled in his favour, the award would be trivial and worth it.

That has a slight snag. You see Goodwin would assert he was merely unlucky. If the financial system had not unraveled in front of his eyes he would still be perched at the right hand of the PM himself and be accoladed as Businessman of The Year in many newspapers like the Times who now lambast him. The snag was that Gordon Brown himself has deemed that the whole banking crisis started in the USA and was called sub-prime - in true revisionist style he has explained it is also a global crisis. He has made sure that it was not anything to do with Britain and its finances although he does suggest that he should have done more back in 1997 after the Asian crisis.

So Goodwin could very easily argue that none of this was his fault - it was a global phenomenon starting in the US and he could not be blamed for how it affected RBS. After all, the PM said so himself, and he is never wrong.

Sacking him could have been difficult when people like Brown make up reasons to save his own skin which inadvertently others can hide behind to mask their own incompetence. Instead Fred Goodwin was allowed to take early retirement and he could dictate his terms with his cronies form his own Board, all because the Government gave him the perfect get-out clause and were stupid enough to allow it.

This whole saga relating to Goodwin's pension started at Gordon Brown's denial of the true cause of the banks' collapse and the way in which he has tried to rectify it. Blame has a habit of finding new homes and Myners will be left out to be slaughtered. The real culprit plots and schemes to live another day.

Known Knowns and Known Unknowns

The RBS Pension fiasco runs on more like Freddy Kruger than Freddy Goodwin as today we hear that the Government even in hindsight got the figures wrong as Fred's pension is, in fact, £703,000 per year not the £693,000 previously stated.

Today we heard from those guardians of our lucrative investments, UK Financial Investments Ltd (UKFI) and specifically Mike Kingman, CEO, and Glen Moreno, Acting Chairman. In a Tweedledum and Tweedledee performance they revealed that the size of the pension pot for Fred was actually known by the Government but those nasty Non Executive Directors at RBS, Tom McKillip and Bob Scott, hoodwinked the Government and UKFI by apparently giving Fred a discretionary rise in his pension.

They also defended poor Lord Myners, who is very much in the electric chair for the whole fiasco, and said that he should not be expected to have known the finer details for the RBS pension scheme.

Umm, Actually - He, And They, Should Have Known

Not just Lord Myners but the whole shambolic Government should have read the RBS 2007 Annual Report which would have clearly shown how much Fred Goodwin was due. The second fact is that they should not have entrusted two Non Executive Directors to have negotiated Goodwin's exit. The Government should have been directly involved and claiming anything else is just complete negligence on behalf of the taxpayer - it is of little value that idiots like Brown, Darling, Cooper and Harman are now trying to play hardball after the event.

They should have been right on top of this, knowing full well how sensitive the situation was.

But they had been considerably delighted with PR coop that somehow Sir Fred had been persuaded to forgo his 15 month salary entitlement to look at the small print and work out how much was actually getting.

Doing It Right

Bamboozled by big numbers and banking advisers, the Government should have taken the initiative here and handled Goodwin's departure directly instead of giving the task to the very people complicit in his stupid business activities.

Goodwin should have been sacked - it's pointless Moreno saying he should have walked of his own accord, the job was there to be done not to expect some old British honour of someone taking the brandy decanter and a Colt to shoot themselves in the study; Goodwin had skin thicker than the hide of a weathered rhinoceros, no way he was going to walk without a back up plan.

If he had been sacked there would have been no pay out anyway and under the terms of the RBS pension plan would have still got £416,000 per year as a pension which still sounds excessive.

As usual, this Government has let us down and is employing its usual tactics of trying to find scapegoats and mitigate its responsibilities. As it plays with ever increasing amounts of our money, it does not instill anyone with any confidence that they have any idea what they are doing or why.

'It Wasn't My Fault'

While there are some who wonder just what a 'City Minister' does, I for one am feeling very sorry for Lord Myners who yesterday gave a 'robust defence' of what appeared to be gross incompetence in the 'Fred Goodwin Pension Fiasco' which faces the Government.

"I was assured the pension arrangement for Sir Fred Goodwin reflected 30 years of service," said Lord Myners yesterday as he mounted a very sound defence of his actions in the lead up to the fiasco in the Lords. The fact it sounded as a forlorn defence against the gathering cloud of Brown and Darling revisionism regarding the truth of the affair in order to appoint a scapegoat made it all the more poignant.

Just Doing His Job

Of course, if you are an ex-City type yourself and the Government is being advised by a horde of Investment Bankers at extreme cost to the taxpayer, then no one would quibble about a 'fair pension' after 30 years service to one of their own. And £693,000 per year doesn't sound much in the great scheme of the fantastic numbers that are being thrown about in the bank bail outs, after all it was commensurate with his final salary.

But as Harriet Harman has seized upon, such an embarrassing number is vote winning if something can be done about it in retrospect. It becomes even better if a specific individual, not directly related to the Government hierarchy, like Lord Myners, can be blamed for it. Then they have a scapegoat as well - perfect - and Harriet knows it. By mentioning it herself over the weekend that Sir Fred should 'not count on' keeping his pension, the Government and specifically Harman, seems hell bent on spending any sum of money to block him having it and so gaining the public's confidence that they are acting in our interest, not just being totally incompetent as it it appears. Harman also advances her public stock for a future leadership challenge.

How Did Fred Get Away With It?

The villainous Fred Goodwin, as he is now portrayed by the Government (and it will come as a source of some glee to Harriet Harman that Goodwin was a close ally and friend of Gordon Brown and his retinue of famous Scots now seen to be on the make), is the man who seems to have hoodwinked a raft of lawyers, Board members, Ministers and banking advisers and got away with a fabulous pension it is now deemed he does not deserve.

Myners claims that in fact he did not meet with Tom McKillip, the RBS Chairman, and Bob Scott, a Non Executive Director, who were charged with negotiating Goodwin's exit package (and hardly likely to be nasty to their old boy), until after they had already agreed Goodwin's exit package and they told him only that Goodwin had been given a pension reflecting his 30 years service. No warning bells here then, as Goodwin had agreed to waive his entitlement to 15 months salary - which on the face of it was cheap as Peter Mandelson had got a 3 year pay off from the EC when he was appointed Business Secretary which the taxpayer pays for.

At the meeting, Myners was accompanied by a Government lawyer who trotted out a 'standard script' to set out the Government's position. Myners also says he told McKillip and Scott that "In exchange for support, there would be no reward for failure. We would expect Boards to minimise the cost of severance."

The problem was that Goodwin, although being forced out, was leaving as an early retirement not as a sacking. So McKillip and Scott were acting on that path - the Government did not have the balls to say Goodwin should be summarily sacked and receive no compensation or pension. The let-off was all of their own making. Goodwin, by waiving his pay off, was actually being perfectly fair in insisting on his pension rights after 30 years of service, the maximum under the company scheme.

All the facts were staring everyone in the face - they knew his salary, they knew his length of service, they knew what he was entitled to it.

So why has it come as such a shock as to how big the pension was?

Taking A Hit For The Team

The ground is being prepared for Myners to be sacrificed brutally in the wake of the affair. Alistair Darling is already sloping his shoulders and has sinisterly warned that the Ministers must have the 'humility' to admit mistakes. If that were the case we wouldn't have the time left in the Universe to hear them and the associated excuses, but the pointed remark was for Myners alone.

He was expected to fall on his sword or be roughly pushed on it very soon.

Myners, though, was having one of it as his Lords statement showed. He claims that he knew Goodwin would get a 'large sum' but not how large that was. It wasn't an issue at the time - he had negotiated Goodwin out as he was told, avoided the embarrassment of a pay-off, surely Goodwin could have a fair pension to live on?

Locking The Gate After The Horse Has Bolted

Gordon Brown has confirmed his sudden rabid hatred for the man he was so friendly with not a few months ago by confirming he has instructed lawyers to find out how much of Sir Fred's £16m pension pot can be kept away from him. It is too little, too late, naturally and an expensive way to solve a problem that with just a modicum of foresight and attention to detail, he could have prevented beforehand.

There are no real excuses here. Everyone was involved in the bail outs, everyone was involved in the specific task that surrounded RBS, everyone knew the stakes they were playing with. Everyone knew the size of the salaries of these individuals from Sandler to Goodwin to Hornby - they knew the kind of money they could be entitled to beforehand - this is not rocket science and it is not an unknown quantity as it is at the very heart of the entire problem identified in the City. The rewards are just too high.

So bleating afterwards about Goodwin's pension is just a smokescreen and by saying that Ministers were not aware of it is just compounding the issues we face on bail outs. If you do understand the basic figures that make up the huge numbers in the City, then you cannot possibly know how much the big numbers you throw at the problem are going to affect it.

I return to a common point. This Government, from start to finish, had no idea about the economy and how it was functioning and they have far less idea about how to remedy its collapse. This whole saga about one man's pay off is absolutely indicative of how little they know or care in their blind panic to try and rectify a situation they made for themselves.

Now we have the unseemly clamour for the scapegoat. Personally, I think Brown, Darling and Cooper should go along with Myners - they couldn't organise a party in a brewery, least of all a bank bail out.