Royal Bank of Scotland’s week of the long knives started with Sir Tom McKillop’s abrupt decision not to stick around as chairman and ended Friday with the instant retirement of seven board members who failed to rein in Sir Fred Goodwin, the former chief executive.
In other words, farewell to the Freds and hello to the Philips. Sir Philip Hampton, the new chairman, will soon get to choose three new non-execs to sit on a streamlined board (albeit from a list agreed with UK Financial Investments, the state shareholder).
It’s about time. This column was calling for a galvanised boardroom, supercharged succession process and new non-executives last April. It’s a sign of the embedded power of Sir Fred and his lieutenants – notably Johnny Cameron, ex-head of the now radioactive global markets business – that it took a global banking crisis and near-nationalisation to achieve those goals.
Sir Philip was courteous enough to the outgoing directors, praising their “great commitment and determination . . . throughout the company’s difficulties”. That leaves room for the central charge that they didn’t do enough to curb the expansionist tendencies that led RBS into the mire.
Critics will carp that the clear-out is only partial, but even with more modest ambitions, RBS is a huge animal. It cannot, according to governance guidelines, run with fewer than three audit committee members. Fred-era directors continue to occupy those posts. Likewise, while Stephen Hester, the new chief executive, wrangles with his biggest shareholder about strategy, it makes sense for Guy Whittaker, finance director, and Gordon Pell, chairman of regional markets, to keep their executive director roles in the interests of continuity.
The board restructuring has another side-effect. It removes all but one of the members of the old remuneration committee (not including Sir Philip). The committee’s formal remit is a hollow one for now, since the board is subject to a bonus ban. But it is clear that the hot potato of how to frame incentives for the rest of RBS that are commercially sensible and politically acceptable is now firmly in the hands of the new chairman and his chief executive.
Short of ammunition
The heady days of last summer seem a long way off. Then, the big worry was whether big banks’ rights issues would fail, not whether the banks themselves would survive. At the time, the Financial Services Authority’s shock action to force short-sellers to disclose their positions during cash calls looked like the height of radical regulatory intrusion. If only.
Barely eight months on, the hedge funds’ critics – here and elsewhere in Europe – have become so aggressively anti-capitalist that the FSA’s proposal for a blanket disclosure regime for short sellers will seem like a half-measure. If hedgies protest too loudly, opponents may start to revive calls for an outright ban.
There’s a risk that politicians or other European regulators who favour draconian measures will point to the UK as the place where radical steps were first taken to curb the risk of market abuse. That can be deflected fairly easily. When the ban on shorting financial stocks was imposed, after the collapse of Lehman Brothers, the fate of the banking system was at stake, not just the fate of a peculiarly British form of capital-raising. In addition, the FSA’s own evidence on the impact of the temporary prohibition on shorting is also inconclusive – although that makes it hard to see why the regulator needs to retain emergency powers to impose such a ban, other than for political purposes or as a nuclear option.
The FSA is on safer ground advocating its favourite tool of greater transparency. It’s a pity that disclosure of aggregate positions is so bureaucratic: a combination of aggregate and specific disclosure would provide the clearest information for the market. By arguing for significant changes now, however, the hedge funds would merely delay the imposition of some form of multi-lateral measure and risk hobbling the FSA’s negotiating position with its partners. They would be better to suggest tweaks and then back the regulator as it fights for the least damaging Euro-compromise.
Back to the LSE’s future
The fact Xavier Rolet, a former Lehman Brothers executive, is now tipped to become chief executive at the London Stock Exchange is raising the hope that bridges will be rebuilt between the exchange and its users and a bold new culture will be introduced. What the place needs, people say, is an outsider – a seasoned investment banker, with an international background and experience in derivatives, who can relate strongly to the customers. Someone, in fact, a bit like Clara Furse, whose profile and challenges looked similar to Mr Rolet’s when she took on the role in 2001. The more things change, as they say in Paris...