Friday, February 27, 2009

How the taxpayer can get Sir Fred Goodwin's pension back

Jonathan Ford, writing for Reuters, thinks he knows:
Royal Bank of Scotland practices (sic) the highest standards of corporate governance - or so its shareholders were told when the bank published its 2007 annual report. Now is the chance to prove it. The near-8 million pound increase in Sir Fred's pension pot must have been sanctioned by the non-executives on the remuneration committee. These are the people to ask.
True only one remuneration committee member continues to sit on the RBS board - former UBS investment banker, Colin Buchan. But the others can still be held to account. They include former chairman Sir Tom McKillop, Janis Kong (a director of BAA), ex-Aviva boss Bob Scott and Goldman Sachs bigwig Peter Sutherland.
It would be interesting to hear how these individuals squared Sir Fred's pourboire with the commitment they gave to RBS shareholders in the remuneration report to ensure that rewards would "be earned through achievement of demanding performance targets based on measures consistent with shareholder interests." ...
If the remuneration committee breached its own guidelines, the shareholders should seek restitution from the non-execs involved rather than the hapless Sir Fred. He is simply a beneficiary of their negligence. This would establish the sound principle of board responsibility and would also demonstrate that the government was behaving like a rational owner. What's more, there is even a chance of getting the money back. Sutherland alone is probably good for 8 million pounds and there is probably indemnity insurance in the wings.


dheigham said...

Well spotted. There may be other legal routes into this also.

It appears that a topping up of Sir Fred's pension was agreed by our representatives when it should not have been. The result is that Sir Fred is legally entitled to the money. 'Our representative' was Lord Myners. He is politically on the hook for it. Do we, as shareholders in RBS, have a financial claim against Lord Myners on grounds of his negligence?

Whatever money Sir Fred and his Board colleagues were entitled to, there remains a possibility - given the magnitude of RBS losses - that they were trading while insolvent. If RBS was in fact insolvent, they almost certainly did not know it was. If in fact RBS was insolvent, should they, or any prudent manager, have been aware of that? It seems possible, but as yet not likely, that the answer to that question is 'Yes'. If so, Sir Fred and Co might be on the hook for everything that they own

dreamingspire said...

It has been surprising that the shareholders in RBS have not already launched a class action against the old Board. Similarly for Lloyds shareholders. But the USA is usually quicker than us in this area of litigation, so I wonder if there are such actions against bank directors over there.

Anonymous said...

But the RBS shareholders have suffered no loss. His pension doesn't come from them, it is paid by the Trustees of the RBS Pension Fund, from the RBS pension fund, an entirely separate pot, and it is only the beneficiaries of that fund who have standing to bring a claim. Unless his pension has put the fund in an insupportable position there is almost certainly no case for them to bring.

dreamingspire said...

The RBS shareholders have suffered a loss of share value: that is the basis of the complaint that long standing shareholders should levy against the old Board, with the aim of relieving them of their cash.

Anonymous said...

Sean is not wholly correct in saying that the RBS shareholders have suffered no loss. Any shortfall on the pension fund that occurs as a result of the generosity shown to Sir Fred would have to be made up by RBS putting making greater contributions into the fund in future. So the shareholders could certainly argue they had lost out. Of course, in the normal run of things, investors would be unlikely to argue the toss over a claim of some £8m to £25m depending on whom you believe (the cost of pursuing such a claim on an individual basis would exceed any payback the complainant could expect to receive). But in this case, the government is in the unusual position of being the 95% economic owner of the entire bank - so pursuing it could make both financial and political sense.