Royal Bank of Scotland. Where were the non-executives?
Royal Bank of Scotland (the UK based banking group) has had its fair share of troubles of late. It made some acquisitions that in retrospect were a clear mistake, such as its purchase of ABN Amro. It failed to manage risk properly, having chosen to fire its risk manager; allegedly for making too much noise about the company taking too many risks. The result of this all was a taxpayer bail out and the enforced departure of its chief executive, Sir Fred Goodwin.
At the time it became obvious that stakeholders were going to require a good degree of blood letting at board level, the bank’s chairman discussed the situation with Sir Fred. As a result, Sir Fred chose to resign, taking his right to an annual pension of £703,000 with him. Had he been fired, his pension rights would have been closer to zero.
Much public comment and anger followed, with virtually all of this aimed at the outgoing CEO. But where were the non-executives? The general duties of non-executive director are:
Remuneration: decide appropriate pay (including pensions) for executive directors in the circumstances.
Internal control and risk management supervision. History shows that this is at least questionable.
Scrutinise the executive directors.
Strategy: contribute to strategy.
Sir Fred Goodwin was entitled to his pension. He later voluntarily chose to waive £200,000 per year, but universal legal opinion is that he would have been entitled to the full amount, because the non-executives allowed him to resign.
Perhaps the press and the public are venting their frustration and anger too much at the executive directors?