Monday, 6 December 2010

Government interfering with governance over Goodwin?

I was disturbed by the FSA investigation into the collapse of the Royal Bank of Scotland because it seemed to owe more to government feeling a need to respond to public hysteria than to any sensible reason.  

The Financial Services Authority asked a narrow question: were fraud, dishonesty or failure of governance processes responsible for the bank over-extending itself so badly before the financial crisis that it cost taxpayers £45bn to keep it from collapsing?

Did anyone sensible ever harbour suspicions of fraud etc? Dominic O'Connell in the Sunday Times on 5 December neatly summarised the answer.

"If you aim high, you won’t shoot yourself in the foot. That’s true, unless you are the Financial Services Authority, where a foot-maiming moment is always just round the corner.

Officials at the FSA aimed high when deciding to investigate whether Sir Fred “the shred” Goodwin had done anything wrong in taking Royal Bank of Scotland down a ruinous road of over-expansion. Anyone who had followed RBS could have told you the answer immediately. Fred was guilty of an autocratic management style, was carried away by the idea of ever-expanding credit markets, and made a serious error with a top-of-the market purchase of ABN Amro. His failings had serious repercussions for the country, but not even his harshest critics seriously thought he had done anything criminal or fraudulent. He made bad decisions, but he made them in good faith.

Little surprise then that the FSA’s investigation, which has dragged on for more than a year, finally concluded last week that Goodwin had no case to answer.…Goodwin …probably suspects — as do most in the City — that the investigators took a long time to come to a conclusion that could have been arrived at after 45 minutes"
 But the FT, in its report, included a quotation that summarised the hysterical demand for a head to be cut off 'pour encourager les autres'.
Rob MacGregor, Unite’s national officer, said: “The report’s conclusions are an outrage. It is unacceptable to suggest that the behaviour of the management in this iconic UK bank did not ‘lack integrity’ when they brought RBS to its knees.”
 Well, sorry mate, but businesses (even big businesses - even well run businesses) make mistakes - it happens - get over it. But governments and their agencies should not join the hysteria. They are meant to lead and to show calm judgement. Even announcing an FSA investigation to buy time while things cool down, sends the wrong messages to those who pursue their own agendas by shouting loudly and wildly.

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