RBS Chief Executive Stephen Hester has a very challenging job. He has to get to grips with the quagmire of accounting and organisational disorder bequeathed to the taxpayer by his predecessor Sir Fred Goodwin. So far, Stephen Hester does not appear to have put a foot wrong but in spite of that, he is fast becoming as much of a pariah as Fred the Shred.
Why is that?
At the highest levels of the Financial Services Industry, especially Banking, , there is a staggering shortage of REAL management talent.
In 2008, when the Labour government realised (too late ) that the entire industry was in trouble and that changes needed to be made at the highest level, the pool of talent on which the then Chancellor could call, was extremely limited.
Prior to taking over at RBS , Hester had been appointed non-executive deputy chairman of the newly-nationalised Northern Rock. He had been appointed by Chancellor Alistair Darling. Subsequently (in September 2008), he was asked to take a non-executive position on the board of Royal Bank of Scotland.
Throughout his tenure at Northern Rock and right up until November 2008, his “day job” was Chief Executive at British Land. However, the vast bulk of his career had been in banking – 19 years at Credit Suisse First Boston followed by three years as Chief Operating Officer at Abbey. His knowledge of banking and the debt markets was beyond question – although at the time , there was some question as to his political skills – which he would certainly need in his new RBS job.
His job was to turn around what has once been a bank with a share price of 700p, which , at the time of his accession, had tumbled to a mere 50p. That was in 2008 when the British Government bought about £45 billions’-worth of stock, giving it a 84% share of the bank.
The job which he was being asked to do was by far the most daunting and high-profile within the the broken banking industry.
In addition, both the politicians and regulators had begun the process of taking the focus off their own shortcomings and ineptitude by creating the Banker Bogeyman. The Fatcat. The incompetent Greedy Bastard who only cared about his bonus.
Unfortunately, even the white-hatted good guy saviours such as Hester were also tainted.
At no time did a politician stand up in his defence and point-out that Hester was a government hireling and was on their (our) side.
The Labour government of the 2000s, as well as the unfit-for-purpose Financial Services Authority had failed in their duty and had all but lost control of the banking industry. The bankers had involved themselves in products that not-only they but even the Bank of England did not understand. Chief Executives such as Fred Goodwin had begun to believe in their own infallibility and the government believed that the good days would roll-on forever.
This highly combustible scenario was overseen by a collection of Bank Directors who had developed lack of understanding and incompetence into an art-form. Most of them have been quietly retired when, in actual fact, many should have been prosecuted for not doing their job.
For those of you who may not understand, in the average bank boardroom, there is a culture of what can best be described as that of self-congratulatory Gentlemen’s Club Machismo . When a Chief Executive breezes into a Boardroom – especially a highly-technical accountant CEO such as Fred Goodwin, there are dangers. Not to him – but to the directors.
The director is expected to question him but he knows that he has no real idea of what the CEO talking about. The director also knows that the CEO could expose his total lack of knowledge to the other directors. There is an unspoken understanding: ” Try to f*** me over in front of the Board at your peril!”
Exactly the same applied (still applies) to the politicians.
Credit Derivative? The Zero Lag Stochastic Indicator? The Abnormal Earnings Valuation Model? What do they all mean? Best not to ask……………………..
So it was in this post-Lehman atmosphere of surprise, shock and ignorance that Stephen Hester was headhunted by Alistair Darling and Gordon Brown. Although details are not in the public domain, he (Hester) negotiated himself a legally-binding contract – and along with it, a remuneration agreement. (If any politician feels the urge not to honour that contract, one suspects that by the time the matter had been dealt with by the Courts, it would have been far cheaper to have maintained the status quo.)
In late 2008, the bankers had already “spooked” the politicians and obtained a total bailout of £450 billion. Because the politicians were still in shock, Hester would have been able to name his price – and who could blame him? He was on a shortlist of ONE.
Meanwhile, the politicians needed to take the pressure off themselves – so very soon a campaign was started. Its primary purpose? To vilify all bankers. The most visible aspect and most populist aspect to focus on was the “unacceptable level of remuneration” – and so the headlines and political bleating began.
The fact is that banks are NOT the Civil Service – they are constituted as companies which issue shares. We, the taxpayers are NOT shareholders.
A bank such as RBS is a shareholder-owned company but none of them have any legal right to demand when, how or what a Chief Executive is paid. That is between the CEO and his Board.
Shareholders can be as unhappy as they want to be but the best that they can do is to make their views known. A Bank Board is under no obligation to take any notice of moaning shareholders.
That, in fact is the only reason why senior politicians such as Cameron, Clegg and Cable can do nothing but whinge.
Finally, the government did not “bail out the bankers”. It bailed out the banks in order to ensure that you and I did not lose any money. Hopefully they also hired competent people to sort-out the mess and effectively, start again.
Stephen Hester is part of that renewal process. He is paid what appears to be an obscene amount of money primarily because of his technical know-how but also for his scarcity value.
Therefore it is most unfair for him to be referred-to as a “fat-cat” or any other derogatory label that we have been brainwashed into applying to all bankers.
Had he said on Day 1 : ” My fee to unravel this multi-billion pound mess will be £20 million. Take it or leave it,” the politicians would have snatched his arm off!
This year, he has received a bonus of £1 million and the political bandwagon is beginning to creak as they all jump on to criticise his “greed”. (The bandwagon is creaking particularly enthusiastically now that Boris Johnson has also joined the moaning political posse!!)
To add some perspective to the incredible complexity and scope of Hester’s task, you may be surprised to hear that the RBS annual legal “spend” is about £200 million!!
Stephen Hester deserves every single penny that he has managed to screw out of RBS and its carping political custodians.