Bill Jamieson: Ticked off by The Great Correction

Published on Thursday 2 February 2012 00:00

Honours and bonuses are but the first targets of public reaction to corporate excess

VENGEFUL, undignified and seared with the flame of mob justice: stripping Fred Goodwin of his knighthood may be all of these things. But it nonetheless marks a watershed week in the history of The Great Correction, an inflection point in British politics and public attitudes.

In the history of the UK during this bleak period, starting with the banking crisis of 2008 and stretching along the dark shadow cast – a biblical seven years of austerity – this week will feature, in the earnest histories and the docu-dramas, as a Defining Moment. The bonus capitulation of RBS chief executive Stephen Hester and the stripping of the knighthood from his predecessor Fred Goodwin mark a flash of lightning in this darkness, a freeze-frame moment in the demolition of a grand but asbestos-ridden edifice. The precise manner of how this moment was arrived at – the accusations of politically inspired timing and the anomalies they exposed – will matter less in the fullness of time than the cold fact of the retribution taken and the punishment meted out. Britain may not have turned a corner in its exit from banker excess. But in public attitudes as to what is acceptable and what is not, Britain has certainly turned, or more accurately, curdled.

None of this should be taken to indicate that these two events, coming so quickly one upon another, mark in any way the closing of a chapter. Rather, their resonance flows from this being the opposite of closure. Across the correspondence columns of newspapers and on radio and TV phone-in programmes, a storm of questioning has been unleashed. If banker X has now been so summarily stripped of his knighthood, why not banker Y? What of the knighted regulators and the honoured watchdogs? If a proven criminal offence, act of fraudulence or betrayal of a nation’s secrets has not been committed, what now are the trigger points for the stripping of a knighthood? Does it now embrace hindsight judgment and capricious appraisal?

And what of the politicians revelling in this? Is not the House of Lords stuffed with utterly undeserving political cronies who have built nothing, created nothing, earned nothing and who cannot be stripped of their title even if they go to jail? How did honours of any sort come to be bestowed in the first place in mid-career when no full judgment could be made about a person’s contribution to public and business life? How safe now are the knighthoods bestowed on sporting figures such as Sir Alex Ferguson or Sir Chris Hoy should they find themselves lashed to the wheel of sporting fortune on the way down? It is not just one particular knighthood that is now up for question but all of them.

Former chancellor Alistair Darling warned yesterday of the yawning doors of precedent. He did so in a nuanced and well-judged manner – more intelligent than his party leader and which will add to his status as a potential successor.

As for Stephen Hester’s bonus, how did the concept of “bonus” – as in reward for extraordinary and exceptional achievement – come to be reduced to a formulaic calibration of corporate metrics set out to determine an entitlement years hence? And on the trading floors of the investment banks, did not the bonus culture have a direct influence in encouraging traders to take on the excessive risk that ruined them?

How did the equity owners of companies come to lose such control over the corporate hired hands? Non-executive directors were supposed to be the watchdogs to rein in overweening chief executives and a corporate clique helping themselves to the honey-pot.

But far from challenging the self-serving recommendations of the corporate remuneration consultants, the non-execs backed their recommendations at almost every turn. There has been little sign of brake or restraint. Instead the public company non execs have come to be regarded as little more than Christmas tree lights – turned on for the annual meeting and switched off for the rest of the year.

Another line of defence – long breached – are those earnest corporate social responsibility statements and declarations of concern over corporate values when the only culture that is seen to prevail at the top of many leading companies is that immortalised by the late Peter Sellers in the 1959 film I’m All Right Jack. Or more accurately, as the title song had it, Stuff you, Jack, I’m All Right.

What a dramatic influence the onset of austerity has had on our tolerance of all of this – and how badly advised Hester and Goodwin have been in not recognising the strength of feeling aroused by their bonus and pension arrangements in a radically changed era. The recession and its long aftermath after the “you-can-have-it-all” debt fever of the preceding decade have been akin to a tide running out – exposing all those swimming with no clothes.

The national blood is now up on all of this. And it is likely to rise further now that the taste of blood is in the public mouth. Stephen Hester’s capitulation – following, let’s remember, the public announcement by his chairman Sir Philip Hampton that he was turning down his own bonus entitlement – cannot but encourage institutional shareholders and small investors alike to mount more determined and sustained attacks on company boards.

Will formal regulatory action now follow? That is not so certain. There is a general, if by no means universal, acceptance of the point that governments and politicians should not get involved in the minutiae of pay setting within private companies (RBS and Lloyds Banking Group being exceptional cases where the taxpayer is a large shareholder). More likely – and immediately – I suspect many companies will have taken one look at this week’s events and vowed that, whatever they do, exposure to such public hostility and denunciation is to be avoided at all costs. Whereas a few years ago company chiefs would take the view that a few weeks’ grumbling in the business pages in the approach to the annual meeting was worth enduring, that equation has now changed. Who dares risk being put through the ringer like this? And which directors are prepared to expose their companies to such a trashing of corporate reputation?

How much more sensible it would be if bonus pools were kept in line with dividend payments to shareholders who are, after all, supplying the risk capital without which companies could not exist. In what is likely to prove the longest recession/recovery cycle for more than a century, the wheel of The Great Correction has only just begun to turn.

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bonechewer

Friday, February 3, 2012 at 03:03 PM

I have little sympathy for Fred Goodwin, as has been said by others, he is the architect of his own downfall. But, I do think that this 'someone has to pay mentality' has its roots in a change that has occurred in British politics, which demands that we 'do the right thing' (a mantra we hear often from Ed Milliband), that can often be at variance with the requirement which requires us to do the principled thing - a course of action often harder to follow. It seems to me that the ugly face of populism is not confined just to those Nationalist politicians north of the border.

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