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A right Royal BallS-up

Nothing is easier than spending the public money. It does not appear to belong to anybody.

Fred Goodwin must feel as though he’s stepped through a worm hole into some kind of parallel universe in which an arrogant banker is seen as akin to a traitor to the Crown or a murdering, genocidally-minded dictator.

The knighthood he has been stripped of puts him in some less than salubrious company; Soviet spy Anthony Blunt, Robert Mugabe and bonkers Romanian dictator Nicolae Ceausescu all had their honorary titles removed for ‘bringing the honours system into disrepute’.

‘Poor me’, he must be muttering, ‘why am I lumped in with this lot? All I did was make some monumentally bad decisions that nearly brought down one of the UK’s biggest institutions so that the taxpayer had to fork out billions of pounds to rescue it, money they probably aren’t going to see back again. Oh’.

I suppose once the focus had switched off current RBS boss Stephen Hester now that he has relinquished his bonus shares, it was always going to hit upon the man upon whose head parts of the media seem to lump the entire financial crisis.

But let’s get a little perspective here. Fred Goodwin wasn’t in charge of Lehmann Brothers, Northern Rock or the Icelandic banks. Nor, indeed, the Federal Reserve. He was, however, in charge of a large player in the UK economy that did very, very badly. Partly due to some monumentally bad decisions that were made, possibly by him, certainly on his watch, and for that, his head was, quite rightly, on the block.

I just can’t help thinking that there is a knee-jerk reaction to all this. First with the share-bonus thing with Hester and now the ex-Sir Fred business. After all, we haven’t seen Lords Archer and Taylor reduced to mere Messrs, because they were naughty boys and went to prison.

The fact of his £1.2m salary aside, Stephen Hester wasn’t actually being given the bonus in cash, although that would seem to be the impression from some of the coverage. It’s not as though he would have been able to actually spend any of it for some years. And, as any businessperson knows, when you get to a certain level, bonuses do tend to be given in share options. It’s a way of rewarding performance, yet tying one in to the long term to ensure that performance continues.

It’s also a truth universally acknowledged that you pay what you have to in order to get the job done to the level you require.

RBS is in, arguably, a better state of affairs than when Hester was recruited, although it is still in hock to the Treasury. I really don’t think that the same could be said of it had the Board decided to try and recruit a top flight banker to sort the mess out but only pay them the salary of, for example, a website editor.

The UK taxpayer has apparently ‘saved’ money by not awarding Hester his bonus. Except, except… not really. Quite apart from the capital gains tax that would have fallen due once the shares were sold, the share price plummeted on the news that Hester had refused the bonus. Big investors, both foreign and domestic, scarpered when it looked like the Government was going to start interfering in RBS.

If the UK taxpayer is going to stand any chance of benefiting from its investment in RBS then it has to surely, be allowed to operate as a commercial operation. And if that means paying something akin to the going rate for the top job then so be it.

About Fiona Russell-Horne

Group Managing Editor across the BMJ portfolio.

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