Just how far has a senior economist have to go to ensure that he fails in enough key areas to be elected chairman of a top financial institution?
In the case of Sir Howard Davies, following who stepped down his position as Director of the London School of Economics and Political Science (LSE) on 3 March 2011 following concern over the institution’s decision to accept funding from a foundation controlled by the Libyan dictator Muammar Gaddafi’s son, Saif, and other LSE Libya links, a new position beckons at the helm of RBS.
Sir Howard, who ran the Financial Services Authority from 1997 until 2003 and now chairs the government-appointed Airports Commission, is expected to take over the role from Sir Philip Hampton this summer, with an announcement on the matter likely to take place this Thursday.
With 35 years of industry experience, Sir Howard was previously employed by McKinsey and Company and at the Treasury and the Foreign and Commonwealth Office, which included a posting of Private Secretary to the British Ambassador to France. From 1985–86 he was Special Advisor to Chancellor of the Exchequer at the time, Nigel Lawson.
From 1987 to 1992 he was Controller of the Audit Commission, before being appointed Director General of the Confederation of British Industry in the same year, a position he held until 1995, when he was appointed Deputy Governor of the Bank of England. In 1997 Sir Howard assumed his position at the Financial Services Authority.
Sir Howard is currently chairman of insurance business Phoenix, and also has some banking experience, sitting on the board of Morgan Stanley, and previously serving on the advisory board of RBS unit NatWest.
RBS, one of the world’s largest FX dealers, is a prominent financial institution among London’s heavyweights, has been a major institution at the center of the FX rate manipulation investigation which lasted for a year, conducted by Swiss, British and US regulators, with the firm having had a $6 billion hit in revenues due to fines for transgressions and malpractice in a short space of time.
In December last year, the bank postponed annual bonuses for 18 FX traders, with Jon Pain, Head of Conduct and Regulatory Affairs at RBS at the time having stated “We are undertaking a robust and thorough review into the actions of the traders that caused this wrongdoing and the management that oversaw it,” he said.
“This is a complicated process but also an essential one in order to identify culpability and accountability for this unacceptable misconduct.
“To be clear, no further bonus payments will be made or unvested bonus awards released to those in scope of the review until it has concluded and its recommendations have been considered,” he added.
RBS is no stranger to controversy, especially when electing leadership figures. Sir Fred Goodwin, who served as CEO of RBS between 2001 and 2008 led the firm to collapse through a strategy of aggressive expansion primarily through acquisition, including the takeover of ABN Amro, which proved disastrous and led to the demise of RBS in its privately owned state in the October 2008 liquidity crisis.
The €71 billion (£55 billion) ABN Amro deal, of which RBS’s share was £10 billion in particular stretched the bank’s capital position. £16.8 billion of RBS’s record £24.1 billion loss is attributed to writedowns relating to the takeover of ABN Amro.
During 2008 and 2009, at the height of the financial crisis, the RBS group was effectively nationalised, with the British government owning nearly 70% of the ordinary shares of the company owing to its enormous debts. By January 2009 the share price was more than 98% down from its February 2007 peak.
Sir Fred went on to retire, with a pension entitlement, represented by a notional fund of £8 million, being doubled, to a notional fund of £16 million or more, because under the terms of the scheme he was entitled to receive, at age 50, benefits which would otherwise have been available to him only if he had worked until age 60.
The treasury minister Lord Myners had indicated to RBS that there should be “no reward for failure” but Sir Fred maintained his entitlement and the doubling of his pension fund was approved.
Sir Fred became the target of anti banking groups who set about vandalizing his home and other property, however Sir Fred did not relent and On 18 June 2009 RBS stated that following negotiation an agreement was reached between RBS and Goodwin to reduce his pension to £342,500 a year from the £555,000 set in February after he took out an estimated £2.7 million tax-free lump sum. The agreement followed the completion of RBS’s internal inquiry into Sir Fred’s conduct, which found no wrongdoing.
Prospective RBS Chairman Sir Howard Davies’ resignation from his position at LSE resulted from the discovery that the institution over which he presided had been involved in a deal worth £2.2m to train hundreds of young Libyans to become part of the country’s future elite.
An independent inquiry headed by Lord Woolf, a former lord chief justice, examined the LSE’s relationship with Libya and with Muammar Gaddafi’s son Saif al-Islam. At the time, Sir Howard stated publicly “I have concluded that it would be right for me to step down even though I know that this will cause difficulty for the institution I have come to love. The short point is that I am responsible for the school’s reputation, and that has suffered.”
His resignation came as a US consultancy admitted mishandling a multimillion dollar contract with Libya to sanitise Colonel Gaddafi’s reputation in the west. Monitor Group, based in Cambridge, Massachusetts, organised for academics and policymakers from the US and UK to travel to Tripoli to meet the Libyan despot between 2006 and 2008, as part of a $3m (£1.8m) contract.