Foulkes’ questions about Fred’s culture of fear must be answered

March 22nd, 2009

The Observer this morning ran a story claiming that three of RBS’s non-executive directors were bullied, intimidated and threatened with the sack if they dared to ask questions about what the bank was up to during the testosterone-fuelled Sir Fred Goodwin years. (see RBS faces probe over ‘threats’ to directors.)

As a journalist who has been reporting on the Royal Bank since 1999, I say: “I know how you feel.”

Despite its self-image as a “plucky global challenger”, it was clear to many journalists working in Scotland over the past decade that RBS was getting a bit too big for its boots and may also have been hiding some noxious skeletons in its closet.

Matters of interest to us included that Fred treated his subordinates with such contempt that many ended up leaving the bank, occasionally with psychiatric problems. Another area that most journalists were familiar with was the bank’s heavy involvement in the Enron scandal of 1998-2002.

It was suspected the NatWest Three — David Bermingham, Giles Darby and Gary Mulgrew — were being used as scapegoats by the bank in the hope of disguising its wider involvement in the scandal.

Specifically, there was interest in the final report of Neal Batson, the court-appointed examiner into Enron’s bankruptcy, published on November 4th, 2003. The report included a 100-page appendix detailing RBS’s close involvement in the scandal.

Batson concluded that RBS “had actual knowledge of the wrongful conduct” in Enron’s special-purpose-vehicle deals. The report also said that RBS “gave substantial assistance to [Enron’s officers] by participating in the transactions,” and that injury to Enron “was the direct or reasonably foreseeable result of such conduct.”

The Batson report concluded: “This evidence is sufficient for a fact-finder to conclude that RBS aided and abetted certain [Enron’s officers] in breaching their fiduciary duties.”

The names of senior RBS executives — including Iain Robertson (who suddenly retired from the bank in 2005) and Johnny Cameron (who retired in February 2009) — were all over the Batson report like a rash.

But were we able to tell our readers about RBS’s apparent involvement in aiding and abetting the Enron scandal? No. Whenever a Scottish journalist had the temerity to start investigating such matters, lawyers invariably intervened.

On occasions Howard Moody, a spin doctor at the bank, could become quite menacing on the phone. On several occasions, I recall being threatened with legal action or worse for asking vaguely probing questions about the bank and its board of directors. And just as often, craven lawyers acting for the media group I then worked for ended up self-censoring and blocking the stories.

The Observer report (RBS faces probe over ‘threats’ to directors) suggests he bank treated its own non-executive directors with equal contempt.

Labour MSP Lord Foulkes has asked the FSA to investigate the “culture of intimidation” that prevailed at the bank. Specifically, Foulkes wants to know if non-executive directors who dared to ask difficult questions were intimidated or threatened with the sack. According to the report, Foulkes has been extensively briefed by former bank insiders about the claims which, if true, could trigger a full-scale criminal investigation.

Foulkes is also disturbed by claims the bank misled investors over its exposure to bad debt in documentation related to its capital-raisings last year.

The widespread suspicion was, until recently, that the Edinburgh-based bank’s non-executive directors — including Sir Tom McKillop (non-executive chairman), Bob Scott (senior independent director) and Archie Hunter (chairman of the audit committee) — were a bunch of  ‘patsies’ and sycophants who didn’t dare stand up to the autocratic Goodwin.

If Foulkes’ allegations are true, then they appear to have had little alternative. This must be fully investigated. Apart from anything else, we need to know what was going on inside the Gogarburn boardroom in order to decide whether the UK’s current system of corporate governance is due for another major overhaul.

Over to you, Lord Turner.

Separately, the Daily Telegraph has alleged that traders at Citizens Financial and/or RBS Greenwich (formerly Greenwich NatWest) bought some £34 billion of “toxic” sub-prime mortgages in 2007 without telling the RBS board. (See RBS traders hid toxic debt).

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Posted by Ian Fraser on Mar 22 2009. Filed under Blog. You can follow any responses to this entry through the RSS 2.0. You can leave a response or trackback to this entry