No obligation for Fred to shred

Some people seem to think it’s disgraceful, others obscene, but Sir Fred Goodwin has no intention of surrendering any part of his £693,000-a-year pension, despite requests from Brown, Badger-Brows and Lord Myners to do so. Nor should he. The Government has no right to interfere in pensions, and even less in the Rule of Law.

Sir Fred has become something of a focus for the public ire, a figure to vilify who is an exemplar of all that was wrong with the banking industry – it has earned him the unenviable soubriquet of ‘the world’s worst banker’. His purchase of ABN-Amro has been viewed as a reckless business decision, one that left RBS overexposed to the market crash; it was always a high-risk strategy, but it was not reckless. The rewards were potentially high, and had the collapse in the sub-prime market not destroyed confidence in the sector, triggering the crash and freeze on the credit markets, I suspect he would still be viewed as one of the best. After all, he pulled it off beautifully when RBS bought over Natwest. This was not necessarily the wrong purchase, but it was the wrong time.

His aggressive strategy left the company exposed at a critical moment and he must live with the shame of that legacy. He built RBS into a juggernaut, a banking colossus, only to over-extend his reach – but remember the profits the group made under his leadership. That is where he earned his pension. Yes, the salaries of the top brass were ‘obscene’, but so too was the amount of money their companies were making.

Quite aside from the fact that pensions are deferred payment (therefore we must consider his entire career, not simply his error in judgement towards the end), it is wrong for the Government to demand that he surrenders his pension. Legally, it would set a dangerous precedent were they to attempt to force him to. It would be remarkably short-sighted of them to do so, and if Sir Fred must forgo his due, should not also the Government ministers who oversaw this fiasco? The leaders of the FSA who failed to regulate? Where would it stop?

RBS is still a private limited company. The Government is a major shareholder, but it has not been fully nationalised. He is contractually entitled to it, and we now know from Sir Fred’s response that the Government had agreed to this award when it was confirmed in November last year. Their response is a political one, and it reflects poorly on them – the worst kind of Daily Mail politics. Brown, Darling & Co are merely attempting to cover their backsides and hide their incompetence.

Gordon has a damned cheek to talk about pensions, given his raid on the national pension and destruction of the Final Salary pension in the public sector. Glass bloody houses indeed, to accuse Sir Fred now.

Now, I think it would be fair to say that the contract is not a good one. It has allowed for a man who built and destroyed a bank, who presided over a policy of high-risk investments and ultimately failed his shareholders to be rewarded with a very generous pension. It is still a contract, as Tim Worstall puts it so concisely:

“Pensions are deferred compensation. This is part of the contract that he signed all those years ago.

It may not have been a very good contract, it might be that we or you or even they wish it had not been signed in the form it was, but it is indeed a contract.

And tearing up contracts, abandoning the rule of law, is really not an action or activity that is going to help us in the future.”

Someone posted a comment to Iain Dale’s blog entry yesterday containing an exchange between Sir Thomas More and William Roper, an exchange that encapsulates this affair. It explains precisely why the Government should tread carefully here:

“William Roper: So, now you give the Devil the benefit of law!
Sir Thomas More: Yes! What would you do? Cut a great road through the law to get after the Devil?
William Roper: Yes, I'd cut down every law in England to do that!
Sir Thomas More: Oh? And when the last law was down, and the Devil turned 'round on you, where would you hide, Roper, the laws all being flat? This country is planted thick with laws, from coast to coast, Man's laws, not God's! And if you cut them down, and you're just the man to do it, do you really think you could stand upright in the winds that would blow then? Yes, I'd give the Devil benefit of law, for my own safety's sake!”

I think that says it all, don’t you?