Wednesday 4 March 2009

Government action against Sir Fred would be wasteful and wrong

Lawyers have already stated that the government would almost certainly fail to recoup any of Sir Fred Goodwin's £16.9 million pension pot if they started a legal action, and have suggested that even an unlikely eventual success would take years and require a considerable amount in legal fees.

There is no doubt that this pension is an obscene amount to be paid to a businessman who oversaw unprecedented failure and incompetence. But the government is wrong to make an example of Sir Fred Goodwin for short-term populist political gain.

Ministers were certainly wrong to approve this deal – but the simple fact of the matter is that they did. Lord Myners, the City Minister who sanctioned the deal, is now under pressure from MPs and trade unions to resign. The minister admits he was involved in negotiations over Sir Fred's early retirement – which effectively doubled the size of the pot – but claims he was unaware he could have blocked the package on offer, according to The Telegraph.

We step on to dangerous legal and political ground when the Prime Minister says he is willing to use all legal means at his disposal to overturn what is a perfectly legitimate employment contract. The reality is that consent has been given - the fact that the government might now, with the clarity of hindsight, wish that they had not consented to the deal is neither here nor there.

Additionally, at the time that the deal for this pension package was struck the Royal Bank of Scotland was a private company receiving no government funds. I simply cannot support action that justified a government assuming the right to demand from private enterprise the return of money paid to former employees.

If we want to launch a wider debate about how such salary and pension packages are fundamentally unjustifiable then that should be welcomed. I find the huge sums of money paid to many, irrespective of profession, to be largely obscene and indefensible. But I am not convinced that this is the debate the government is launching with these actions.

Perhaps Sir Fred should voluntarily return some of his pension fund as a relatively small gesture to the thousands of workers on more modest salaries who will lose their jobs and their livelihoods as a direct result of bankers’ incompetence.

But aside from a plea to Sir Fred’s better angels all the government can and should do is ensure that difficult lessons are learnt from this debacle; reactionary rhetoric won’t erase the mistake.

1 comment:

Sunder Katwala said...


I feel this is too cut and dried. I agree that there won't be retrospective legislation to specifically act on Goodwin's pension if it was legally granted. So I will give you the main point.

That does not mean that there might not be other routes worth investigating - they might relate to how it was signed off and process issues; they might relate to other points about the diligence of Goodwin's stewardship of the bank; there have been suggestions (including by St Vince Cable) that the government could have the option of making RBS bankrupt, though presumably there must be broader pros and cons there.

However, my broader point is that the "better angels" point involves political and civic society pressure on Fred G, and that government can and should be part of applying that.

If he is legally entitled to all of it, and sticking to that point without accepting there is any ethical complication, it would be quite appropriate to withdraw his knighthood. It would be a symbolic way to show that our society, as a political community, does not respect his decision or broader contribution.

Other forms of pressure are legitimate and appropriate too. Institutions interested in the public legitimacy of financial institutions and a market system might particularly worry about the impact of Fred's refusal to compromise. So many of his friends might also have an interest in applying private or public pressure, since how this is resolved will now have an important impact on public perceptions.

If he keeps his cash, but becomes something of a social pariah for doing so, he might want to reflect on making some substantive gesture by negotiating a less extravagant pension reward for his service to RBS.