Is Freedom Bankable?

The bonus issue has been covered here before. This analysis of the problem and recommended solution remains my view. But continued failure to address causes in favour of tackling symptoms yesterday claimed, in Stephen Hester, an innocent victim

Many have little sympathy for him – he is already enormously wealthy, and very highly paid. He is working for a state-owned bank, and therefore de facto is a ‘public servant’ – in a context of swathing public sector redundancies and pay freezes. The share price of RBS has been clobbered in a year of contraction, and it is unconscionable in our current society that someone working for a bank requiring a state bail out should be paid such a big bonus. It is not unreasonable to expect him to be sensitive to these things.

Others point out that Hester took the job after RBS had effectively gone bust and been bailed out by the taxpayer. The balance sheet he inherited was a bag of nails and he has worked tirelessly to reduce the risks to which the bank (aka the tax payer) is exposed and so protect us all from further losses. Furthermore, in the same way that not all footballers are the same, nor are all bankers – Wayne Rooney is highly paid (and earns more than Stephen Hester) because he is judged worth it by his employer. In the same way, top bankers earn top money because they are judged worth it. Stephen Hester was judged worth it when his contract was agreed.

Many sympathise with both perspectives. So what to do? Mercifully, civilisations such as ours have certain foundations on which we fall back when we encounter vexatious questions.

A relevant foundation is the rule of law. Stephen Hester had a contract, offered to him by RBS when it was already majority-owned by the taxpayer. This contract included bonus arrangements required to attract someone of Hester’s calibre. The notion that somehow Hester has a ‘moral duty’ to reject his bonus is bogus. Rather, those who offered Hester his contract, and who agreed it, have a moral duty to speak up for Hester’s right to take what he has earned in good faith.

The second notion is that of freedom. Stephen Hester was offered a contract and accepted to serve under its terms. That he has honoured his terms of that contract and done a good job on behalf of the taxpayer-owners is not in question. Yet his right to accept his bonus without becoming in his words, a pariah, was taken from him. When a society accepts that the rights of its citizens can be over-ridden by its collective mood as to an individuals ‘moral duty’, then no one is safe. Freedom is compromised, just as it was by the McCarthy inquisitions.

An issue of special interest to the social investment community illuminated by this is whether government is a trustworthy counterparty. Hester’s experience might be used as evidence that the government will renege on deals or exert unfair pressure when an adverse wind blows. This certainly reflects the recent experience of the ‘unlawful’ (according to the High Court and the Court of Appeals) feed-in-tariff review. If investors or management cannot trust government as a counter-party, the nascent social investment market may well stall.

Endless tricky questions are thrown up: Is it the fiduciary duty of those managing the RBS asset on behalf of the taxpayer to do so in a way that will maximise the interests of the taxpayer? Might failing to offer bonuses to potential candidates to lead the bank rule out the entire field of those qualified to do the role well? Would doing this constitute a breach of fiduciary duty? Is a public service motivation now a core part of the person spec for anyone working at RBS? Do those with a strong public service ethos tend to end up with successful careers as bankers?  Are we to blame a lack of bankers-with-a-public-service-ethos on bankers? Shall we blame unacceptably low salaries in parts of the public sector on those whose highly developed sense of service has led them work for sums which allow society to under-value them so gravely? Is anyone still awake?

Perhaps it is time for us to look beyond the easy target and direct our anger to towards the causes of these problems, not the symptoms. I refer you to the comments I made some time ago.

  1. James Perry is astute as ever. Hester’s bonus debate is a side issue, like a sticking a small plaster on someone with 90% burns.

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