Daily Archives: December 12, 2011

Required reading for the directors of all large companies: the chapter headed “Management, governance and culture” in the Financial Services Authority’s report on the failure of the Royal Bank of Scotland. What this tells us is that the collapse was not just the result of buying ABN Amro at the wrong price and the wrong time, disastrous though that was. Rather, this bid was just one of a whole series of bad boardroom decisions which taken together point to substantive failures of board effectiveness at RBS. And the lessons from what went wrong are relevant well beyond the banking system.

On the face of it, the RBS board’s composition and formal processes met acceptable standards. Sir Tom McKillop, the chairman, had familiarised himself with the bank’s business, made sure that everyone had a chance to speak their mind and improved the transparency of the chairman’s committee. And although Sir Fred Goodwin, the chief executive, was a forceful and sometimes terrifying figure, the FSA concludes that the picture was “clearly more complex than the one-dimensional ‘dominant CEO’ sometimes suggested in the media”.

So why were things allowed to go so badly wrong? The answer is that the bank only did what most of its competitors were doing at the time, but took its excesses to greater extremes. The RBS experience shows yet again what madness it is for banks to focus on the returns on equity, rather than on their overall assets. Read more

Are we on the verge of a Russian spring? Not likely. Angry citizens have taken to the streets to protest the lack of genuine democracy in their country and the economic opportunities they hope it might bring. But the ability of Russia’s party of power to weather this storm is much stronger than in Hosni Mubarak’s Egypt. The government holds more than $500bn in hard currency reserves – $120bn of which can be injected quickly into popularity-enhancing social projects. Nor is there the sort of division within its military or security forces that we saw in Cairo, or the Arab world’s demographic swell of unemployed young men.

Vladimir Putin’s pivot back to the presidency leaves many Russians worried that if nothing has changed in the country’s politics, nothing will change in its economy. An explosion of social media inside the country has made vote-rigging much more visible.

Mr Putin can still rise to the occasion. But much more likely is that he simply appease some groups with increased social spending and bullies others with the heavy hand of the state. So far he has provided no plan to turn things around in Russia. He will not need one to win the next election. But he will if he is to provide his people with the change they have begun to demand. Read more