Westminster blog

There are reports that RBS lawyers have advised the board to resign on mass if the government intervenes to block any bonus payments.** Accepting any restrictions would apparently make RBS uncompetitive and break the board’s fiduciary duty to shareholders. They would be left with no choice but to walk.

This is all terribly interesting. But before you start calculating the potential repercussions for Alistair Darling, just remember one thing: RBS is owned by the taxpayer. The government holds a 70 per cent stake which will soon rise to more than 80 per cent. Under UK company law, Darling UKFI can ask for whatever they want and legally the board must obey.

The mechanism is a “special resolution”. Under ordinary company law, if a shareholder holds a stake of more than 75 per cent, they are entitled to issue a “special resolution” that the board has no choice but to follow.

The resolutions can apply to any aspect of how the company is run, including pay and bonuses. A 75 per cent shareholder can even force the board to change the company’s articles of association. Minority shareholders are not even entitled to vote.

So, if Darling really wanted to change the pay policy, he could do so in a stroke. This makes a bit of a mockery of all the political tussles over pay at the state owned banks. But it also calls the bluff of the RBS board. Their lawyers seem to have come up with some technical advice that looks remarkably like a political power play.

** If Robert Peston is right, the investment banking team at RBS are due for a bumper Christmas, with the bonus pool jumping by 50 per cent to £1.5bn. Don’t expect the Treasury to block all or even any of this. They are acutely aware that the bank needs to remain competitive, but they want to be able to step in if there are any huge payouts.

UPDATE

If the (often excellent) comments are anything to go by, this post has clearly struck a nerve. Two things should have been clearer. The government holds 70 per cent of the ordinary shares and £13bn worth of B-shares, comprising an economic interest that will rise to about 84 per cent. That effectively gives the Treasury the right to interfere in whatever it wants, for better or worse. But legally the “B-shares” have some limited voting rights and the Treasury can convert them into ordinary shares, should they wish.

The second point is over the minority shareholders. Under the 2006 companies act, written resolutions need not be signed by all shareholders, just a simple majority or 75 per cent of shareholders in the case of special resolutions. If it gathers enough support, there is no chance to vote against it at a general meeting.