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Former Royal Bank of Scotland chairman Sir Fred Goodwin was incentivised to grow the bank, and that he most certainly did. His successor, Stephen Hester, is incentivised to make the bank smaller, and his plan for that will be officially unveiled with the results later this week.
One cannot criticise Hester's plan because its details have not yet been published. However, he made his name a few years ago when he was instrumental in rescuing what was Abbey National, and is now just Abbey, from the consequences of its follies. His turnaround plan then followed the good bank, bad bank model. The bits that had a future went in one pot, those to be sold, closed or run down in another.
This worked with Abbey. The good bits were free to grow and the bad bits were managed for decline and disposal, but the question it raised was one of cost. The bank needed clearing out but, while the speed and rigour with which Hester and his chief executive Luqman Arnold set about the task delighted the banking analysts with their short-term time horizons, it raised questions about whether they were getting as much value as they ought for the bits being tossed overboard.
One City banker gleefully remarked (after he had banked the loot) how his bank had made one fortune selling Abbey overpriced assets when it was in expansion mode, and a second fortune buying the same assets back again at rock-bottom prices from the clean-up team. There must be a danger that a similar experience will be repeated with Royal Bank of Scotland.
On a more cheerful note, the Government's insurance scheme for toxic assets seems almost ready. There is a fashion in the markets these days to dismiss everything done by the Government to alleviate the crisis as too little, too late, and aimed at the wrong part of the system.
People think a bit more deeply about the insurance scheme because, if last autumn's bailouts prevented widespread banking collapse, this plan gives the banks the opportunity to get back off their knees. It is a hugely significant event that may well come to be seen as the moment when British banking — and British bank shares — began the long march back.
FitzGerald fitting for BP
They say the key to judging the competence of a board is the ease with which it manages succession. They also say the one task non-executive directors must get right is, once again, to manage the succession.
Where does that leave oil giant BP? It is still coping with the consequences of its ill-fated decision almost four years ago to indulge its then chief executive Lord Browne by letting him continue beyond the normal company retirement age of 60. Two things happened as a result. First, the company lost a lot of talented people because the lack of changes at the top delayed promotions all the way down the organisation and prompted ambitious but disappointed and frustrated younger executives to try their luck elsewhere.
Second, when Browne was unexpectedly forced by scandal to resign, it led to an extremely messy transfer of power to new leader Tony Hayward, one consequence of which was to complicate the timing of the retirement of chairman Peter Sutherland.
Admittedly, it is a difficult slot to fill given that the right person has to be as skilled in the ways of politics and adept at dealing with some of the world's more difficult governments as they need to be versed in business. But BP has made a mess of it, and it was surely unnecessary to allow speculation about Sutherland's successor to run for at least a couple of years.
Given Murphy's Law, which says anything that can go wrong will go wrong, it became almost inevitable that when the board finally hit on a candidate, Rio Tinto's Paul Skinner, events would conspire to make him unavailable too.
But now it appears support is coalescing round Niall FitzGerald, former head of Unilever and chairman of Reuters. Given that he is one of the handful of business leaders of recent times who thinks and acts globally, and who understands that the challenges facing corporations go well beyond next quarter's dividend and the crude pursuit of short-term shareholder value, he would be an admirable choice. So let's just hope BP doesn't mess it up again.
