The directors of Royal Bank of Scotland rebuffed demands from its biggest investors for its chairman and chief executive to quit after an emergency £12bn fundraising last year, the head of Britain’s biggest investment group told MPs on Tuesday.
Peter Chambers, chief executive of Legal & General Investment Management, criticised the bank’s board under questioning by the House of Commons’ Treasury select committee investigating the banking crisis.
Defending shareholders against accusations they had been supine ahead of the crisis, Mr Chambers said LGIM – one of the top three investors in RBS – had demanded in May that Sir Tom McKillop and Sir Fred Goodwin, chairman and chief executive respectively, should leave.
Shareholders have been blamed for failing to restrain banks, with Lord Myners, the City minister, this month calling on them to be more active as owners of companies.
However, Mr Chambers said that LGIM met bank sector bosses once a fortnight on average last year.
“One would have to conclude that [non-executive directors] were not effective in controlling the actions of the executive directors, otherwise this could not have happened,” he said in an unusually public and strident criticism by L&G.
Mr Chambers called for non-executive directors, who represent shareholder interests on the board, to work harder, hold fewer jobs and be paid more.
Mr Chambers said he had raised concerns with Sir Peter Sutherland, a non-executive director, but that the board had fobbed LGIM off with promises to make new board appointments in August.
Only when the bank had been part-nationalised last autumn did Sir Fred step down and Sir Tom announce he would leave.
LGIM said it asked all the UK‘s leading banks early last year whether they had sufficient capital to weather the crisis.
“One of the major banks was very adamant and we asked them under what circumstances they would need to raise more capital. They said there were no circumstances under which they would need to raise more capital.
“That was six weeks before their rights issue.”
The hearing also saw some of Britain’s most successful hedge fund managers hear MPs say their industry was populated by “an opaque bunch of spivs” as they were subjected to a barrage of hostile questions about trades betting on falls in bank shares.
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