The rise and fall of the Royal Bank of Scotland is characterized by poor corporate governance which allowed for the complete dominance of the executive management over the board of directors and a massive principal-agent problem. Positive social dynamics and the power of weak ties allowed for compliance while intimidation and bullying tactics silenced questions, concerns and opposition.
The board’s utter compliancy and borderline negligence enabled rampant, unchecked empire-building at the cost of shareholder value and led to a spiral of unaccountability and gross incompetence. Stakeholders’ loss of confidence from misinformation and misdirection was an inevitability that sealed RBS’s fate. The Royal Bank of Scotland (RBS) Group is a publicly traded firm that began its ascension as a global banking entity under the leadership of Sir George Mathewson1. In 2000 RBS was able to secure a hostile of the National Westminster Bank2,3 leading Mathewson to seek a successor to lead the integration of NatWest.
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He found one in his then-deputy CEO Fred Goodwin. There are two main corporate governance issues associated with this turnover in leadership. First of all, the issue of succession. The board is responsible for appointing the CEO4, yet it is obvious Mathewson had significant influence in the decision5. The board exists to avoid principal-agent problems and appointing a value-creating CEO is an important task yet here we see them taking an auxiliary role in the succession process. This was not immediately problematic as Goodwin seemed a reasonable choice
however it set the tone for the firm’s dynamics early on. The second and more concerning corporate governance issue was Mathewson’s transition to chairman of the board. As CEO the firm had Goodwin, a hand-picked similarly-expansion-minded6,7 successor to Mathewson, being monitored by Mathewson himself as chairman8. The board’s ability, or perhaps desire, to curtail the actions of executive management was severely impaired with this decision. 1 “George Mathewson. ” Bloomberg Profiles.
<http://www. bloomberg. com/profiles/people/1520726-george-ross- mathewson>. Accessed 16 November 2014. Online. 2 Dey, Iain andKate Walsh. “How Fred shredded RBS. ” Sunday Times. 8 February 2009. <http://www. thesundaytimes. co. uk/sto/business/article148906. ece>. Accessed 17 November 2014. Online. 3 Inside The Bank That Ran Out Of Money. Colin Murray. BBC, 2011. Film. 4 “Corporate Governance” RBS. <http://www. rbs. com/about/corporate-governance. html>. Accessed 17 November 2014. Online. 5 Inside The Bank That Ran Out Of Money. Colin Murray. BBC, 2011. Film.
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