Corporate Governance RBS Dissertation


The Royal Bank of Scotland Case

Nicole Kraemer (413991)

The surge and fall season of the Regal Bank of Scotland can be characterized by poor corporate governance which allowed for the complete dominance of the exec management in the board of directors and a massive principal-agent problem. Positive social dynamics and the benefits of weak jewelry allowed for compliance while violence and intimidation tactics silenced questions, worries and competitors. The board's utter compliancy and termes conseilles negligence empowered rampant, unchecked empire-building in the cost of shareholder value and led to a spiral of unaccountability and gross incompetence. Stakeholders' lack of confidence via misinformation and misdirection was an inevitability that sealed RBS's fortune. The Regal Bank of Scotland (RBS) Group is known as a publicly traded company that started its elevacion as a global banking entity under the command of Friend George Mathewson1. In 2000 RBS surely could secure a hostile in the National Westminster Bank2, three or more leading Mathewson to seek a successor to acquire the integration of NatWest. He found one out of his then-deputy CEO Sally Goodwin. You will discover two main corporate governance issues linked to this yield in management. First of all, the issue of succession. The board is in charge of appointing the CEO4, however it is apparent Mathewson experienced significant influence in the decision5. The plank exists to prevent principal-agent problems and getting a value-creating CEO is a crucial task yet here we come across them choosing an auxiliary role in the succession process. This was not right away problematic while Goodwin looked a reasonable decision however it set the tone for the firm's dynamics early on. The other and more with regards to corporate governance issue was Mathewson's move to chief of the board. As CEO the firm had Goodwin, a hand-picked similarly-expansion-minded6, six successor to Mathewson, being monitored by simply Mathewson himself as chairman8. The board's ability, or perhaps desire, to curtail the actions of executive supervision was significantly impaired with this decision. The takeover enabled RBS to defeat their dependence on the fairly small Scottish economy and enter the foreign market9. Goodwin began over a rapid string of acquisitions to enable even further expansion10. In 2004 nevertheless , the Rental One purchase troubled shareholders who sensed Goodwin payed too much and hunch that Goodwin valued size over aktionar value got hold11. During this period Goodwin likewise opened a flashy new headquarter building in Edinburgh, bought a personal jet pertaining to senior professionals, and put champagne functions which drew further criticism from shareholders12. Empire-building and lavish managerial spending happen to be precisely the type of activities which the board should really prevent to be able to protect shareholders. However here we see not any effort for the table to reign in their CEO. This could be as a result of couple reasons. Firstly, Mathewson and Goodwin of course have got close connections because of the predecessor-successor relationship but there is also the effectiveness of weak connections within the plank itself. Plank members have likely worked with the two Mathewson and Goodwin for several years and these repeated connections have lent a feeling of understanding to their exchanges which may bring about hesitancy in saying " no” to either of them. There is also the threat of authority emerging over panel members' mind. While Goodwin was efficient and intelligent, he could be a bully, relating to a BBC documentary on RBS13. " He made fear, ” said one article of Goodwin14. This could have led to reluctance on the part of table members of talking up and voice their oppositions or perhaps concerns. To slow down about acquisitions but retain profit growth, Goodwin turned to the highly intricate but extremely lucrative organization of mortgage trading and by 2005 two-thirds of all RBS's profit came from this sector15. In 2007 Goodwin moved into a pool to buy ABN-AMRO in a hostile takeover16. The...

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