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Government asks honours committee to strip Fred Goodwin of knighthood

David Cameron reveals move for honour to be stripped from former RBS chief executive

David Cameron breached Whitehall confidentiality rules when he revealed that the government had asked the honours committee, and ultimately the Queen, to strip the former head of RBS Sir Fred Goodwin of his knighthood.

Cameron also saidon Thursday that the bank’s chief executive, Stephen Hester, will have to take a lower bonus than the £2m he received last year, although an RBS spokeswoman said the board’s remuneration committee had yet to discuss the issue.

The prime minister made the two headline-grabbing announcements after his speech on popular capitalism, in which he said that the system was in crisis and the link between hard work and pay broken. He also said he would consolidate existing laws to make it easier to set up co-operatives, but said the route to popular capitalism lay through competition, deregulation and enterprise.

Referring to calls in the Daily Mail for Goodwin’s knighthood to be withdrawn, Cameron said: “I think it is right that there is a proper process that is followed for something of this order. There is a forfeiture committee in terms of honours that exists, and it will now examine this issue. I think it is right that it does so.

“Obviously it will want to take account of the Financial Services Authority report, which I think is material and important because of what it says about the failures of RBS and what went wrong and who is responsible and the rest of it.”

Both the Cabinet Office and Downing Street said references to the forfeiture committee were normally kept confidential.

Under most circumstances, a sponsoring department such as the Treasury refers the possible withdrawal of an honour to the committee, which consists of the head of the civil service, Sir Bob Kerslake, the Treasury solicitor, the Home Office permanent secretary and the permanent secretary of the Scottish executive. The Scottish executive is understood to have recommended the forfeiture.

Since 1995, the committee has recommended that 34 people, including the Zimbabwean president, Robert Mugabe, be stripped of their honours. Honours are normally taken away only if someone has been found guilty of a criminal offence or has been reprimanded by their professional regulator, including a professional register.

In its report into what went wrong at RBS, published in December, the FSA criticised Goodwin’s conduct as chief executive, in particular his decision to press ahead with a deal to acquire Dutch rival ABN Amro “without a sufficient understanding of the risks involved”.

The report also criticised the quality of the regulators. Goodwin was given his knighthood by Labour in 2004 for services to banking. Labour supported stripping him of his knighthood, but said the main issue was the size of Hester’s bonus. Chuka Umunna, the shadow business spokesman, accused Cameron of “shrugging his shoulders about reports that the chief executive of RBS is still expected to land a bonus of more than £1m next month”.

The RBS board is scheduled to meet next Wednesday, with the remuneration committee meeting shortly afterwards.

While Hester’s potential £1.5m bonus is politically sensitive, the RBS chairman, Sir Philip Hampton, stands to receive up to the 5.2m shares he was awarded in February 2009 for taking on his current role at the troubled bank.

There are performance conditions attached to the shares, which were priced at 29p each in 2009, giving them a paper value, at the time, of £1.5m.

At current prices, they are worth closer to £1m, and it is understood that any decision on whether to award them will be taken by Sir Sandy Crombie, a former chief executive of Standard Life who is now the most senior independent director on the board of RBS. Crombie will make his recommendations to the remuneration committee, chaired by the former Coca Cola executive Penny Hughes.

Hughes, in turn, will sound out UK Financial Investments, the body that controls the taxpayer stake in bailed-out banks such as RBS. Decisions about a £4m bonus for John Hourican, the head of RBS’s investment arm, and linked to the previous three years’ performance, may not need to be taken until April.

Hughes will also need to decide how much money should be used in bonuses for investment bankers – some £500m is thought to be earmarked, compared with £1bn a year ago.

RBS and Lloyds had both been preparing to match bonus arrangements from last year, when cash bonuses were limited to £2,000.

But while Cameron pledged to take tough action on bonuses, banks’ annual reports – in which pay is usually disclosed – may contain less information this year than last because legislation that would require information about high earners who do not sit on boards to be published will not be passed until July.

The first of the annual reports are published at the end of February, which means a government pledge for the top eight earners outside the boardroom to be published will not be achieved immediately.The Treasury said: “The government is committed to making top-level pay more transparent – we want the most transparency for those with the greatest responsibility.” © 2012 Guardian News and Media Limited or its affiliated companies. All rights reserved. | Use of this content is subject to our Terms & Conditions | More Feeds