Ignoring 'Warning Signals': A Gulf On Standards Set And Standards Followed
Parliamentary hearings at the eleventh hour on top financial and regulatory appointments in Britain appear to be becoming essential safeguards of best practice on ethics and corporate governance. This is a little odd as since the financial crisis there has been endless consultation around the need to raise the bar on accountability to restore much-needed trust between business and society.
Yesterday during such a hearing around his appointment as the next chairman of the Financial Conduct Authority (FCA), Charles Randell told the Treasury select committee that he had failed to see a “warning signal” about Ingenious Film Partners 2 LLP, an investment product that promised its members tax reliefs. It was, however, subsequently challenged by HM Revenue & Customs. The sums involved were not small.
He admitted to an “error of judgment” after investing in this tax avoidance scheme that resulted in him repaying more than £100,000 to the taxman. When asked by Nicky Morgan, Treasury select committee chair if he could see that the Ingenious scheme would look to the general public like a “rather clever tax wheeze” to let people pay less tax, he replied: "Yes, I can."
It seems the financial crisis has left us a legacy after all - we could call it 'honesty in hindsight when publicly questioned.' Tax avoidance is not illegal. But Mr Randell is a former City lawyer and was a government adviser at the time of the financial crisis. Surely he should have known better?
If he did not, how could this appointment, which is expected to begin in April, get to late February before such revelations? There is also that small matter of the new standards set by the FCA itself on scrutiny and accountability for senior managers.
My Twitter account @dinamedland pinged repeatedly with direct messages after I posted the Guardian story. The recurring word was "unbelievable."
The FCA has already lost credibility with the British public over its refusal to publish a report into alleged mistreatment of thousands of small-business customers by Royal Bank of Scotland’s Global Restructuring Group after the financial crisis. This week the very same Treasury select committee decided to publish the report . It accuses RBS of “widespread inappropriate treatment” of distressed SMEs. Ms Morgan called the findings of the report "disgraceful."
Transparency in hindsight appears to go hand in hand with jumping up to 'take responsibility' (but without culpability) when things go wrong - as explored here on Board Talk recently around the Carillion collapse. The latest revelations on that suggest that Carillion was in serious financial difficulty by the middle of 2016 but directors were “placating the City” by failing to disclose major problems.
The Guardian quotes a whistleblower, a former executive who spent more than 20 years with the collapsed government contractor. Speaking on condition of anonymity, he is quoted as saying it had a corporate culture in which “nobody wanted to give bad news”. Perhaps it also had a corporate culture at the top that was doing very well, thank you.
We could, of course, count our blessings on this side of the pond. In Trump-land today, the US Supreme Court today ruled in favour of a narrow definition of the term "whistleblower." It is being seen as a decision that will significantly limit the scope of anti-retaliation measures meant to protect whistle-blowers under the Dodd-Frank Act.
But even if you pause to give thanks there are worrying patterns to note for the UK, as it finds itself divided and struggling to make sense of the implementation of the vote to leave the European Union. We urgently need to know that our leadership on every level has a clear set of values and standards for everyone and not separate ones for an elite scrabbling among themselves to stay in charge.
Because it looks very much in February 2018 as if the 'trust' gap is growing, not diminishing, just at a time when the country needs to come together as much as possible.
It's a gap that is increasingly seen as between the 'haves' who waltz between revolving doors and top posts with £100,000 spare to pay back HMRC - and those who lose their jobs because of the behaviour of RBS and its GRG division and their pensions when businesses like Carillion collapse.
And then there are the large sums of money directors in the offending businesses take home.
Don't forget another recent example of the power of the Treasury select committee. Charlotte Hogg's resignation from her post as Deputy Governor at the Bank of England came just two weeks into it and was announced less than half an hour after a highly critical report was published by it around her non-disclosure of critical information when joining the Bank of England in 2013 as chief operating officer. I called it Conflict of Interest 101 on Forbes.
On social media at the time, a predictable elite from the same background as Ms Hogg rallied in support.
To be fair, it did seem an unfortunate loss for the Bank of England on many fronts.
But you simply cannot set standards and then make exceptions for those who are seen as being part of an accepted club. It certainly gives the impression that the recruitment process is always done via an informal network with tick-box checks done after the fact.
Yet the UK Government appears to acknowledge the need for more diversity on every level in its businesses with multiple initiatives around gender and inclusion - even race. Today it said it was to review how employers were getting on with that.
Given Brexit-mania, I am not sure anybody noticed. But it's high time some dots were joined together beyond next week, or next month, or the next political crisis if we are not all going to go from limbo to hell in a handcart.
Perhaps more attention paid to critical senior appointments would be a good start for the re-establishment of public credibility.