Making It Happen: Fred Goodwin, RBS and the men who blew up the British economy

by Iain Martin

  Under Goodwin, the bank’s focus was shifting markedly. While Mathewson’s ambition for the Royal Bank had always been intertwined with his Scottish nationalist views, Goodwin’s colleagues were clear that he saw it differently, although not aggressively so. A patriot, who shared Mathewson’s pride that a small Scottish institution had grown to be the second-biggest bank in the UK, Goodwin also considered himself to be resolutely British at a time when the Scots were putting ever more emphasis on endlessly expressing their national identity. Indeed, his colleagues were convinced that he even voted Conservative, making him unusual north of the border. Even though he wanted to live in Scotland and raise his two children in Edinburgh, he was reluctant to make as much of a fetish out of his Scottishness as ‘wee George’ did. With the Royal Bank getting bigger, and with more of its activities in London and overseas, it would naturally have to become a little less Scottish in its outlook and behaviour. Some of the traditional details Goodwin was disinclined to change. When the board was meeting in Edinburgh and broke for lunch – perhaps inviting in some of the bank’s senior executives to join them – it was a cast-iron custom that Scottish mince and potatoes (or mince’n’tatties) were always served. This was perhaps a little unsophisticated, and certainly not in keeping with the spirit of the ongoing financial revolution and the emergence of the Royal Bank as a global bank. ‘It was great mince though,’ says a member of the executive team.

  In other ways, the emphasis was evolving in a manner that prefigured a significant change in outlook. From 2003 the term RBS, as opposed to the full name, Royal Bank of Scotland, gradually started to be used more often to describe the company under which myriad brands went about their business. The more frequent deployment of those initials, on the front of the annual report, in branding and in conversation, mattered. Many of the world’s leading corporations – alongside which Goodwin now aimed to be measured – relied on using initials by which they could be instantly identified. In the coming age of globalisation, the biggest corporations and banks would need a readily identifiable brand in countries where language might be a barrier.

  One of the ways in which large corporations or banks like to ‘build their brand’ across borders is sport sponsorship. The theory is that backing events which customers and potential clients enjoy watching will, sometimes in an ill-defined way, bring in business. In plastering its logo on the shirt of a sports star a bank is associating itself with athletic endeavour and success. It helps too that chief executives who approve the multi-million-pound deals for their companies to sponsor a particular sport often like watching from the best seats after partaking of corporate hospitality. So it was with Goodwin. Under his leadership, RBS set out to top the league in sponsorship of golf, rugby, tennis and Formula 1 motor-racing. For decades the Royal Bank had been a sponsor of the annual Open championship, the premier UK golf competition. It was a natural fit. Although the championship is played at courses around the UK, the Open is administered by the Royal and Ancient Golf Club in St Andrews, the home of golf. Among the R&A’s members have been many Royal Bank customers and directors, and the two institutions are similarly proud of their Scottish roots.

  Goodwin wanted to use golf to push RBS into America. To help he signed up one of his boyhood heroes, the golfer Jack Nicklaus, to be a ‘brand ambassador’ around whom a marketing campaign could be built. Goodwin loved the association with a global superstar who ranks as history’s most successful golfer. He won the Masters six times, the US Open four times and the British Open three times. Nicklaus was particularly effective at impressing the clients, staff and journalists he was dispatched to woo over dinner in the dining room of the RBS-owned private bank Drummonds, or at corporate hospitality events. His gentlemanly style – and willingness to retell anecdotes and tales of triumph that he must have used a thousand times – endeared him to audiences. In July 2005 Goodwin even put Nicklaus’s portrait on two million RBS £5 notes, the first non-British, non-royal living person to be accorded such an honour.3 He was paid handsomely for his efforts, of course. Nicklaus was put on £1m a year.

  Somewhat trickier was another of Goodwin’s boyhood heroes, Jackie Stewart. The successes of the ‘Flying Scot’ on the motor-racing track are unarguable. Three times world champion, in an age when drivers faced much more danger and safety failures regularly produced fatalities, the Dumbartonborn Stewart was a genuine sporting hero. From tax exile in Switzerland he had become wealthy by turning himself into a business based on sponsorship deals with companies such as Rolex (slogan: ‘If you were racing here tomorrow you’d wear a Rolex’), Ford, Goodyear and Elf. Sir Martin Sorrell, the advertising mogul, noted how Stewart had been one of the first global sports stars to spot the opportunity: ‘Jackie always had very, very strong commercial relationships. If a sponsor wanted to get Jackie to work for them they knew they were going to be getting value for money.’4 Stewart was also put on £1m a year.

  While it is clear why tyre, fuel and car companies might want the endorsement of Stewart, it is less obvious that a bank needs a racing driver on board. Goodwin – a car fanatic – saw it differently and Stewart became a brand ambassador. The pair had formed an extremely close friendship. Colleagues told how Goodwin loved to listen to Stewart’s stories of Formula 1 derring-do, with the racing driver recounting how his heightened senses could detect danger around the corner in a microsecond. They also liked to shoot together, a pursuit to which Goodwin had taken like a duck to water.

  According to Stewart, Formula 1 was relatively classless, extremely aspirational, transcontinental and the perfect sponsorship opportunity. In 2005, with Goodwin in the driving seat taking an extremely close interest in the details, RBS became the sponsor of the F1 Williams team. The bank’s logo was stencilled on Williams’s cars and whizzed around the track at high speed on the F1 circuit. Goodwin’s executives quickly got used to exotic demands from Stewart’s team. The high-rolling guests of RBS arriving to watch the Monaco Grand Prix could not possibly be expected to arrive by car. They would need helicopters, it was explained. For his part, Goodwin was thrilled to be trackside, pottering about in the pits with Stewart, meeting motor-racing luminaries and hearing the roar of the engines. It was an expensive business. RBS sponsorship of F1 cost £25m. In addition, each year for the Monaco Grand Prix, RBS spent £250,000 of shareholders money on renting a well-positioned, vast apartment that could be converted into a hospitality suite for guests for the day of the race.

  There were many other deals. Rugby’s six nations championship became the RBS 6 Nations in 2003. Before and after games at Murrayfield, several hundred guests drank champagne and listened to the star players give their take on that day’s game. The sponsorship department grew remorselessly; entertaining became steadily more lavish and was conducted on an ever-grander scale. Peter Phillips, son of the Princess Royal and grandson of the Queen, was also hired to work in global sponsorship and tasked with finding new global ambassadors. Later, in 2007, his sister Zara Phillips, the equestrian star, was signed up on £90,000 a year.

  Was it all worth the more than £200m spent on sport sponsorship under Goodwin? Banks certainly need to advertise themselves and entertain clients. Those who work in sport sponsorship say that when compared with other forms of marketing it is a relatively cheap way of catching the attention of tens of millions of viewers. But then they would say that. There was good done, certainly. From the age of thirteen the Scottish tennis player Andy Murray was backed by Royal Bank financial support, which helped him become the first British man in seven decades to win the men’s singles title at Wimbledon in 2013. There were initiatives to support golf and tennis at the grass-roots level. Even so, it is impossible to avoid the conclusion that a bank which had only a few years before been relatively modest in its tastes – with a bit of golf sponsorship – was now, at Goodwin’s instigation, spending hundreds of millions showing off. The risk was that this global self-aggrandisement might distort the thinking of those at the top of RBS.

 
‘George was trying to build something for Scotland. Fred was trying to build something big and global,’ says an adviser. ‘There was GE, BP, HSBC and IBM. Fred saw RBS joining those big multinational companies.’ The firm which Goodwin seemed to be most interested in was an American giant. GE, or General Electric, had been run for almost twenty years by Jack Welch, the pugnacious CEO and chairman who was born in humble circumstances and rose to end up lauded as the king of American business. Afterwards he had a career as a motivational speaker on management matters and was the author of highly successful books on succeeding in business with titles such as Winning. Goodwin initiated a few Welch-style ‘work-outs’ in which he challenged his team to examine their consciences and ask themselves if they had really done everything possible to make themselves as efficient as they might be. Welch also decreed that corporate life should be fun: ‘Have a ball! Why would you want to come to a place as a stuffed shirt and hang around a corporation? It’s dumb, unless you had a ball at it!’

  Although Goodwin looked rather buttoned up, dour even, he could certainly enjoy himself, as he demonstrated in the bar at the annual management awaydays. In late March or early April each year the top 500 or so RBS executives gathered for their annual conference. It was a highlight of Goodwin’s year and until Gogarburn opened the bank took over Gleneagles for several days. At the famous five-star hotel nestling in the Perthshire hills there would be strategising, bonding and drinking. Every year it was a big production, with speeches from Goodwin and the other senior members of the management. While the daytime sessions involved presentations on business, the fun was in the evening. There would be a dinner and then infamously epic drinking sessions stretching into the early hours. On these occasions Goodwin’s capacity for consuming large amounts of whisky and beer while not showing any ill effects was formidable. These were boom years, with RBS flying and spirits high. For the senior managers from far-flung parts of the business who might not often see Goodwin in a social setting these evenings offered a chance to have a chat with a boss who was widely admired because of the bank’s success. Some were notably nervous and hung back, others jostled for a word and the opportunity to drink as part of his circle. This was what he really loved, Goodwin told colleagues. A senior executive remembers: ‘Fred could be great over a beer, telling very funny stories. He just didn’t do it enough with us.’

  But Goodwin had a decent stab at it. Each year in late January or early February the dozen-strong executive team would also have its own wine-fuelled ‘boys outing’ to St Andrews, staying in the Old Course Hotel, which overlooks the hallowed home of golf. ‘Fred loved it. And he introduced the idea of presents being handed out to us,’ says a regular attendee. ‘I still have all the cashmere jerseys.’ Weather permitting, the executive team would play a round on the Old Course. The Christmas lunches in the ‘mess’ in Edinburgh, starting at noon and finishing very late, were also infamous. One of the executive team recalls a game involving assorted bankers dipping a finger in sambuca, one lighting it and then passing around the flame, with the first person to opt out declared a sissy.

  The boss who could take part in carousing and enjoy bonhomie was again, as he had been at the Clydesdale Bank, difficult to square with the character at the morning meetings. Some on his senior team found it baffling and bizarre that Goodwin could transform himself so dramatically from jovial drinking companion to demonic corporate robot. The driving imperative spurring him on, everyone was clear, was growth. After the wonders of the NatWest deal, the City wanted to know what the Royal Bank and its boss would do next to maintain the momentum. The answer was do more deals.

  RBS’s insurance business was expanded again. Churchill – with its nodding bulldog character and ‘Oh yes’ catchphrase from the popular television adverts – was purchased in June 2003 for £1.1bn5 and then run alongside Direct Line, the groundbreaking business that Peter Wood had started in 1985 as the first telephone-based insurer. Ireland also seemed to offer opportunities, with Ulster Bank keen to get into the booming property market south of the border in the Republic. It snaffled First Active, an Irish savings institution that in the 1980s had bought up modest building societies with names such as the Guinness Permanent Building Society and then turned itself into a bank.6 It was said to be particularly innovative in property lending. Indeed, First Active was the first outfit in Ireland to issue 100 per cent mortgages, requiring no deposit from those taking out a loan to buy a house.

  Larry Fish’s Citizens empire in America maintained a cracking pace too, adding Community Bancorp in October 2003 for $116m and Roxborough Manayunk Bank in January 2004 for $136m. ‘Fred liked doing acquisitions. That got him out of bed in the morning,’ says a member of the management team. With the praise pouring in, it was perhaps unsurprising that Goodwin sought to replicate earlier success by buying so many other businesses. The model that had been designed in the NatWest takeover was applied repeatedly: buy something, set the management on the ground clear targets, put everything on the RBS IT and ‘manufacturing’ platform, remorselessly interrogate any problems along the way and then look for the next opportunity. There were some warning signs that as RBS increased in size it was becoming more difficult to repeat the original trick. At Churchill there were staff complaints when elements of the integration and sackings were botched. John O’Roarke, the chief operating officer of RBS Insurance, gave his own staff three out of ten for the way it was handled. He acknowledged afterwards: ‘What people are saying is: “Give me some certainty as to when we can go.” That’s the bit we have failed to deliver on. There is an argument that we opened the kimono too soon.’7

  ‘Opening the kimono too soon’ seems to have involved implying to Churchill staff after the takeover that they were for the chop, when actually they were needed to keep the business going for a while during the integration, before some of them would be sacked. ‘We said it was all doom and gloom and you are all going to lose your jobs when it might have been more appropriate to say, for IT people, there will be a long business-as-usual period.’

  The use of a term such as ‘manufacturing’ to describe the back-room part of the RBS business that dealt with processing, procurement, managing the bank’s property portfolio and IT, also jarred with some. ‘No real banker talks about the basics of banking as manufacturing, as though it is tins of baked beans being produced,’ says a senior retail banker. ‘But then it should never be forgotten that Fred wasn’t a banker.’ Some of the older hands noticed that Goodwin seemed to have little interest in the basics of banking and concepts such as credit and risk. Instead, just as during his days at the Clydesdale Bank he often became most exercised when it came to footling matters. Following the death of her father, Lord Younger, Joanna Davidson joined the Royal Bank as head of corporate social responsibility. She confided in family and friends about how difficult she found it working for Goodwin, with his temper and tendency to meddle. When she took him a selection of designs for the company Christmas card he blew his top and said they were all terrible. That’s it, he declared. I’m taking over direct control of the production of the Christmas card. Untidy filing cabinets, with documents piled on top, were another source of annoyance. An edict went out across the bank that storage cabinets must be procured which featured a rounded top, making it impossible for staff to leave anything on the surface: ‘Somewhere in a warehouse are thousands of old flat-top RBS filing cabinets that were not Fred-compliant,’ says an RBS manager.

  Carpets bothered him too. The old building at Waterhouse Square in Holborn was no longer big enough to accommodate all the executives and the growing army of traders in the expanding investment banking side of the business. Several new London offices were opened in Bishopsgate on the edge of the City in 2003. On the twelfth floor of number 280, with views out across the East End and north London, Goodwin was installed in an office so vast that it would have been possible to play a game of five-a-side football. Next door was a ‘war room’, where management meetings could be held, and nex
t to that another large office for the chairman, Mathewson. On the floors below there was room for thousands of London-based employees. But before the move could go ahead, Goodwin made a visit and decided that he hated the carpets that had been laid on the executive floors. They were the wrong shade and had to be replaced. Goodwin could take a joke on the subject, just about. Howard Moody announced to that year’s awayday gathering at Gleneagles that Fred should be given an award for services to the British carpet industry. In comparison to Gogarburn, 280 Bishopsgate counted as mere tinkering. The new international headquarters in Edinburgh got the full force of his attention as he tuned in to discussions about workflow, finishes, paint, catering – and fountains – all to create the perfect building. The joke, behind his back, was that the boss was an architect manqué who was relishing constructing a monument to the bank and perhaps even to himself.

  Then there was the executive car fleet, which he took an exceptionally close interest in. These were the chauffeur-driven cars, twelve in total, that were on standby to ferry about Goodwin, other top executives and directors who needed to travel on RBS business in London, Edinburgh, Belfast and Dublin. They were leased through the bank’s Lombard vehicle fleet management and when it was time to order a new fleet of Mercedes S-Class, the chief executive became very hands-on. Mercedes asked what shade of blue RBS would like. It must, Goodwin stipulated, be Pantone 281, to match precisely RBS’s corporate blue. Similarly the leather interior must be exactly the correct shade of beige matching the carpets in the management suite of offices. The cars would have to be spray-painted to order. Mark Fisher was dispatched to Germany to supervise the order. Fisher was a fellow petrol-head renowned among staff for his ability to perform an impression of a Ferrari accelerating. It was said, rather cruelly, by his colleagues that he was so keen to copy the boss that he bought the same cars and adopted his friend’s latest hobbies too, taking up shooting when Fred was introduced to guns.