The vote went ahead. Fingleton easily vanquished the rebels, with 11,823 votes in his favour and 2,254 against. The dissenters got a hard time at the AGM, Burgess said:
We were in a total minority. There was only a few of us there speaking. When I stood up I got barracked and people spoke about how fantastic Michael Fingleton was and how much money they’d raised and how the profits had gone … We were troublemakers and could we not finish the meeting quicker and go over and have our tea and coffee.
They were not interested in borrowers and generally speaking borrowers should just go and repay their money. Michael Fingleton was a nice guy and a good guy.
Afterwards comments by two journalists reflected the widely held view that Fingleton, while perhaps a rogue, also had many admirable qualities. One quality outweighed all others: the ability to make a profit. Writing in the Irish Times, Colm Keena, the leading journalist on the corruption tribunals, concluded on Friday 25 April 2003: ‘Mr Fingleton is seen as unique not just in the level of involvement and control he has over every aspect of the financial institution he runs, but also in terms of the dynamic, entrepreneurial attitude he takes. He is seen as someone who is prepared to take risks, to get out and make business …’
Keena, like many other journalists, appeared to have a grudging respect for Fingleton.
Mr Fingleton is 65 years old. If legislation to allow Nationwide be sold had been enacted in 1997 or 1998, the society could have been sold in the middle of the boom and Mr Fingleton could have realised a better price. Now he is working against the clock, and market conditions are much less favourable. On the other hand, Mr Fingleton is an able and determined man. The game is not over yet.
Senator Shane Ross, writing in his influential column in the Sunday Independent, was much more admiring. Ross was friendly with Fingleton, who gave him the occasional juicy tip-off. ‘Fingleton, for all his faults, has delivered the only thing that matters in business: profit.’ Ross, a regular campaigner for corporate reform in companies like First Active and Eircom, nonetheless dismissed Burgess and his band of rebels. ‘It was a classic example of how not to challenge a board of directors. Real reforms had already been conceded. The wrong target was now being picked at the wrong time. As the meeting progressed, the punters turned against the rebels. They had blown it.’
With mixed media support (with the noted exception of Bill Tyson in the Irish Independent), and even less political will, the rebels may have had the high moral ground, but nobody was listening.
Behind the scenes, however, matters were coming to a head between Power and Fingleton. The society boss was convinced that Power was feeding the rebels information, and encouraging Burgess to run for the board. The society asked Brendan Watchorn, a barrister, to write a letter on 19 August 2003 to its board, headed ‘Re: Brendan Burgess & Complaints against the society.’ Watchorn said that he had reviewed documents on behalf of the society in relation to Burgess and his ‘campaign against the society.’
‘At this stage I am of the opinion that the society should disengage from any direct contact with Mr Burgess,’ Watchorn wrote. ‘In particular the practice whereby he has direct access to individual members of the board should cease.’ Watchorn advised that borrowers who made allegations of overcharging or failure to pass on cuts in interest rates were free to make a complaint to the Financial Regulator. ‘If Mr Burgess wishes to make a complaint he is free to do so.’
Watchorn said he believed Burgess was approaching board members directly in an attempt to flush out who was sympathetic to his views. ‘This is not a proper role for such board members. They have no right or authority to act individually in relation to issues concerning the society. It is certainly improper to discuss individual cases other than collectively as a board.’
Con Power knew that the letter was aimed directly at him. He was an expert in corporate governance and knew exactly how constrained he was as a non-executive director. But he also knew that Irish Nationwide was a mutual building society, so he had both a right and a duty to listen to any member who wanted their concerns brought to the board for discussion.
Power gave out to Purcell for allowing the letter to be written at all. He reminded him that he had asked him at one point to meet Burgess to try to improve relations. ‘You can’t censor me or who I meet or don’t meet,’ Power told him at a board meeting. ‘It’s not your business.’
‘Ah, Connie, will you cool it!’ Fingleton interjected.
‘You keep out of this!’ Power responded.
Three board meetings later the letter was rescinded. Power continued his contacts with Burgess, who was tipping him off about the complaints of small borrowers. Power’s records show that he stuck up for small borrowers in sixty different cases during his time as a non-executive director.
Six months after the rebels had made a formal complaint about vote-canvassing, nothing had happened. Burgess wrote to the Central Bank asking it what was going on. He received an angry phone call from Con Horan. ‘He was extremely annoyed. He said, I told you it is still under investigation.’ Horan was not pleased at Burgess’s persistence, which was in marked contrast to the regulator’s own shillyshallying.
On 22 December 2004, with the Dáil closed for the Christmas break, the Financial Regulator finally concluded his investigation, a full twenty months after it began and on a date certain to bury any reaction to the story.
The investigation found, and Irish Nationwide has accepted, that preparations for the 2003 annual general meeting did not comply fully with the legislation. In contravention of the legislation, the Society issued separate proxy forms to some members, which were not appended to a notice of the AGM and were issued in the absence of any written request for these forms. This breach did not invalidate the exercise of proxies in any way. No such issue arose in relation to the 2004 AGM.
The chief executive of the Financial Regulator’s office, Dr Liam O’Reilly, wanted to assure the public that ‘strict compliance is necessary to ensure that mutual societies retain the confidence of their members.’ In a shameful cop-out, he applied no sanction on the society—not even requiring it to pay the cost of his eighteen-month investigation. Instead he sought to play down the seriousness of the society’s breach of the law in unfairly rigging its own vote.
Regardless of the technical nature of this issue, it is clear that the actions of Irish Nationwide in this case were in contravention of the legislation governing building societies. It is a cause for some concern that this breach was permitted to occur.
It is important to stress that the new sanctions powers of the Financial Regulator will be available where contraventions of requirements occur in the future. We will continue to monitor compliance with the requirements of the legislation.
At first one of Fingleton’s managers was blamed for the affair. Farcically, it was maintained that he had gone on a solo run in Ireland’s most tightly controlled financial institution. ‘He was left to carry the can,’ Power reflected.
When Burgess heard the result he thought to himself, ‘That’s it for Michael Fingleton. He’ll have to go.’
‘We gave them a slam dunk,’ Burgess recalled bitterly. ‘We gave them a full file. The evidence was crystal-clear. But it took Con Horan a year to do the investigation! They rang me that morning to say they were doing a statement that afternoon. It was a gross breach of the Building Societies Act.’
Even had it wanted to, the Financial Regulator’s office had few powers to take on Fingleton. Under the Building Societies Act (1989) it could only fine the society up to €1,270 if it was found guilty in court of wrongdoing. This was a paltry sum, and would cost tens of thousands in legal fees to collect. Taking and winning the case might have been enough to dislodge Fingleton; but the regulator’s decision to dismiss the breach as merely of a ‘technical nature’ clearly showed it had little interest in doing so.
Fingleton had yet again failed to bear the brunt of a regulator’s sanction. His chairman, the eminent professor
of banking, Dr Walsh, despite finding this out, did not see it either as a resigning matter or one that raised questions about the leadership of the society. Instead he remained firmly in place as the society entered an ever more rapid phase of reckless expansion. Nobody was prepared to hit the brakes, and the incident faded into the past.
Chapter 5
THEY HAVEN’T GONE AWAY: FINGLETON, BURGESS AND THE REGULATOR
Michael Fingleton was furious. An article by Jane Suiter had appeared in the Irish edition of the Sunday Times on 18 January 2004 under the headline ‘Watchdog examines Irish Nationwide.’
‘Irish Nationwide building society is being examined by the financial watchdog over issues ranging from lending practices to corporate governance,’ the article confidently began. ‘Sources said the examination, which was described as “wide-ranging,” is expected to take a number of months to complete.’
The article said the Central Bank was questioning both the board’s independence and their expertise. It said the regulator’s office had considered appointing its own directors to the society but had held back for fear of ‘moral hazard.’ This was a concern that the independence of the Irish Financial Services Regulatory Authority as a regulator would be compromised if it did so.
As he read the article, Fingleton felt his blood boil. He pondered about who could be the source of the article, which had been written despite the society’s denials, on the record, that there was any inquiry.
The article contained quotations from the chief executive of the new Financial Regulator’s office, Liam O’Reilly, who had launched its three-year strategic plan earlier in the week. It quoted O’Reilly as saying there was a need for ‘ethical standards’ and for people with ‘probity’ at the top of Irish banking. He said that boards must commit themselves to a ‘culture of integrity, competence and best practice.’
Suiter’s carefully worded article quoted unnamed sources to the effect that ‘some of the practices at Irish Nationwide were not covered by industry standards or regulations and would have to be approached by reference to first principles such as openness and transparency.’ It also stated that ‘practices that members have objected to in the past include the absence of a published standard variable rate and penalty interest payments.’ Irish Nationwide, the article said, had eventually agreed to stop charging penalty interest, but refused to repay the interest it had already received.
Fingleton was convinced that the Financial Regulator must have leaked the information in the article. He angrily rang his lieutenant, Stan Purcell, and demanded that something be done urgently. He felt that the article—regardless of the fact that it was substantially true—was an affront to his credibility. If it was allowed to gather steam, and be repeated in the media, it could be very damaging.
A legal letter was despatched to shut the journalist up, and a meeting was arranged to take care of the regulator.
At 4:30 p.m. on Friday 23 January 2004 Michael Walsh and Con Power were shown into the Financial Regulator’s office. It was not the first time they had visited it. Power remembers that Walsh was very friendly with Liam O’Reilly, Patrick Neary and other officials there. Indeed Walsh had brought Power with him to meet O’Reilly to discuss what needed to be done with the society even before he became chairman in February 2001.
Fingleton himself rarely met the regulators personally, preferring to keep them at arm’s length and leave the official meetings to Purcell as well as the society’s internal auditor, its compliance manager and his other subordinates. As he occasionally mentioned at board meetings or to employees, he preferred to spend time with their bosses in the Dáil.
Con Power’s detailed notes of this meeting, revealed here, give an account of how directors of a large lender dealt with and were treated by the senior officials of the Financial Regulator’s office. They provide an extraordinary insight into the misguided nature of the regulatory regime, its misdirected sense of priorities and its blatant lack of guile when tackling regulatory deficiencies and breaches of rules.
O’Reilly greeted both Walsh and Power warmly. ‘Pat will be along in a minute,’ he said. The three men chatted amiably as they awaited the arrival of O’Reilly’s number 2, Patrick Neary. Tea and coffee were served.
After fifteen minutes Neary, prudential director of the regulator’s office responsible for keeping manners on the banks, arrived. A diffident man, he was prone to the occasional ill-judged outburst. There was to be none of that on this occasion. Neary was a confirmed ‘don’t rock the boat’ official who had risen steadily through the ranks after joining the Central Bank in 1971, armed with a degree in Latin and Greek.
There were many things this 75-minute high-level meeting could have discussed regarding the society’s regulatory failings, but instead it had at the top of its agenda the Sunday Times article. O’Reilly was anxious to assure Walsh and Power that the Financial Regulator was not the source of the story. According to an e-mail message circulated to Irish Nationwide’s board by Power after the meeting, he said: ‘Liam O’Reilly assured us that there are no issues between IFSRA [the Financial Regulator] and the society other than the type of issues that arise in the normal course of the activities of a regulatory authority between the regulator and the institutions that are regulated. There is certainly nothing that would merit the thrust of the article in the Sunday Times.’
The message went to all the directors’ personal e-mail addresses, with the exception of Terry Cooney, who received it at his general company address, and Fingleton, who got it from his secretary, Melody van der Berg. Fingleton, like his counterpart Seán FitzPatrick, chief executive of Anglo Irish Bank, even in 2004 never used e-mail.
Power said that O’Reilly and Neary were ‘seriously concerned’ at the suggestion that somebody inside the regulator’s office with access to the Irish Nationwide file had briefed Suiter. O’Reilly promised to conduct a ‘thorough’ investigation. Neary was indignant at the suggestion that his office was the source. Under the legislation, he said, any staff members who did such a thing can ‘go to jail.’
The regulator assured the society’s directors that it was working hard on facilitating the enactment of new legislation to facilitate a trade sale of the society. ‘Anything that would damage the standing of the society in the context of a trade sale would concern IFSRA,’ Power noted.
The Irish Nationwide directors and the regulator then discussed what they could do to ‘assist’ the society in playing down the article. O’Reilly promised to ‘include in a public speech at an early date a strong statement and the integrity and confidentiality of [the regulator]’ and would also state that the regulator never commented on individual institutions. ‘If adverse media comments relative to the society gain momentum,’ he added, according to Power’s note, ‘[the regulator] will reconsider its position and may deem it necessary to issue a statement in refutation of suggestions being made.’
The substantive issue of the article having been dealt with, the meeting turned to what were seen as lesser matters. There was a ‘brief’ mention of the fact that the society had breached regulations in large exposures or lending to big developers.
There was a ‘brief reference’ to the vote-rigging affair. A single line said the directors told the regulator that they had engaged the solicitors McCann Fitzgerald to advise on corporate governance issues.
We acknowledged that the issues outstanding between [the regulator] and the society must be resolved and that some of those issues are immediate whereas others can only [be] resolved over a period of up to 18 months or so.
It was acknowledged by all four present at the meeting [Michael Walsh, Con Power, Liam O’Reilly and Patrick Neary] that the society must engage with [the regulator] as a matter of urgency in the resolution of immediate issues, and must agree what are the longer-term issues, with dates and context for their resolution.
The issue of co-opting Brendan Burgess to the board of Irish Nationwide was also discussed. O’Reilly told Power he was s
upportive of the idea and wanted the society’s board to be strengthened. Power agreed to meet Fingleton in his office to discuss the possibility. He recalls that Fingleton said, ‘That’s fine with me, Connie, if that’s what the three of you [non-executive directors] want.’ As this meeting ended, Power asked Fingleton a pointed question. ‘Michael, what is your self-perception?’ Fingleton did not reply, and he appeared not to understand the question. ‘I’ll tell you what it is, Michael. Your self-perception is that you are sole proprietor.’
Fingleton rocked back in his chair with his arms fully outspread. ‘Connie, you’ve got it in one!’ he laughed.
On Tuesday 27 January, Power had breakfast at the home of Michael Walsh to discuss how to make Burgess a non-executive director of the society. Walsh said he was prepared to support him. Burgess was a terrier for the rules; he could be expected to challenge Fingleton at every turn.
Two of the society’s five directors were now in agreement; all they needed was one more. Walsh and Power then asked Cooney for his support, which was not forthcoming. ‘But Terry,’ Walsh said, ‘We need to have all three of us in agreement,’ Power recalled. To which, he said, Cooney coolly replied: ‘Well, Michael, now you know who the three are.’
——
Brushing off the Financial Regulator was not the only preoccupation of Fingleton that year. Brendan Burgess and his rebel band were as determined as ever to oust him.
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