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

by Iain Martin

  Family life was more explosive. Fred’s highly competitive father is described by one acquaintance as ‘a complete bampot’, a Scottish phrase denoting a tendency to wild behaviour. Says another: ‘He was a very difficult man who was forever getting into arguments with people and starting fights over things. Fred’s father was an absolute tyrant.’ When his son was bullied at school, his father went to locate the bully and held him down while Fred filled in his tormentor with his fists.3

  By the early 1970s, with Freddie in his teens, Fred Snr was making more money, and the family was on the up again, moving to a large bungalow in Southfield Avenue in the salubrious Potterhill area of Paisley. The house was gutted and refitted – with the help of workmen from Balfour Kilpatrick – before the family moved in. In contrast to her pugilistic husband, Fred’s mother, who still lives in Paisley, is regarded as someone public-spirited and decent who has had to cope with her eldest son’s transformation from Businessman of the Year to pariah of the decade. She is described by those who knew the family as the steadying force when her bright, but introverted, son was growing up. After the death of Fred Snr in 1992 she remarried, to someone much calmer: an accountant.

  It was expected that the brightest from Paisley Grammar would go to Glasgow University, which Freddie did at the end of the fifth year in 1975. Says a classmate: ‘The question was not what will you study at university, it was what will you do at Glasgow? Only occasionally would someone do something exotic such as go to Edinburgh University.’ Freddie chose law, although contemporaries say he had no obvious desire to be a lawyer. It just seemed like a sensible choice for an undergraduate uncertain on the career front. By the standards of the time there was something notable that Freddie had achieved. He had acquired a car, bought, it was assumed by friends, with parental assistance and the proceeds of a summer job. His gold-coloured Rover 2000 made him the daily designated driver for a small group of friends who had been at the grammar and were now at Glasgow University. Showing an early and keen interest in finance, at the end of each week he made a point of asking for petrol money from those who had accepted a lift.

  The Smart brothers – Ian and Alan – were among those who were regularly in the car. They liked Goodwin, although they were interested in radical left-wing politics, the revolutionary Marxist struggle and Scottish devolution. This was, Fred explained self-deprecatingly, all too complicated and confusing for someone like him when discussions on such subjects got under way. He was an anti-devolution unionist Tory and when there were arguments on the journey to university about which radio station should be played, somewhere it might be possible to hear the sounds of the emerging punk movement or a more conservative station playing the songs of middle-of-the-road bands such as the Eagles, Freddie argued for the Eagles. At Glasgow, says another contemporary, it would have been impossible to pick him out as a future high-flyer and banker: ‘Out of our law class of 100 we would never have chosen him as the man most likely to.’ He was obsessively competitive in the Glasgow University Union – the men’s union as the two were still segregated – but not in the field of debating, politics or sport. Hours were spent between lectures playing the pinball machines in the basement. He could drink too, when the opportunity arose. He was developing a decent capacity for it.

  Goodwin had decided that he did not want to become a lawyer, he told Ian Smart. He wanted to be an accountant, which by the standards of his surroundings and upbringing counted as an unconventional choice. He finished the three-year basic law degree, joined Touche Ross in Glasgow as a trainee and dropped the ‘die’ from his name, becoming Fred. Accountancy suited Goodwin. It was something he was instantly good at, says a colleague; he had found his calling. Not only did he seem to find understanding the numbers very easy, his brain worked methodically, quickly and logically. He could spot patterns and problems in spreadsheets and balance sheets, and he could think creatively about business opportunities. For some time accountancy had been growing steadily more sophisticated, as the big firms moved beyond straightforward auditing of a client’s books so they complied with company law. Now they were also advisers and consultants aiding companies, and banks, who wanted to do a deal, or needed help with the financial engineering involved in expansion.

  In school and at university Fred had been anonymous and barely worthy of note. Here he was a star performer. After qualifying as a Scottish chartered accountant in 1983, he worked between 1985 and 1987 as part of the team at Touche Ross sent in by the government to Rosyth Dockyard, near Gordon Brown’s constituency in Fife. He managed the contract awarded for the running of the yard. Coming into the orbit of the accountant John Connolly was also a lucky break. The sharp-elbowed partner would go on to run Deloitte, the firm with which Touche Ross later merged. Connolly took a relentlessly meritocratic view of promotion and was prepared to elevate the young if they were deemed talented enough. His second wife, Odile Griffith, had been the first female partner in the firm’s history. Goodwin became the youngest partner, shortly after he turned thirty.

  He got married too, in 1990, to Joyce McLean and settled down in Kilmacolm, in the countryside to the west of Glasgow. Her career in finance had involved time at Citibank and the French bank Compagnie Bancaire, which became part of BNP Paribas. She also did an MBA at Strathclyde University. When they were dating Joyce was furious to discover that the firm she worked for was on the same piece of business as Touche Ross. When she found out that Goodwin had not told her about this potential conflict of interest he got the ‘sharp-end of her tongue’. Fred was drawn to a strong woman who was prepared to speak back, robustly, to him.

  Goodwin had toughened up, a lot, and found an outlet for his competitive streak. At Touche Ross the hours were long and a steely gift for office politics was required. It all seemed to unleash in him, says a contemporary, a drive that had been pent up. The unremarkable Paisley boy was becoming a hard-driving executive trained to spot and prosecute weakness. Accountancy also gave him experience of the aftermath of a banking collapse. When the Bank of Credit and Commerce International (BCCI) went out of business in 1991, Deloitte and Touche was appointed to unscramble the mess on behalf of creditors. Goodwin was put in charge of the effort, leading various teams across the Middle East, Europe and America who were trying to find out where the money had gone. Goodwin was prospering and increasingly ambitious but, says a colleague, he was in a crowded field. A career change might mean the opportunity for more rapid elevation than staying in a large firm. How would he like to run a bank?

  The Clydesdale Bank had been established in Glasgow in the late 1830s.4 A smaller rival to the two much grander Edinburgh-based rivals, the Royal Bank and the Bank of Scotland, it had nonetheless prospered, expanding into the north of England in the nineteenth century before being sold to an English institution, the Midland Bank, in 1919. Then – after the Midland got into difficulties – it was sold to the National Australia Bank in 1987. The new owner of the Clydesdale flew in Australian executives to inspect their purchase and found a nice, gentle, largely harmonious operation that was somewhat lacking in dynamism. ‘We were collegiate and good with customers but it was a bit sleepy and it needed updating,’ says a member of the management team. The environment was not remotely cut-throat. Richard Cole-Hamilton, the chief executive since 1982, came straight from Scottish Establishment central casting.5 After Loretto (one of Scotland’s top public schools), Cambridge and National Service with the Argyll and Sutherland Highlanders he had joined the Clydesdale. When he stood aside there was a search lasting a year. In late 1993 the board chose a well-respected and relatively young Scottish banker, Charles Love. Only a year into the job, aged just forty-eight, Love died of a heart attack on a family skiing holiday in Méribel, France.

  But for this accident, Fred Goodwin might never have joined the Clydesdale. The sudden death of Love meant that the Australians needed an interim replacement. Frank Cicutto, an Italian-immigrant Australian, was flown in to Glasgow, although what they really wanted was s
omeone else to complete what they had hired Love to do, meaning modernise the bank and inject some urgency into its dealings. The Australians liked the look of Fred Goodwin. They had had plenty of opportunity to observe the ambitious young Scotsman as he had helped do the due diligence on the Clydesdale when NAB was buying it. His untangling of BCCI had also been judged highly impressive. Don Argus, the chief executive of NAB, was a fan and Fred joined the Clydesdale in 1995.

  Obviously Goodwin was an accountant not a banker by training, an oversight which was later to have important consequences for RBS and the British economy. The work of bankers and accountants overlaps to such an extent in a modern economy that it is often forgotten that originally they were envisaged as distinct types of work requiring contrasting worldviews. A veteran banker describes it this way: ‘An accountant exists to examine the numbers, take measurements, assess the situation and then put his or her signature to a piece of paper declaring that on a particular date everything claimed to be there is there. A good banker knows that ultimately what he or she does rests on a benign white lie. The customer lends the bank money in the form of a deposit and the bank then lends that out multiple times. That is the basis of banking. It is a construct built on trust. It all rests on creating sufficient confidence in order that everyone does not get worried enough to ask for their money back at the same moment. Because if they do the bank is probably sunk. Accountants and bankers should be different.’

  To National Australia Bank in the mid-1990s Goodwin’s lack of experience was not deemed a problem. Perhaps banks such as the Clydesdale needed to become more like the big accountancy firms. The partnership culture of Touche Ross and similar firms was certainly very different from a then sleepy small bank. A bright graduate joined one of the large accountants, worked incredibly long hours scrutinising numbers, wrote documents for the partners in charge and often took so-called ‘dog’s abuse’ in the process. They would either leave after a few exhausting years equipped for a role in a business, as say a finance director, or stay and rise to be a very well-paid partner putting the next generation of youngsters through their paces. It was competitive, ruthless and stressful. This had suited Goodwin, because he excelled at manipulating situations to his advantage and was not squeamish about being extremely robust with those who worked for him.

  What attracted the Australians to Goodwin was his ferociously logical approach to problem solving and the capacity to learn quickly which he had demonstrated at Touche Ross. A spell as deputy chief executive of the Clydesdale was deemed suitable preparation. That way he could familiarise himself with the banking business before he eventually assumed full control within a year or so. Cicutto6 was very much a backroom banker, lacking sufficient flair for running an organisation and finding it a struggle to communicate. Says a Clydesdale banker: ‘Fred made clear he had no time for Cicutto as chief executive. He was putting down a marker that soon things would be done his way.’

  Goodwin’s colleagues on the management team in Glasgow were fascinated by the newly arrived prodigy. ‘He was clearly hugely ambitious but it was not obvious to what end and I don’t think he burned to be a bank chief executive. We used to ask Fred about him going into politics and running the country but he just laughed it off,’ says one. Another Clydesdale banker said he was refreshing: ‘My first impression when he arrived was of great intelligence. Here was someone incredibly quick and decisive. If you gave him a problem he could go through A to Z and come up with a solution quicker than anyone. Nine out of ten times he was right.’ Meanwhile, the new arrival was trying to adjust to being in banking, a profession superficially similar to accountancy but in those days very much a different world requiring other skills. At his first office Christmas night out, held at the Amber Regent Chinese restaurant in Glasgow, he confided to colleagues that the Clydesdale was most unlike the business he had been trained in. At Touche Ross, he said, people were here today and then gone in an instant if they didn’t shape up. In a bank, many people joined from school and stayed for their entire careers.

  There was no doubt that the Clydesdale needed to modernise. Younger executives agreed that it had to sharpen up, to make bigger profits and improve its market share. Maybe Goodwin was just the man. Perhaps it would be exciting and invigorating when he took over. Says one Clydesdale banker who had had high hopes at the prospect of Goodwin’s promotion: ‘Isn’t that the thing about sociopaths? That at first they convince you and you go along with them. And then oomph . . . they’ve got you.’

  Executives noticed an immediate chilling in the atmosphere when Goodwin was elevated and Cicutto – who later went on to run NAB in its entirety – left for another post. The 8.30 a.m. Monday morning ‘week ahead’ meeting, billed as a ‘chit-chat’ over coffee, became an occasion to be dreaded, as Goodwin set about briskly enforcing discipline. Says a regular attendee: ‘If you were slightly late or something hadn’t worked quite the way intended he would berate you in the most humiliating way. Not by shouting, you would be pilloried.’ Deemed even worse was the Tuesday morning 8.30 a.m. meeting, in which a dozen or so senior executives had to report on the major projects they were responsible for. Goodwin dealt with his team alphabetically, although he did once spring a surprise and start at the other end and work back. ‘This came as a shock to Graeme Willis who for once got the most terrible kicking, which cheered us all up,’ says a regular attendee. Willis, the chief operating officer at the Clydesdale, later surfaced as head of Group Enterprise Risk at the Royal Bank of Scotland between 2006 and 2009, the critical years encompassing the financial crisis. Getting a shredding from Fred was not always an obstacle to being employed by him in the future.

  It was only when it came to the production of the first annual strategy paper for NAB that his management team witnessed the full force of Goodwin’s personality and grasped the nature of his talent for organisation. The management in Australia demanded a yearly plan from each of its divisions, explaining how they would grow or improve their part of the business. Goodwin initially refused, deeming the exercise a formulaic waste of time and resources and failing to spot that his bosses were serious. The head of NAB in the UK flew to Glasgow to tell Goodwin that the delivery of such a plan was non-negotiable. With only a week until the deadline, Goodwin snapped into life, setting up camp in the executive meeting room and holding an almost continuous rolling series of meetings in which senior executives and managers below them were tasked with coming up with ideas for how to overhaul or improve the Clydesdale. They were then sent away to get better answers. Goodwin was using his accountancy partnership training; he was drilling colleagues, interrogating their numbers, ideas and assumptions and terrifying the weaker members of the team from 7.30 a.m. until 2 a.m. the following morning. Clydesdale executives who had been used to civilised hours were suddenly working into the early hours in a bid to satisfy his demands. The shell-shocked bankers later suspected it had all been deliberate, that Goodwin had left it as late as possible to test his team in adversity and expose those who couldn’t cope with the stress. In this way he had established total authority over his team. By the Friday at 4 p.m., when the finished paper had to be sent by fax to headquarters in Australia, there was no doubt who the chief executive of the Clydesdale was.

  As if to emphasise his strength, Goodwin made a warlike addition to the Executive Committee room. The film Braveheart was then popular in Scotland.7 In it Mel Gibson plays William Wallace, cries ‘Freedom’ and fights the English in a romanticised epic that takes considerable liberties with the history of the late thirteenth and early fourteenth centuries. On the wall, behind the chair in which Goodwin sat when he was hosting meetings with his team, he hung a replica ‘long-sword’ similar to the one William Wallace wielded to such brutal effect in the film. ‘It looked very impressive,’ says a witness. ‘You really couldn’t fail to make the connection.’

  His staff noticed that his extraordinary attention to detail manifested itself in unusual ways. Goodwin seemed to have very little int
erest in the traditional components of a bank chief executive’s activities. Questions of credit and risk, the basics which govern how much is lent and to whom, seemed to hold little appeal. He was much more fixated on subjects such as the cleanliness of branches. A mass tidy-up was ordered across the Clydesdale and Goodwin took to mounting patrols, springing surprise inspections on unsuspecting staff. The alleged scruffiness of the branches became a particularly vexed question. Goodwin complained that there was too much paper lying about piled up in front of customers or in the strongrooms at the back, where old ledgers were stored. He had a particular hatred of any public use of Sellotape. If it was used to put up a notice in a branch, and he spotted it, a sharp rebuke followed. In the middle of a meeting with one executive, Goodwin took a call. It was May, his mother, on the phone. She had been walking past the Clydesdale head office in St Vincent Street, Glasgow, where Fred was based. She had noticed that on the steps outside someone had dropped a cigarette butt. Goodwin thanked his mother and immediately phoned another senior executive, ordering him to have the offending piece of litter removed from the premises immediately.

  Although these concerns, such as cleanliness, were legitimate, his colleagues thought they were taking up an inordinate amount of his attention. On 17 July 1997 the divisional and district managers were even ordered to appear in front of Goodwin to report on what they had done to further the aims of the great clean-up. Some appeared to be terrified, while others struggled to keep a straight face. Goodwin was once even apprehended by the police when pursuing his cleanliness campaign. On a Sunday morning he drove to his local branch in Bridge of Weir and was taking photographs of the exterior (‘He thought the area around the cash machine looked messy,’ says a colleague) when a passing police officer spotted him. His assurances that he was the chief executive of the Clydesdale were given short shrift and he was taken by car to the police station, where his story was checked out and he was allowed to go.