Interview with Sir Philip Hampton, chairman of the Royal Bank of Scotland

Excerpt from the new EIU report on accountability in financial services

The Royal Bank of Scotland is 82% owned by the UK government after it received bailout funding of £45.5bn (US$71.9bn) in 2008 in the wake of declaring the largest annual loss in British corporate history (£24.1bn). How does state ownership affect the accountability of the bank’s top executives? 

Sir Philip Hampton was appointed chairman of the company shortly after the bailout. 

“Demonstrating accountability is particularly important for us, but also for banks which weren’t directly supported by the government bailout,” he says. “You have to bear in mind that government bailouts saved the entire financial system. There is an understanding that if you have been bailed out, you have a duty to support business, customers and society at large.” 

Despite state ownership, Sir Philip says the government has always been a passive investor in the bank. “Our shares are still publicly listed because the government wanted to keep the company operating on a commercial footing and also to sell shares as the bank recovers,” he says. “The government is one of many shareholders and doesn’t exercise direct control. It is our job to allow this bank to operate commercially. This is what all our shareholders require.” 

But the public’s importance as a stakeholder was made clear in the controversy over the pay awarded to the company’s chief executive, Stephen Hester, in early 2012. Mr Hester was offered a bonus of almost £1m on top of his annual salary of £1.2m. After the venting of much public outrage at the level of his overall remuneration, the UK government’s main opposition party threatened to put the issue to a parliamentary vote. When it became apparent that parliament would vote against the payment, Mr Hester, in consultation with the bank’s board, decided to renounce it. 

“The UK government’s attention to remuneration reflects their political challenges,” says Sir Philip. “There has been a massive destruction of shareholder value in recent years, resulting in a significant mismatch between pay and performance. This is a particular challenge for the finance sector because, directly or indirectly, all institutions relied on state funding.”