Expensive failures

I don't think I have admitted to date that I am one of the happy crew aka a Northern Rock shareholder.  I don't think I paid anything for them, have no clue how to trade shares, but can worry myself with a nominal loss of about £18k over the past year. 

So it was with a degree of personal interest that I read the reports of the FSA's internal audit on the supervisory failures around Northern Rock tinged with an added degree of personal interest as one of the former FSA employees who left with what appeared to be quite a big pay-off was a university contemporary of mine. Which all provokes a variety of thoughts. 

First is that we need to get away from the culture of big-time rewards for failure in the public sector.  People in senior jobs who screw up need to be held to account for that and need to expect to leave without a pay-off which would keep a hospital ward open for a year.  If this means we need to pay people more to get them to do the jobs in the first place, so be it -- but I can't believe that the implicit pay-off for failure is a salient consideration in salary discussions (I may be wrong).  But huge handouts for getting things spectacularly wrong fail the Dog and Duck test.  We should establish a presumption of no pay out - and let an Employment Tribunal decide on the merits afterwards whether that is fair - that would prevent cosy deals within organisations against the public interest and ensure a missing degree of transparency.

Of course, one of the usual protections - not available in the FSA - is Ministerial accountability.  And there is any interesting distinction to be drawn on the source of failure - the most spectacular policy failure I was ever involved in was the community charge - though looks cheap compared to the potential contingent liability on NR even at 2008 prices - but whole books have been written on who was to blame for what there - but that was more a failure of policy assumption rather than implementation.  People in the FSA could I assume claim that the initial set up and split of responsibilities between the Bank and the FSA was wrong - but they joined the FSA either as those decisions were being made and if they might have thought more about whether the institutional arrangements were right if they felt they might be personally at risk if they failed.  It could concentrate the mind wonderfully.

But I don't want the private sector to get away with it either.  One of the most galling stories - be it Northern Rock, be it Enron (not sure when NR the movie comes out - but the Enron movie "The Smartest Guys in the Room" is highly recommended for an evening in) is of senior management selling shares at the top of the market while assuring muggins investors that all is well or encouraging staff to put more of their money into the company.  So my second rule is that no senior executive should be allowed to deal in company shares until three years after they leave - so they really do have an interest in long(er) term shareholder value.  And the ABI and other investors who have done so much to look at executive remuneration need to exercise their muscle over the price of failure.

So in the week that Alan Sugar has come back to our TV screens, it would be good to see more people who fail leaving with a briefcase in a taxi to the words "You're fired" - without passing go and collecting a big brown envelope.