AT FIRST, the appointment this week of Stephen Hester along with two others as non-executives to the board of Royal Bank of Scotland was welcomed as a good start. The appointment of Hester, John McFarlane and Art Ryan signalled the arrival of a trio
of independent directors with sufficient gravitas to appease investors, many of whom are still deeply disgruntled with the recent catalogue of the bank's ignominy, including writedowns, rights issues, losses and a dismal share price performance.
Then it started people thinking. What does it mean to have a such a sedulous young(ish) banker (47) who nursed a ruthless ambition to lead a FTSE-100 company, so near the top of RBS? If there was anyone who could succeed Sir Fred Goodwin to the chief executive's rather warm seat cushion then it could, even should, be Hester.
The fact he is already head of a Footsie company, the second-biggest British quoted property group, British Land, did not stop the tongues wagging. Although former Credit Suisse and Abbey National banker Hester has been credited with bringing some much-needed financial discipline to an industry dominated by those more on the spivvy side, it was seen by some then as an unusual move.
But "unusual" is how former RBS chairman Sir George Mathewson describes the notion that a non-executive director would then become executive. He also dismisses the talk of Hester as successor as pure speculation.
"But that is not to say anything against him," says Mathewson. "Every board benefits from having a finance director on it."
But just because such a step might be unusual, does not mean it is impossible. As one analyst told The Scotsman: "I certainly haven't heard of a non-exec going in to be an executive. But just because it is unusual doesn't mean it wouldn't happen.
"If Sir Fred were to leave for whatever reason, I don't know whether Hester is ready to retire from British Land, but if he were inclined to do the job, he certainly would be able to do a good job."
The reason why the tall, softly spoken Hester has inspired so much excited conjecture is not because of his experience of reorganising British Land. Rather it was his work at the centre of the massive turnaround of Abbey National and its eventual, successful, £9 billion sale to Spain's Banco Santander.
In 2002, the Abbey had got itself into real trouble, revealing losses of nearly £1bn. Its problems then would now sound familiar to anyone who has read a newspaper or watched TV report on the current banking system's woes. Abbey's wholesale banking division had to reveal writedowns worth £3bn on "toxic" collateralised debt obligations. In an option many banks in these credit crunched times no longer have, a sale of the bank was in order.
Hester had been recruited as Abbey's finance director when Luqman "Lucky" Arnold, the former UBS chairman, took over as chief executive. Lord Burns, then chairman, described Luqman as having a "proven track record in managing complex businesses facing challenging times". Hester and Arnold, who both also worked at Credit Suisse in the late 1980s, were a close unit. There could be no better tutelage for Hester.
It is clear that Hester is as bright as he is ambitious. Initially, the then 42-year-old finance director had been aiming to take over the job that was given to the more experienced Arnold.
Recently the two men met again. Before he signed on for RBS, Hester had also taken on the deputy chairmanship of Northern Rock earlier in the year – a sure-fire way to raise his profile in the right circles. Arnold, through his investment vehicle Olivant, looked carefully, then rejected, the opportunity to buy the troubled bank. Hester resigned from Northern Rock when he signed up for RBS.
Arnold, who thinks extremely highly of Hester, says RBS has been "very fortunate" in appointing him – and hinted that it would make good sense to keep Hester for greater things.
"In a market that is pretty difficult to attract really top talent, I think he is a great addition to the board," says Arnold. "And it gives them strategic options as well."
Hester's career has been characterised by a determined climb to the top. Having gained a first in politics and economics at Oxford, he started at Credit Suisse First Boston as the chairman's assistant, rising at 35 to become the bank's youngest-ever managing director, then chief financial officer. From his position of head of fixed income, he was in place to take the top spot except for a cull of some of the bank's top executives when John "the knife" Mack took over. Hester later accused him of getting rid of rivals.
Hester's ambition has had its rewards. A keen skier and hunter – his wife Barbara is a master of foxhounds for the Warwickshire hunt – his true passion is his garden. He has 350 acres of formal landscaped garden in Oxfordshire, as well as homes in London and Verbier.
His rule at British Land since 2004 had been characterised by sound management, but, worse than most industries, commercial property has been suffering. Recently, Hester was forced to pull the £1.7bn sale of a shopping centre in Sheffield, delay a landmark building in London and then posted the company's first fall in property valuations since the early 1990s recession. The question of whether he might rather fight in more familiar territory remains.
His board did not wish to comment on the possibility he might leave, except to welcome the appointment and suggest it might prove some vague benefit.
Chris Gibson-Smith, chairman of British Land, says the appointment to RBS "reflects well" on Hester and "the perspective gained will be of relevance to his role at British Land given the influence of financial markets on real estate".
RBS has refused to comment on the speculation or the matter of a succession plan regarding either Goodwin or chairman Sir Tom McKillop.
But persistent rumbling from shareholders on the issue puts pressure on the bank eventually to make some hard choices. Mathewson admits RBS has "people to succeed Sir Fred in the fullness of time" but that it was unhelpful to make these intentions clear to either the public or indeed the successor.
"The board always has people positioned," adds Mathewson. "But if you look around all the banks you see it is not an easy task."
Regardless of whether he is aiming for the RBS top job, investors who made dark mutterings that the board wasn't strong enough to withstand Goodwin's forceful persuasion will have good reason to celebrate Hester's arrival. His low-key demeanour hides a steeliness of manner.
When he took the job at British Land, it was well known he was second choice to Philip Yea, who at the last minute took a job running venture capital firm 3i. Hester explained himself to the property world thus: "People in banking will tell you that if someone wanted to hire a patsy, they wouldn't hire me."
In a strange echo, McKillop's defence of the RBS board was that, "there are no patsies on this board". Nor are there likely to be now.
BACKGROUNDTHIS week RBS announced the appointment of three non-executive directors, a response to criticism from shareholders that the Edinburgh banking giant needed to beef up the international experience of its board. Gone were Larry Fish and Bud Koch, two Americans who will retire in 2009. Fish in particular, who was chairman of RBS America where RBS picked up a good proportion of its toxic assets, was "ready to retire", said sources.
New to the board were Stephen Hester, 47, chief executive of British Land. Also appointed was John McFarlane, 61, a Scot who recently retired as chief executive of Australia and New Zealand Banking Group. Arthur "Art" Ryan, the recently retired chairman of Prudential Financial, is the third.
The full article contains 1341 words and appears in The Scotsman newspaper.
