THERE ARE no winners in the debacle that was the search for a replacement for the chief executive of AIB. The board of the bank has acted in a profoundly arrogant manner and demonstrated that it is clearly out of step with the public, hundreds of thousands of whom are its customers. It has been humbled, but only somewhat, by the Government.
At the end of the day the bank has succeeded in its primary objective, the appointment of their preferred internal candidate to the top job, despite the clearly expressed desire of the Government that the job be filled by an outsider. A new post of executive chairman may have been created and Michael Somers may be parachuted in as deputy chairman, but Colm Doherty – a long-time AIB employee – will be filling the shoes of Eugene Sheehy and running the bank.
It is hard to understand why the board should act in a manner so totally at odds with the wishes of its largest shareholder. Not only does the Government effectively own 25 per cent of the bank, its stake is expected to rise well above 50 per cent when the bank’s land and property loans are transferred to Nama. And above all this, sits the guarantee issued by the Government 13 months ago which prevented the collapse of the banking system and AIB with it.
The litany of management and governance failures at AIB implied by this taxpayer-funded rescue is impossible to square with the self-evident belief of the board of the bank that they still know better than the Government. It is simply far too charitable to accept that the bank had no option but to put Mr Doherty forward because the cap on salaries – imposed in the wake of the guarantee – made it impossible to attract external talent. As became clear on Monday night, the bank had no intention of adhering to the cap with respect to Mr Doherty’s salary and expected the Government to roll over on this issue as well. The board of AIB is dysfunctional and should be replaced .
The Government is also damaged by the affair. The Minister for Finance may have won the day on the issue of the salary cap for Mr Doherty, but to say that he has finally asserted his authority over AIB and the wider banking sector would be something of an overstatement. The truth is that he only moved when it became politically impossible – given the public anger – for him not to act.
How the Government found itself in a position whereby a bank that was relying on the taxpayer for its very existence was emboldened enough to try and bully the Government is deeply disturbing. It raises very serious questions about the Government’s faith in its own judgment and its abilities. This in turn cast doubts over its wherewithal to manage the mammoth task of restructuring the banking industry via Nama. If the Government was not prepared to face down AIB on its own volition over the fairly black and white issue of the managing director and his pay, what chance is there that it will be able – if necessary – to force the banks’ co-operation with Nama.