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Cowen waves the white flag to AIB

Posted on: November 22nd, 2009

BRIAN COWEN carried the white flag down the steps of the Dail chamber on Wednesday morning.

He had an easy task: to tell the Dail the terms of the Government’s latest surrender to Allied Irish Banks. It must be second nature to him by now. Over the last year, he has had plenty of practice.

Yet this was the most humiliating of all the surrenders. Last spring, when AIB boss Eugene Sheehy had been forced to resign, the Government had finally taken a stand: this time, there would be no insider appointed.

Smarting from the stroke pulled by the Bank of Ireland when it installed heir apparent Richie Boucher to succeed the deposed Brian Goggin, Cowen and his Cabinet promised a bit of backbone. The AIB board was told to go out and find an outsider.

The AIB directors were incensed. They wanted to install their board colleague, Colm Doherty, in the post. Finance Minister Brian Lenihan told them to get on their bikes and find an outsider: a battle of wills followed.

Six months later, the Government blinked first. Then it rolled over. Finally, it was prostrate.

All that was left was to dress up the surrender as a noble compromise.

The craven terms revealed by the Taoiseach were far from a compromise. They were even worse than the most optimistic banker could have dreamt. Not only was Doherty — the board’s anointed — to be installed in pole position, but chairman Dan O’Connor was to assume the role of chief executive, combining the two titles as ‘executive chairman.’ Two insiders, not just one, had been promoted.

This was far from a Government retreat. It was a rout.

Worse still, the Taoiseach himself had acquiesced in a blatant breach of the rules of corporate governance by permitting the imposition of an AIB executive chairman. Good governance stops too much power being held by one person. Cowen does not care. Has he learnt nothing from the Sean FitzPatrick experience, after the all-powerful Anglo Irish Bank chief executive was allowed to breach similar guidelines by ascending without opposition from chief to chairman?

And finally, Doherty was going to be allowed to breach the half a million euro cap on chief executives’ pay. The entire rulebook had been torn up for AIB.

Suddenly a skilful attempt was made at an elegant spin on the story. Within hours, AIB announced that Doherty had, after all, agreed to reduce his salary to a mere €500,000. Suddenly the appearance of an AIB concession was being portrayed. More astute observers were convinced that the salary breach had always been a red herring, introduced as a red rag to distract an outraged public, intended all along to be conceded to dampen anger.

The manoeuvre failed.

So did all the others. The pathetic mantra from Government apologists that no less a person than AIB director Dick Spring had insisted that Doherty was the only suitable candidate for the top job cut no ice. Fianna Fail TDs had developed a sudden infatuation with the former Labour Party leader. If Spring said it, it must be right. A few years ago, these TDs could not sit in the same room as their one-time bitter political opponent.

Nor did Cowen’s feeble insistence that O’Connor’s appointment is “temporary” convince anyone. Perhaps O’Connor will stay long enough for the post of “chief executive” to be formally abolished and the post of “managing director” — now held by Doherty — formally recognised (de jure as well as de facto) as the supreme position. All sorts of titles and contortions have been concocted to paint this climbdown as a compromise.

But the most cynical move of all was the decision to parachute poor Michael Somers into the vice chairman’s post. Somers is suddenly retiring from his high perch as head of the National Treasury Management Agency. He leaves with a good reputation as a fine civil servant and a successful investment manager. But Somers is hardly a new broom with radical ideas; the 67-year-old veteran has enjoyed a salary of €1m and will no doubt reap a fancy pension that would not even shame a banker.

Somers, with his enviable reputation, was meant to provide cover for the Government in its AIB moment of shame. Somehow the presence of Michael is supposed to bring an aura of respectability to a discredited board.

Even the mighty Michael will be unable to do that. It will take more than his reputation to salvage AIB.

Somers will wield no executive power. That will remain with the retrenched insiders, Doherty and O’Connor. Not a sinner among the old directors has made way for Somers. Apart from the departed chairman Dermot Gleeson and the departing chief executive Eugene Sheehy, not one of the other 10 surviving board members — who guided AIB to the brink of oblivion — has seen fit to step down.

This is the board that brazenly attempted to slot Doherty into Eugene Sheehy’s shoes six months ago; the board that responded to Lenihan’s direction to find an outsider by saying that they had scoured the banking globe for a new boss and that Doherty was the only guy in the whole world who ticked all the right boxes. What a miracle. What unbelievable luck.

There it was, blessed AIB, with the perfect candidate beating a path to the chief executive’s door, albeit from just down the corridor.

Even the silent spinning that Doherty has been a fine head of AIB capital markets misses the point. Doherty, like Boucher in the Bank of Ireland, is the heir apparent. He was pipped at the post in the last contest for the top job by Eugene Sheehy. He represents no change, living evidence of raw defiance by the board of a spineless Government.

Allied Irish, maybe of all banks, needed a culture change, a board cull and radical surgery. It has the worst of histories. It was AIB that eyeballed the Government and forced a taxpayer bailout in the Insurance Corporation debacle 25 years ago; it was AIB that was the worst offender in the Dirt scam; it was AIB that starred in the overcharging rip-offs; it was AIB that produced John Rusnak.

Not, you might think, the best background for a bank to defy a Government which also just happens to be its largest shareholder.

But to have pulled off this stunt against the odds is the measure of last week’s depressing victory for the bankers over the Government.