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Archive for April 9th, 2010

The Pariahs (2 of 3)

Part 2 – “It wasn’t me that burned your shed down”

From left: Richard Fuld, former CEO Lehman Brothers, Fred Godwin, former CEO RBS, Martin Sullivan, former CEO AIG

Like contestants on the X-Factor, our pariahs are varied and many but only a select few become our poster boys (no girls, and maybe that was part of the problem). Our pariahs come from the world of banking, property (and its many supporting services), regulation and audit. I wouldn’t go so far as to suggest our politicians have become pariahs yet despite their hands being on the tiller when this crisis blew up – whilst their oft repeated mantra is that this is a crisis that is global in the making, realists might point out differences in the Irish experience and ask if our politicians deserve more blame than their peers around the world. However the main targets for our fury appear to have most if not all the following in common:

  1. The earned substantial sums of money – yes our lot earned a lot but it was dwarfed by the earnings of their international peers – see here for the helpful slide presented to Richard Fuld at his congressional hearing in the US.

2.There were obvious displays of wealth, fine wines, sipping champagne, yachts in Cannes, mansions, jets, his ‘n’ her helicopters, racehorses, Beef Weelington, profiles in the society pages, pads in Marbella, golf, Mercs

3. They are perceived as having escaped financial ruin, unlike their clients and companies

4. The State and its citizens are perceived to be paying off the debts

5. They don’t appear contrite

6. They are perceived to have taken steps to elude their creditors – in Richard Fuld’s case, the London Times and others claimed he sold his Florida mansion which had been valued at $14m to his wife for $100 in an attempt to protect himself from actions by angry investors

7. They were insiders, from privileged backgrounds whose initial success is suspected of being attributable to nepotism, string-pulling, “who you know, not what you know”

8. Despite having contributed to the crisis they are perceived as being rewarded to this day through pensions, consultancies or through retaining ownership, control or access to fantastic wealth

9. The media latch onto the pariah and their image, perhaps the best domestic example is from the front cover of the Irish Daily Star last week.

10. There is suspicion that their conduct was criminal. It would seem though that the only scalp criminally claimed after the global crisis was that of Bernard Madoff. Although there is a high profile Garda investigation into the financial affairs of Anglo Irish Bank, there have been no criminal charges and many have opined that there are unlikely to be.

Earning substantial sums of money has always been a cause of unease and envy in our country. Even St Bono regularly gets a mauling over his wealth and measures taken to minimise tax. As pointed out in Part 1, whilst our attitude is accepted and indeed isn’t confined to Ireland, it is the case that other countries view wealth and earnings in a different light. Of course the USA is the paragon for the admiration and celebration of wealth, which makes us wince as much as the obligatory “have a nice day”. Why though can’t we be happy for wealth people in Ireland. The perception that there is huge inequality of opportunity abounds  (which for many means being denied good quality and in particular third level education). There is the perception of corruption at senior levels of society and an ambivalence amongst our authorities to tackle corruption. There is the perception of an “us and them” layering in society, “insiders and outsiders” and if you’re an insider, you’re in the clover. Some of that will be the “grass is always greener” syndrome but there some truth in it. We suspect nepotism and cronyism to be rife, father and son politicians for example, the Galway tent and our recent history of Tribunals. Some have pointed to our history and in particular our subjugation by the English and the association of wealth and power with “The Others”. It’s nearly a century since we got our independence and perhaps it’s time to reappraise our attitude to wealth and success.

Let’s take a closer look at probably the poster boy pariah of our current crisis, Sean Fitzpatrick. Sean Fitzpatrick joined Anglo in 1975 aged 27 and worked his way up to Chief Executive in 1985 – a meteoric rise some would say and although I don’t know a great deal about Sean Fitzpatrick’s background there is nothing to suggest either it or his upbringing was unusually privileged. Under Sean Fitzpatrick’s stewardship Anglo’s value on the Irish Stock Exchange went from €8m to €13bn in 2007, a 1525% increase. Over the same period the CPI index (base = 1982) went from 115.8 to 238.8, a 106% increase. Anglo was by most measures a stunning success. As stated in the 2007 annual report , the company had enjoyed 22 years of consecutive growth in earnings with 2007 earnings of €1.2bn up 44% from the previous year.  Of course Sean Fitzpatrick was well rewarded but his rewards wouldn’t appear to have been exceptional by the standards of his peers, for example in 2004 the last full year as Chief Executive of Anglo, Sean was paid €2.7m which included a contribution of €0.3m to his now controversial pension and a bonus of €1.6m – compare this with the rewards of William O’Mahony, Chief Executive of CRH  got €2.1m from a company whose earnings and capitalisation were in the same ballpark as Anglo.. Sean also invested heavily in Anglo and in 2007 was shown as holding 4.5m shares which at €17/share represented quite a show of confidence in his own company. Personally Sean Fitzpatrick is described as charming and affable. Unfortunately for Sean, he has attracted a reputation of basing business decisions on personal relationships as opposed to hardnosed dispassionate financial analysis of proposals. Whether this reputation is deserved or not is debatable, and frankly if there hadn’t been a global banking and property crisis would we even remark on it.

Now as we all know Anglo is subject to a Garda investigation and as part of that investigation, Sean Fitzpatrick was arrested and questioned and released. The Gardai have indicated that a report will be sent to the DPP and that may or may not result in criminal charges being levelled. If crimes have been committed then no-one in the State should be above the law. However commentators have indicated that although Sean Fitzpatrick’s conduct at Anglo might have been inappropriate in relation to personal loans and bed-and-breakfasting year end loans from Irish Life and Permanent, it seems likely that no crime has been committed. Although the Anglo criminal investigation has been ongoing for more than a year, it is to be hoped that a conclusion can be brought to the open sore.

Of course Sean has done more than make a fortune. He is perceived as brazen and not in a good sense because of his statements during Anglo’s downfall and nationalisation and subsequently have not appeared contrite. In an interview with the Irish Independent’s Ronald Quinlan in January 2009 the following exchange took place according to the journalist:

“Will you say sorry to the taxpayer and to the shareholders in Anglo Irish Bank?”

“That’s a simple question, but the answer isn’t. What if I were to invite you, Ronald, to sit down here with me for a cup of tea and a chat. And what if, in the course of our conversation, you were to have a cigarette. And when you were finished with your cigarette, you were to throw the butt on the floor and this shed burned to the ground. Could I ask you to say ‘sorry’?”

“You could ask me, and I would apologise,” I respond immediately, while marvelling at Seanie’s notions of blame and how it should be apportioned.

“Well, why would I ask you to apologise? It wasn’t you who burned my shed down. It was the cigarette,” he replies, perhaps revealing just a little of the world according to Sean FitzPatrick.”

So at least in January 2009 it would appear that Sean Fitzpatrick’s idea of contrition was far removed from wearing a horsehair shift and running around flagellating himself.

Part 3 will examine whether the pariahs can be in any way rehabilitated in the public eye and whether they can still perform a service for society.

Part 1 – “The Ends of the Earth”

Part 3 – Rehabilitating images and reputations

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