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Royal Bank of Scotland

Royal Bank of Scotland (RBS) is a UK-based banking and financial services company. It provides a wide range of products and services to personal, commercial and large corporate and institutional customers through its subsidiaries, including NatWest, Ulster Bank and Coutts.

Background
RBS was rescued by successive recapitalisations from the UK government – which now owns 71% of the bank – following liquidity problems after its purchase of ABN AMRO in 2007 and the destruction of much of its value. In addition, the bank was implicated in numerous conduct and litigation issues, such as the Libor fixing scandal, the inappropriate treatment of its SME customers and mis-selling of products – including payment protection insurance – which indicated wider issues in relation to governance and culture. Nevertheless, the bank remains an important constituent of the FTSE 100. Its restoration to health is important not only for its shareholders, including the UK tax payer, but also for its retail, commercial and global banking customers.

Our engagement
Throughout a series of meetings with the chair and the committee chairs of RBS, we have encouraged greater focus on the wider sustainability agenda, including the development of a more responsible, customer-centric culture. We also discussed board composition, including the need to recruit non-executive directors with more specific retail-banking and technology experience. In addition, we engaged with the remuneration chair on the bank’s new pay policy to complement the execution of its strategy.

Changes at the company
The bank has made significant progress on its governance and has refreshed its board with experienced board members under the leadership of, in our view, a capable chair. Several new non-executive directors have been appointed over the past two years, who have the relevant consumer, technology and banking experience. Beyond this deepened skill set, we believe the appointments will also allow for greater board focus on forward-looking strategic issues.

We are encouraged by the changes in its new remuneration policy, which go a long way towards our own remuneration principles – in terms of lower quantum, simplicity and alignment – and are acceptable to a majority of its shareholders, including the UK government. Beyond the regulatory requirements, the new remuneration policy intends to further increase alignment with the new values and desired culture within the bank of encouraging long-term, sustainable performance. In the new remuneration scheme, significantly lower maximum quantum of variable pay is combined with increased certainty of outcomes for participants. In addition, minimum shareholder requirements have increased significantly, with share vesting and holding requirements applying over longer periods of time.

After successfully rebuilding its financial strength and removing unnecessary complexity, the bank is now into the third phase of its strategy – to increase its focus on serving its customers better and returning the bank to sustained profitability. The objective to achieve sustainable economic returns in all its major business units has been a challenging task for the executive team over the past few years. The decision to re-size the investment bank – under the brand NatWest Markets – has worked well, although financial returns remain mediocre. However, the core of the bank, in particular the personal and business banking division is producing solid returns.

The bank’s commitment to sustainability has become more evident, including in its disclosures. The bank has replaced its sustainability report with a more integrated approach to bring together in one place its financial and sustainability performance, thus demonstrating that it strives to build a more sustainable business to deliver long-term value to all its stakeholders.

We continue to engage with the bank to monitor progress against its main strategic objectives, in particular in relation to its restructuring, including the re-integration of Williams & Glyn, and on its wider sustainability agenda, including the development of a more responsible, customer-centric culture and its support for the transition to a low-carbon economy. In addition, we will seek further meetings to assess the resilience of the bank’s technology platform.

 

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Sales contacts

Angelo Natale, Director - Business Development, Italy
Paul Voute, Head of European Business Development