3.2 Since taking Northern Rock into public ownership, the Government's intention has been to allow the company to operate at arms length from Government on a commercial basis. In April 2008, the Treasury put in place a shareholder framework setting out how it intends to conduct its relationship with the company (Box 4).
3.3 The Treasury appointed a new Executive Chairman, Mr Ron Sandler, for Northern Rock in February 2008. By 26 February the Board had appointed new members and removed old members. The former Chairman, Mr Bryan Sanderson, was appointed on 19 October 2007 on a fixed term contract for two years at an annual fee of £315,000 plus £85,000 a year towards the cost of his London office accommodation and personal assistant. On his retirement on 22 February 2008, he was entitled under the terms of his contract to the payment of the balance of his fee and expenses to October 2009. The Treasury considered whether it should refuse to sanction any such payment but decided on legal grounds not to intervene. In December 2008, the company agreed on a payment of one year's fee only (£315,000) and, at Mr Sanderson's suggestion, the balance of his fee (£210,000) was paid to the Northern Rock Foundation, a charity established by the company in 1997.
3.4 A Competitive Framework was put in place by the company and the Treasury to reduce the risk that the company could use its government-backed position to distort competition in the market place:
■ the company will not exploit its public ownership in marketing literature for its products;
■ the share of retail deposits will not exceed 1.5 per cent of total retail deposits in the UK;
■ the share of gross new mortgage lending will be limited to no more than 2.5 per cent in any one year;
■ the company will not rank within the top three of defined range of retail deposit products during 2008.
BOX 4 |
The shareholder relationship framework The framework document sets out the structure of how the day-to-day relationship between the company and the Treasury will work. The relationship operates according to the following principles, under which the Treasury: ■ appoints the Chairman of the Board and appoints two Non-Executive Directors in consultation with the Chairman; ■ gives its consent for the appointment of other members of the Board proposed by the company and agrees the terms on which the Directors are appointed; ■ determines the high level objectives of the company set out in a business plan and agrees the plan and subsequent updates with the Board; ■ reviews with the Board, from time to time, the company's strategic options; ■ requires that the Board is accountable to it for delivering the agreed plan; ■ gives the Board the freedom to take the action necessary to deliver the plan; ■ monitors the company's performance to satisfy itself that the plan is on track; and ■ must give its consent for certain significant actions (such as a disposal of assets). Source: HM Treasury |
3.5 The Chief Secretary to the Treasury committed the Office of Fair Trading (OFT) to publish an annual report assessing any implications for competition of the public support for Northern Rock. The OFT report, published in March 2009, concluded that between February 2008 and February 2009 public support for Northern Rock did not have a significantly adverse impact on competition in the savings and mortgage markets. The OFT will continue to monitor developments to identify any emerging competition concerns.
3.6 The Treasury receives regular updates on the company's financial performance. The information includes updates on key performance indicators along with monthly management accounts. The arrangements also include monthly shareholder meetings with the company's executive management team where performance against the business plan and strategic issues are discussed. In addition, the Treasury received an independent review and commentary in the form of a weekly monitoring report produced by Ernst & Young until late 2008, when this role was taken on by the Shareholder Executive, part of the Department for Business, Enterprise and Regulatory Reform.
3.7 The Treasury has announced that, when appropriate, its interest in Northern Rock will be transferred to a new holding company, UK Financial Investments Ltd. The new company, wholly owned by government, will be responsible for the relationship with Northern Rock and Bradford & Bingley, as well as the government's new shareholdings in other financial institutions. The Treasury will retain ownership and continue to have responsibility for all policy decisions relating to the taxpayers' interest in Northern Rock including, for example, any decisions on what to do with the taxpayers' holding in the future.