The financial regulator that approved the appointment of Paul Flowers as chair of the Co-operative Bank has stood by its decision.
Clive Adamson, Director of Supervision at the Financial Conduct Authority, told the Treasury select committee, which is investigating the collapse of the Co-operative Group’s Project Verde deal, that he made the correct judgement.
Mr Adamson interviewed Paul Flowers in 2010 at the then regulator, the Financial Services Authority, and approved him as chair of the Bank’s board. He said: “I stand by the decision that I made at the time. I’m as surprised as all of us of the events surround Mr Flower’s apparent misdemeanours. I don’t think it was a mistake making the decision with the information I had at the time.”
The reason that Rev Flowers was selected as non-executive chair, according to Mr Adamson, was because of his governance skills to manage a board of 22 individuals, which grew to this level following the merger with Britannia building society. He added: “It was an unruly board and it was important that somebody was put in place to better chair that board. My view, at the time, was that Mr Flowers did have the confidence to act as non-executive chairman of the Bank. Just to be clear, our view is that as non-executive chairman he does not run the bank, the role of the non-executive chairman is to run the board.”
Mr Adamson commented that additionally there were a “series of new members of the board from the Britannia side as well as Co-op”, which was “difficult to manage because of the two sides”.
During his 90-minute interview with Rev Flowers, Mr Adamson said it was apparent the incoming chair “wasn’t on top of the technical details” of banking, but he “was on top” of the concept of issues around capital and the integration risk of Britannia.
Referring to Paul Flowers’ appearance at the select committee in November, he added: “The individual you had in front of you was not the individual I saw in 2010. He was much more articulate, more cogent. He did appear to grasp the issues around the firm at that point.”
Committee chair Andrew Tyrie said it was an “extraordinary decision” to put a “financial illiterate in charge”. He commented on decision to approve Rev Flowers: “One of your solutions was to put a financial illiterate to tame the board. At the time that did not ring alarm bells?”
Mr Adamson, who was former director, Major Retail Groups Division at the FSA (2008-2011), said: “As of today he would not be approved. But, I stood by the judgement I made. Do I regret what subsequently happened? Yes I do.”
When pressed on Rev Flowers’ suitability for the role, committee member David Ruffley asked the FCA representative that of all the people he had interviewed for non-executive chair positions from other financial institutions how was Mr Flowers’ knowledge? “Was he the worst of the bunch,” he said. Mr Adamson replied: “Yes.”
Paul Flowers was given a more thorough vetting by two junior members of the FSA in 2009 when he was appointed as non-executive director, according to Mr Adamson. At the subsequent approval interview as chair nine-months later, Mr Adamson said he agreed with Rev Flowers that two deputy chairs should be appointed to support him. Rodney Baker-Bates and David Davies were elected by the Co-operative Bank board in this capacity. The committee also acknowledged that those two individuals were the only directors who voted against the Verde deal to acquire 632 branches.
Mr Tyrie added that the approval of Rev Flowers as chair of the Bank was “a negligent decision, a very poor decision”.