Andreas Whittam Smith: Blaming Fred the Shred alone is too easy

Every scandal has to have at its heart a scapegoat. In the case of the collapse of the Royal Bank of Scotland (RBS), whose rescue has heavily burdened taxpayers, there was one such, ready made. Step forward Sir Fred Goodwin, "Fred the Shred", the hard-driving chief executive. Moreover, when the end came, he performed exactly as the rules of these dramas dictate: he put two fingers up to his critics. He took so-called early retirement with the enormous pension of some £700,000 per annum.

Yet when I pursued Sir Fred through the 450 pages of the report on RBS's collapse published earlier this week by the bank's regulator, the Financial Services Authority (FSA), I found a foolish Sir Fred, an obsessive Sir Fred, a chancer and one quite as blind as those who will not see. But I did not come across somebody who alone could be blamed. So let us enter the RBS boardroom as it was.

If we had expected to find a roomful of nonentities, as sometimes tycoons make sure they have as their colleagues, we would be disappointed. The FSA states in its report: "The Board included members with relevant experience and skills and successful track records in other fields. On paper, it looked adequately strong." Possibly the members, executive and non-executive alike, were unduly highly paid, which can be a warning sign. Certainly they lacked a maverick who would challenge their unspoken assumptions. It was a conventional board of directors.

Perhaps, though, Sir Fred dominated his chairman, Sir Tom McKillop. It appears not. The chairman seems to have done everything by the book. He thoroughly familiarised himself with RBS's business. At meetings of the board, he took care to allow all members to put forward their views and participate in discussions. He made sure that the executive could be challenged. And Sir Tom responded to the losses that led to the announcement of a big fundraising in April 2008 by commissioning a review to "understand the background to, and lessons learned from, the events that led to significant write-downs... with a focus on identifying changes that RBS should make to its processes". This hardly seems like the actions of somebody in thrall to his chief executive.

Even the disastrous decision to buy ABN Amro, the second largest bank in the Netherlands, in 2007, was properly conducted. (Following correct procedures, by the way, does not prevent gross errors.) Indeed the board took the conscientious step of asking its lawyers to confirm that it had given the offer proper consideration. So it was the whole board, fully consulted every step along the way, that signed off on a deal that the chairman later described, when the dust had settled on the much diminished RBS, as having been struck at "the wrong price", paid for "in the wrong way", done "at the wrong time" and which was, all things considered, "the wrong deal".

How about Sir Fred himself? What picture do we get from the FSA report? "Hard driving" is the right description; he was a man who kept a very tight control of costs and who ceaselessly sought cost savings (for which read redundancies). He was a leader who established a strong emphasis on growth, which he drove by setting clear targets and incentives. He would not have considered the perverse results that such methods could have. The recent case of the high-street bank that sold frail old ladies completely unsuitable financial products was the result of targeting and incentivising staff to sell, sell, sell. He congratulated himself on using capital "efficiently", which becomes "over-borrowing" when disaster strikes.

Sir Fred was a ruthless, single-minded, narrowly focused manager who was determined rather than imaginative. Had he seen the big picture, he would have made course corrections before it was too late. But this still does not make him the sole author of the misfortune. At board meetings, he intervened "infrequently", and reliably followed up points raised by other members.

Directors interviewed by the FSA said that Sir Fred could be courteous and professional but also that he could come across as somewhat cold, analytical and unsympathetic. The FSA adds this comment: "The picture that emerged was clearly more complex than the one-dimensional 'dominant CEO' sometimes suggested in the media." That is probably the nicest thing said about Fred the Shred since the storm broke.

We like to identify scapegoats – and Sir Fred was a plausible candidate – because it removes blame from the rest of us. But the real explanation of the fall of RBS was the incompetence of the British ruling and managerial classes – from the government ministers who expounded the virtues of light-touch regulation without having the foggiest idea of how business worked, to the FSA, whose report reveals much greater failings in regulation than I had suspected, to the entire senior team at RBS, who drove the horses straight ahead, looked neither to left nor to right, never spared the whip and went over the edge and into the abyss.

a.whittamsmith@independent.co.uk