"As executive search professionals, the insights we bring, the advice we impart and the solutions we provide can have a significant impact on the businesses, careers and lives of others''
Spencer Stuart, UK Recruitment company and advisers to AIB
The recruitment of executives by companies such as Spencer Stuart in most cases illicits virtually no public comment. Executives are headhunted, assessed, possibly interviewed and assigned to sometimes dull technocratic jobs which may only have one redeeming feature – good pay and the possibility of share options or bonuses.
However, in the case of the appointment of a chief executive officer at AIB, the promise from Spencer Stuart that its advice can have a "significant impact on the businesses, careers and lives of others" was never truer than last week.
The events of last week have their immediate genesis in a report carried in this newspaper on 18 October, when it was revealed that Brian Lenihan was seeking to break the logjam with AIB over the CEO appointment by putting the bank's chairman Dan O'Connor in as executive chairman, effectively number one, at least in name.
What was not known at that time was that Colm Doherty, the AIB capital markets boss, was still in the hunt for a senior role, despite not having the support of Minister Brian Lenihan. The reason for the lack of support? The government is publicly committed to change at the top of AIB and since 2003 Doherty has been on the board of the bank, acting as a director at a time when the bank made some horrendous lending decisions and developed a huge dependence on wholesale funding.
Objected to AIB decisions
Doherty's friends and associates say he objected to many of the decisions which were taken at that time, but for anyone beyond the AIB boardroom this remains nothing more than conjecture.
Lenihan has been meeting O'Connor, a former GE Europe executive, for several months in his department, pressing him and the AIB board to find a suitable replacement for Eugene Sheehy, who announced his decision to step down in April. A suitable replacement would be someone from outside AIB, Lenihan has been suggesting for months.
The first phase of the dialogue between O'Connor and Lenihan is reported to have been cordial, but after the first round of applications and interviews no 'credible' candidates were turned up apart from Doherty, AIB alleged. O'Connor is reported to have told the minister this and Lenihan is believed to have pressed O'Connor and the board sub-committee tasked with finding a replacement to do a more thorough search, using Spencer Stuart and its international links.
During August and September a further shortlist was drawn up, but it is believed serious heavy hitters from the US, like ex-Bank of America executive Liam McGee, pulled out of the race after getting cold feet because of the level of public scrutiny the application process alone was getting, never mind the microscope the successful candidate was likely to fall under at a later stage.
In recent weeks, the members of the selection committee themselves have held discussions with Lenihan, with Glen Dimplex chief executive Sean O'Driscoll and former foreign affairs minister Dick Spring telling the minister flatly that none of the earlier international candidates could now be delivered. It is understood the €500,000 salary cap and the uncertain future of the institution itself were two significant turn-offs for these external candidates.
Spring's role appears to have been crucial, with Lenihan accepting Spring's assurances that Doherty was the last man standing after the recruitment process was over. The Sunday Tribune understands that Lenihan is aware of the CVs and applications that were received for the chief executive's post. It is understood several candidates who applied for the job as chief executive of Anglo Irish Bank also applied for the AIB post.
Several bank executives, with reasonably strong CVs, have told the Sunday Tribune they would have been keenly interested in the post, but were either never approached or rejected at an early stage of the process. They question whether the media pressures that attach themselves to being AIB chief executive would have put them off. "It's a big, big job and would have given someone a chance to effectively turn around a large retail bank that has lost its way," said one bank executive, who wished to have his name kept private.
A fortnight ago, reports emerged in daily newspapers that a face-saving solution had been agreed between Lenihan and O'Connor. Doherty would be the managing director, thereby satisfying the bank's top tier of management and some of its board directors, while O'Connor would provide a fig leaf of independence as an executive chairman.
Copperfastening this new structure would be a new independent director (the National Treasury Management Agency's Dr Michael Somers) and it was agreed with the Department of Finance that Doherty would be surrounded by a chief financial officer and chief risk officer from outside the bank, in an attempt to beef up the independence and freshness of the new management team.
This new structure was accepted on all sides, with Lenihan particularly happy that Michael Somers would be joining the board, as effectively the eyes and ears of Lenihan's department. However the deal as agreed, admittedly informally, unravelled on Monday when AIB sent over their proposals for Doherty's remuneration at 7pm, the night before a cabinet meeting.
The Department of Finance had requested this paperwork so the cabinet could be informed of the details of the proposed arrangements. However, later that evening the Irish Times reported that Lenihan had already approved the pay arrangements at levels above €500,000, contrary to the terms on bank compensation as stipulated by the so-called Ciroc report, which was issued earlier this year.
Lenihan described the story in the Irish Times as "inaccurate" and told his cabinet colleagues the government would not be assenting to pay rates above €500,000 and certainly not for people already working at AIB (the door was always left open to higher pay for anyone outside the jurisdiction who might need an extra incentive).
Who proposed salary request?
However, what remains a mystery at this point is who precisely proposed Doherty's higher remuneration request in the bank and what were they thinking?
The sins of AIB over the past 18 months are serious and many. From pushing up its dividend in the teeth of a financial crisis, to underestimating its own capital requirements, to denying that there was any chance it needed outside capital to the disdainful posture of its executives at its annual general meeting earlier this year, the bank has taken a whole range of mis-steps.
The attempt to seek pay rates above government guidelines was the latest and most serious mis-step.
The problem is of course that the bank needs a credible leadership at present. The bank may need up to €3.5bn in fresh capital, according to US broker KBW and that's going to involve one of the most audacious rights issues in the history of Irish corporate life. If the rights issue cannot be carried off, the bank is heading only one way – into the clutches of the Irish government, which would be the only alternative provider of capital.
O'Connor, who lives in Meath and who picked up much of his business acumen from former Woodchester boss Craig McKinney, has an impressive CV and worked as a national manager at GE at a time when the hard-charging Jack Welch was running the company globally.
Equally, Doherty is experienced in capital markets and Somers knows a thing or two about tapping private capital. But the scale of the challenge in considerable – last week AIB's entire market value was €1.5bn. In other words, it may need to raise twice its entire market worth over the next two years.
To do that will require credibility and a unified management function. Based on last week's events, the bank does not have that. Proof of this is that the bank and the government itself are going to review the entire management structure in a few months to see if it's working properly.
In other words, the bank and the government are both afflicted with inner doubts about the current set-up, so it's hard to see how outside investors could harbour anything but doubt themselves about the bank and its future prospects.