27/01/2012 Newsnight

Tonight almost a million pounds in shares might be loose changed to

banker, but -- change to banker, but a huge bonus for a glorified

Civil Service. All line up to criticise bankers' bonus, but can't

agree who could have stopped Stephen Hester's bonus at public

owned RBS. Newsnight tries to find out who was responsible, whether it

was avoidable or reasonable. Is it any business of politicians

to get involved. Also tonight:

I'm at the exclusive ski resort, where all the fashionable people

get together to discuss the state of the world.

Not actually Davos, Hemel Hempstead -- os.

Our own world economics for yum will be putting the world to rights.

Plus: Leave it Jack, he's a kid Jack.'S A punk. The man who brought

Mexican cinema into the theatre, Guillermo Arriaga reflects on our

globalised culture, and whether economic hard times make the world

Good evening, bankers have been the pantomime villains of British

politics for so long now, if you want an applause line, attacking

bonuses is the way to go. All the leaders of the political parties

have tried to out-outrage each other at one time or another, can

they meet public expectations. If the best they can do about bonuses

is to ask Stephen Hester not to take his, is it all just hot air.

OK, here is a quiz question. Just what is RBS? Is it, a major British

bank, based here in the City of London, and run according to the

norms of global capitalism, or, is it, a bank controlled as it is

owned, essentially by Westminster, and meeting political goals for

Britain. That is the question that lies

behind the row over Stephen Hester's �963,000 bonus today. It

has got the politicians frothing. People will not understand how

somebody can get a whacking great bonus like that, when they are

basically running a state-owned concern. I'm at a loss to justify

it. A huge amount of sympathy about people's sense of dismay when they

see these figures that just seem figures from another planet for

many people in the country. It is a disgraceful failure of leadership

by the Prime Minister. He has been promising for months action against

excessive bonuses, excessive pay, now he has nodded through a

million-pound bonus. So what has he done, this banker, to earn a

million on top of his regular million. He was brought in to turn

the bank around. Well he has managed to cut the bank's leverage,

the relationship between capital and money at risk from 28-times to

17-times, but in the last 12 months, exposure to the euro crisis has

sent the bank's shares plummeting, down 40%. That leaves the taxpayer

sitting on a loss, and the bank impossible to sell. So the

investment bank bit, once seen as key to RBS's global status, is to

be sold off. I personally think had the Government nationalised the

whole thing, they could have taken a much faster set of steps to

create smaller units out of RBS that were more easily privatised,

and the Government could have gotten its way out. Instead, what

we have had is a Government that hasn't realised that it has taken a

bet on investment banking increasing in value over the last

three years, and really having the tax-payers take a punt on

investment banking. That is a really poor strategy. When RBS

collapsed in 2008, and nearly took the British economy down with it,

Gordon Brown sacked its boss, Fred Goodwin. Yes I'm angry with RBS.

Brown needed a competent replays., fast. In the rush they created a

problem. There is no doubt there is a bit of schizophrenia in the

Government at that time, we expected, first of all, the bank to

become much less risky. At the same time we wanted the bank to be a

state institution, mostly, to be lend to go corporates and

individuals and therefore contributing to the recovery in the

economy. When you have these two things coming at the same time and

taking more risk when you are trying to reduce the risk level,

that is very difficult. As the investigation dragged on, the

prospect of selling RBS is healthy dwindled. New banking rules, new

targets for lending pressed in on Stephen Hester when his size of

bonus became a cause celebre, and the board was threatening to resign,

George Osborne had to step in. alternatives would have been worse

for the taxpayer. There would have been a larger bonus of the kind he

would have got a few years ago, or the British Government would have

had to takeover complete ownership of RBS and overruled the board. I

think that would have cost the taxpayer more, as well. I

understand people's frustration about levels of pay across the

banking sector, but the alternatives when it came to

Stephen Hester's bonus, would have been worse for the taxpayer.

are the people who really took this decision? The Government owns RBS

through UK Fingers Investments, a company -- UK -- UK Financial

The acting chairman consulted with RBS and the Treasury before signing

off Stephen Hester's bonus. They couldn't tell us when or how the

decision was finally made, or whether the Government had proposed

a lower sum. So where does this leave the �45 billion of the

public's money invested in RBS? One banking expert is pessimistic.

Government should be highly focused on how fast it can get rid of RBS,

the money that was spent wasn't spent as an investment in banking,

it was spent to save the economy from collapsing. So we shouldn't

confuse the fact that we put money in to save our economy, that money

is gone, right now we are speculating on the banking sector,

the longer we hang on. The truth is, for Stephen Hester, the game at RBS

has completely changed. He was origin yaally hired to grow the

business, to keep the investment bank intact and sell the bring at a

profit for the taxpayer. Now conditions have changed so badly

that the problems at RBS go much deeper than one man's bonus. We

have with us the chief executive of the advertising group WPPP, Martin

Sorrell, the deputy chairman of the Labour Party and my other guest. Is

this reasonable in your view, a reasonable reward for a job well

done? I think if you look at the history to this, Stephen Hester

came, I think, from British Land several years ago, had he no

involvement in how RBS was run prior to joining from British Land.

He gave up a contractural entitlement there, swapped shares

for shares in RBS. And the shares have fallen in value since then. He

was hired at a salary of just around one million. He forewent his

bonus in 2009, he was awarded shares in 2010, the following year,

to the tune of about �2 million. Shares that have not been cashed,

as yet. He has received no cash in bonuses subsequent to then. This

year the Government, or the Government holding company and the

board have agreed a bonus of a million pounds. The bank's

financial position has been de- risked. The original risk to the UK

taxpayer was a trillion pounds, he has reduced that risk by de-risking

the balance sheet by �600 billion. The bank has gone through a

seriously difficult time, with the eurocrisis. It has lent significant

amounts, �65 billion to SMEs, it is 40% of SME lending. Whether it is a

good deal or not, it is a deal, I think, that in relation to what

he's done, how he's performed, and the contract that was signed by

both sides, and the Government asked him to come in, I think it's

fair, yes. Michael Fallon, you obviously

believe this is a good deal, I'm wondering if George Osborne signed

off on it? Nobody likes the bankers' bonus, but we inherited a

contract here, which the board has been operating under. Obviously as

the largest shareholder, we have a view on what the board, the way the

board has come to its decision. George Osborne did sign off on it?

David Cameron has been talking about shareholder power? This is an

example of a shareholder power. George Osborne and the Prime

Minister, shareholder power there? This is an examine of shareholder

power, the Government has the biggest stake in the bank, and

clear made its views known, as a result the bonus is half the bonus

that was there last year. Just to be clear, I'm sorry to interrupt,

to be clear, George Osborne and David Cameron have done very well

in getting a really good deal for the taxpayer, because they have

exerted shareholder power, is that it? No, everybody would have liked

to have seen this bonus much smaller than it was. Bonuses aren't

popular, of course not, under the contract the Labour Government

signed with Stephen Hester, the board of directors has discretion

to set the final bonus. Shareholders can make their views

known, and I understand the shareholders certainly did make

their views known. The buck stops with the Chancellor doesn't it?

a result the bonus was halved from what it was. The Chancellor did

very well? It is a negotiation in the end between the major

shareholder, the institutional shareholder and the board of the

directors. Could the Government have walked away from it, we are

not having it if you cut it too much? Shareholders don't run a

company, it is run by a board of directors, we need a board of

directors and a chief executive to run the company, it couldn't be run

by civil servants. We have �45 billion at risk in this company. We

need to try to get that back. This company has to be run by a banker,

that is what Labour recognised when they appointed Hester. That is what

they recognised when they gave Stephen Hester a contract under

which the board had discretion to pay him a bonus. Your party should

take credit for this great deal as well? This is pathetic, the fact is,

we have seen his contract, we have a copy of his contract, his

contract does not give him an automatic obligation to have a

bonus. Discretion. Who owns the company? We own the company.

Cameron said he would do something about it, he hasn't listened to the

British people. You would not have paid him a bonus? We would not have

paid him a bonus. Even if there was a risk, the board of this very

valuable asset to the British people, perhaps in the future, were

to walk away? We think there are people in the public service, up

and down this country, who do a good job. They do a good job for

daorn sight less than a million pounds. They don't run banks with

trillion-colour debt? J why did you sign off on the -- Why did you sign

off on the contract? The contract was a million pounds and he doesn't

need the bonus at all. This is not an argument with Hester, the RB

shares have gone down, and thousands have lost jobs. Why did

you sign off on the deal in the first place? We signed off on the

contract, but that does not give an automatic obligation for him to

have a bonus. It is discretionary. The board can give it. The board

answers to the shareholder, who is that, us. The public say do not

give him any more of a bonus, and this Government is completely out

of touch and not listening. I will bring in Martin Sorrell again. In

your position, I mean, do you have some sympathy with Stephen Hester,

would you turn down this bonus because of the public outcry, how

would you handle it? I have some sympathy for Stephen Hester, from

whence he became, he had nothing to do with the bank prior to its

difficulties. He wasn't running the bank before. He was asked to come

in to do this, giving up a much better position with British Land.

The issue is this, if the shareholder decides -- shareholders

decide this is inappropriate and sacks the board, they can replace

them and the chief executive. The thing we have to face up to, there

is a competitive market place n banking and other activities. If we

don't give payment via results, if we don't give payments for success,

I agree if it is a total fail yu, payment should be denied. But he

has -- failure, payment should be denied, he has taken shares and

held those shares f the price falls he suffers as much as any other

shareholder. Let me just finish. The Government has the right to

sack the board f Labour was the Government, and the Labour minister

said she would have denied the bonus, that Stephen Hester can walk,

they can find somebody else. The directors can walk, we can try to

run the bank without a board of directors and CEO, there is a

competitive market, we have to live with the consequences. In this case

judgment was exercised, and it is a reasonable judgment. At the last

bonus you got, 40% of your shareholders voted against you

getting an increased bonus, I understand why you feel so strongly.

In this case we are the shareholder, Cameron has said it is a time for

shareholder power, he said he wasn't going to let Hester have a

million pound bonus, he said it a few days ago, he has left everybody

down? We have halved the bonus, he's getting deferred shares f the

share price doesn't rise he's not getting anything at all. It is

�5,000 light of a million, do you think it is reasonable and you have

done a good job. You are talking about contracts, what about the

contract with the British public. Cameron says shareholder power,

rein in the excesses, public banks not paying big bonuses and goes

back on his word. You signed off on the contract that gave the board

discretion to set the performance and bonus. The board have judged he

has started to meet the criteria, increased small business lending,

reduced the risk to the taxpayer by shrinking the balance sheet.

could have gone to an Annual General Meeting and voted no.

beginning to turn the bank around. The Government has expressed a

strong view not to have an excessive bonus from last year, it

is halved. Sir Martin Sorrell, a final thought from you, do you

think this will put off talented people from running a business such

as this? I think that's definitely the case. If you look at the

history of this, if it was a banker, there for ten years, and led the

bank into the crisis you could understand it. That is not the case

here. I think it will he discourage people. I think people will look

for alternatives, that is what I think the Government of whatever

colour has to face up to. We live in a competitive market place,

there are all -- alternatives, if you don't pay people according to

results in that environment they will take up opportunities and go

elsewhere. This has to stop, and now is a time when Cameron ought to

have stopped it, he let us down. That is not fair. Your Government

entered into the contract, you gave the board discretion to do it, if

you don't like it, fire the board. I have told you what should happen

f we owned the company, if Cameron agrees with shareholder power.

think it is...Would You really want this bank. If you did that, it

would be an even bigger shambles. You should have stood up to them.

final word? We did stand up to them, we halved the bonus proposed and we

have touch benchmarks in place where eventually we will get tax-

payers' money out again. Tell that to public servants again.

For those of us who have never vend turd up a Swiss mountain to discuss

the issues of the world, the summit at Davos remains a mystery. It is

thought the Masters of the Universe who meet there build in time for

skiing to clear their brains. Which explains this report from the

slopes nearer to home. The little town of Hemel Hempstead

never looks lovelyier than this time of year. What better than to

bundle up against the chill and join the others on the black run at

the snow centre. But the real action is all at the apres ski,

when a glittering elite puts the world to rights. We have brought

together senior financial analyst, Louise Cooper. From the Occupy

London campaign, it is activist, Dave Do youhurs. Completing our

panel, a man who hasn't been to Davos, but has choreographed snow,

Wayne Sleep. We are lucky enough to be in Hemel Hempstead, what about

the world leaders in Davos, what kind of job do you think their

doing of running the economy? great job. One of the interesting

things to come out of Davos is how much criticism a lot of

corporations have heeped on the politicians in the eurozone crisis,

for really failing to get to grips with it. These are the wonderful

people who got us where we are today. Possibly if we could keep

them there for a very long time, and get on with the running of the

society for ourselves, it might be more functional. The Davos thing I

think is just to show they are pretending to do something about

the dreadful economy we are in. So they have all collected together,

in fact, I would have gone over to help them out at Davos, but nobody

gave me a big pension to get there. President Obama wasn't actually in

Davos, had he some things to say this week about sharing the burden.

I guess that was code for tax, Louise? I think a 50% higher rate

tax rate in this country compares pretty well, compared to Mitt

Romney's, was it 13.9% tax. That is a luxury Mr Romney for being able

to achieve that. I don't think there is that many people in the UK

that work for companies that do that. Until we have people at Davos

not hiding Nair stuff in tax havens, whether Jersey, Switzerland or

Delaware, not much else will happen for us. To be fair Governments have

cracked down on tax havens, but not enough. Do you really believe that?

On the crest run in Hemel Hempstead, what else are they hoping from the

slopes at Davos, what do our own experts see in the crystals? You

have a background in ice dance choreography, if you were in Davos,

what would you be urging, do you think? A lot of the money seems to

go into people just discussing what's going to happen. Consultants

and things? Consultants, air fares, meetings, like in Davos, how much

did that cost to get there. We have built up too much debt, Government

debt, personal debt, massive amounts of debt, the most important

thing is to pay that back. That will be ten years of pain. That

involves cuts, that involves spending cuts. Nonsense, basically,

if you look at the percentage people pay in taxation, say in the

Scandinavian countries, it is higher than here, but they are

happier and healthier. The main debt in this country is owned by

the financial sector. Do give us your honest answer, what do you

think of Newsnight's Hemel Hempstead economic for yum. I think

it is far better value for money than all those people in Davos, and

if we can speak to the 99%, they would learn a lot more than if they

were just speaking to people who have their own convictions and

their own self-deillusions. Louise, you would -- Louise you would

sooner be in Davos? disappointed we didn't get any hot

wine to warm us up. Latin America cinema has become

globalised, Mexico in particular. The work of Guillermo Arriaga is

astonishingly popular for audiences around the world. With the fighting

underclass in a Amores Perros, to The Burning Plain. Leave it Jack,

he's a kid, Jack. He's a punk. Grams, with Benicio del Toro and

Sean Penn, Arriaga, who describes himself as a hunter who works as a

writer, the characters search for relationships and each other in a

fractured narrative. Richard, why did we come here? What do you mean

why? Typical of Arriaga's work, films are told in a non-linear form,

with events told out of sequence. In his 2006 hit, Babel, the lives

of Oliver Blanchard and Brad Pit it's characters took a sudden and

gloody turn. Guillermo Arriaga is bloody turn.

Your country has some of the richest people in the world in t

and some of the poorest people, I wonder if you felt in your lifetime,

globalisation had made it a better place to live? It has been a better

place in certain ways, but certainly not for the majority of

the population. I think one of the worries and problems in Mexico

began in the 180s. This was this agenda to -- 1980s, this was the

agenda to open the markets around the world, and have huge

corporations that they will be more economically solid, more solid, and

they would spread the wealth. That didn't happen, at least it didn't

happen in Mexico. Did the phenomenon of globalisation open

people's minds and eyes to different cultures, I'm struck,

looking at your films, Amores Perros is very particular to Mexico,

yet it impacts on us all, because we all have similar feelings, that

is globalised? What is good about globalisation, we understand that

we human beings have very basic things that make us have a lot in

common. Very little but a lot in common. We have the fear of death,

we have the sense of love, we have the sense of protection for the

kids, I was amazed, for example, with Amores Perros, someone was

saying it is the story of my life. And he was from Finland, or from

Vietnam. It is amazing how a film can bring people from so many

different places to this common human thing. You are talking now

like someone who is basically optimistic, you have said you are

an optimist, some people looking at your film, those little clips are

hardly explaining a lot, but they are pretty dark? That is why they

are optimistic. Because these people come from very dark places,

into a chance of redemption, or a chance of changing, or a chance of

finding love, it is not they stay in the dark places. That is why I

say it is a feel-good movie, a feel-good movie with a romantic

comedy, OK, but these people come from very dark places. Listening to

blues music, it is so miserable it makes you happier. Maybe you didn't

put it quite like that. Are you equally optimistic about the way

your country is going, the way the world is going? Do you see the

opportunities of globalisation may actually make things better in the

long run for the people we are talking about? I think it is

difficult. I'm basically, I have an addiction for optimisim. I would

like things to work out. But I think that a lot of things have to

change in the world, in order to achieve that. Given these hard

times, is this a good time to be in a creative business? Is it a good

timor a film maker? Absolutely. You know I think the more the

contradictions there are in culture and society, the more you have the

need to express them. It is a good time for creativity. I'm struck by

the films of the 130s, they were so popular because they were escapist

-- 1930s, they were escapists, they were take me away from the world.

You are saying the world is worse for some people, is that part of it.

It is interesting, is that what makes them so popular? I think

people right now want to have a dialogue within themselves and have

the opportunity to talk with the rest of the people about the things

that are happening in your lives. So I think they don't want to

escape from reality, but have an understanding of what is going on.

People have become too abstract. The Nikkei falls down, and it is in

Japan, and it is so abstract that people need to have something to

give a sense of reality. When we have discussions, I don't know if

you saw any of the discussions tonight, talking about fairness,

and about how much people should be paid and so on, are those common

discussions that people in Mexico and other places you go to would

understand? Of course, same discussions everywhere. Yes.

Apology for the loss of subtitles for 68 seconds

That's all from nice night tonight. We wanted to leave you with news

that the opening ceremony will be entitled Isles of Wonder.

It is echos of the Tempest. Be not afraid, the Isle is full of noises

and scares that give delight. Sometimes a thousand twinkling

instruments will hum about mine ears, sometimes voices, if I had