Philip Smith’s son thought the worst when friends texted him on an evening in early November 2013, saying “sorry to hear about your father.”
“He assumed I was dead,” Smith, 47, told an employment tribunal in Dublin this month that is hearing his claim he was forced out of his 620,000-euro ($661,000) a year job as chief executive officer of RSA Insurance Group plc’s Irish unit. He “had to Google my name to discover that I had been suspended.”
Smith’s constructive dismissal case sheds the most light yet on the controversy surrounding the events leading up to his exit in 2013 as head of Ireland’s largest insurer amid holes in the unit’s finances.
This month’s five-day hearing, dominated by disputed claims of bullying, delved into a scandal that began in Dublin and rippled to RSA’s London’s headquarters, triggering the biggest sell-off in the company’s shares for almost a decade.
At the heart of Smith’s case, heard at a tribunal on Dublin’s Adelaide Road, is a quarrel over who was ultimately responsible for the Irish unit failing to set aside enough to cover large insurance claims. Closing submissions are due to be heard in the case on May 11, with the three-member panel due to make a decision on Smith’s claim afterward.
Weeks after his suspension in 2013, Smith resigned, saying he was made a “fall guy” for the episode.
Much of the tribunal hearing centered on Smith’s management style. He ruled by fear, RSA’s General Counsel Derek Walsh told the tribunal, referring to “extremely consistent and compelling” evidence from 21 staff he interviewed for an internal report into the unit.
“You had men, professional men who had worked in financial services weeping into their hands, crying, leaving the room, not being in control, shaking,” Walsh told the tribunal. They were “shaking with fear when they were talking, not about the reserving issue that was going to get them into trouble.”
“But talking about why they had to do it, talking about Mr. Smith,” he said.
A key part of Smith’s case is that he hadn’t seen the draft report that Walsh had co-authored before RSA submitted it to the central bank.
The report amounted to a “character assassination,” and the comments were “massively at variance” with his relationship with staff over the years, Smith told the tribunal.
The first sign all wasn’t well emerged in a central bank review of the unit at the end of 2012, according to Smith, who took over as CEO in 2007.
The regulator found that a cushion of money for unexpected insurance claims had been whittled down to 5 percent of total provisions. The peer average was 11 percent.
Parent company RSA extracted 255 million euros of Irish reserves in the previous five years, he said.
“The result of this practice was that the Irish business had no acorns put aside for a rainy day,” Smith said.
During his evidence, RSA’s Walsh said “it’s a matter of public record that RSA holds 5 percent margin across all of its businesses” and there was “nothing untoward” about the release of reserves within the company.
On Oct. 1, 2013, the country’s central bank told RSA it had found a number of cases where its Irish unit had delayed raising reserves where there was “adequate information to increase,” Smith said at the hearing.
While RSA said Smith was at fault for this, Smith disputed that, blaming his subordinates.
Two weeks after the central bank raised its concerns, the company’s internal auditor raised a “red flag” that he found what he considered to be an “inappropriate process” of a small group of senior management setting large claims reserves, said Smith.
Smith presided over this “wrong” practice of fixing reserves for some large insurance claims below levels recommended by staff, Rory O’Connor, the unit’s former chief financial officer, who was later fired along with the unit’s claims director by RSA, told the tribunal. Smith denied this.
Smith controlled all information that left the Irish business, Walsh said.
“There’s a story that somebody asked what the weather was, because they were coming over to Dublin the next day,” said Walsh. “And they had to get that cleared with Philip to give the answer.”
RSA told investors about the problems on Nov. 8, and within days, its shares had slumped 15 percent, according to data compiled by Bloomberg.
After his suspension, Smith quit on Nov. 27, 2013, saying he would seek justice elsewhere rather than taking part in a “fundamentally flawed” internal investigation, according to his resignation letter, read out at the hearing.
On Dec. 13 2013, RSA group CEO Simon Lee quit. Messages left on a cell phone for Lee weren’t returned.
RSA is still counting the cost of the debacle, having sent 300 million pounds ($446 million) across the Irish Sea to prop up the Irish unit.
In all, the company raised about 1.6 billion pounds to shore up its balance sheet from selling shares and businesses since the problems emerged in Ireland.
A central bank investigation into the episode is at an advanced stage, according to the regulator.
Rory O’Connor, the former CFO, is also taking RSA to an employment tribunal. While O’Connor said he accepted that findings in a company-commissioned report of “aggressive accounting policies” were his area of responsibility, he’s taking action over the disciplinary process that the company instigated against him. A RSA spokeswoman declined to comment.
Meanwhile, Smith says he’s still dealing with the fallout from the affair. He hasn’t been able to find full-time work since, he told the tribunal. Smith said he earned about 25,000 euros in consulting fees since he quit, and has mostly relied on his family for financial help.
“You can be a corporate darling when you’re bringing profit and growth back to the paymasters in London,” said Smith. “And when issues go wrong and the organization feels it has an exposure, then the individuals are unceremoniously pushed under the bus.”
–With assistance from Sarah Jones in London.
‘Can You Do Your Best For Me?’ Former RSA Irish CEO Asked Chairman
RSA Irish Staff Wept Recalling Pressure From Former Boss, Tribunal Hears
Former RSA Executive Says ‘Pushed Under Bus’ by Bullying Accusation
RSA Used Irish Unit to Offset Poor Results Elsewhere in Group: Former Exec
Was this article valuable?
Here are more articles you may enjoy.