Paternoster and what to expect of non-execs
My submission to Sir David Walker's review of the governance of banks, which was commissioned by the Treasury, would have just one word: "Paternoster".
This is an insurance company with the most star-studded line-up of non-executives you could hope to find.
Paternoster's chairman is Ron Sandler, also chairman of nationalised Northern Rock and a former chief executive of the Lloyd's insurance market.
The deputy chairman of Lloyds Banking Group, Lord Leitch - a veteran of insurance - is on Paternoster's board.
And here's the triple gilding of the governance lily: Paternoster wasn't content with having just the former chairman of the Financial Services Authority, Sir Howard Davies, as a non-exec; Lord Turner was on the payroll as a non-executive director until he became the new FSA chairman just last autumn.
These are titans of the financial world, experts with decades of relevant experience and knowledge - just the sort of coves that Walker is bound to say should people the boardrooms of all our important financial institutions.
But if banking disasters such as Royal Bank of Scotland and HBOS show how costly it can be when a board lacks the skills to challenge and rein in executives who go out on a reckless lending and investment bender, Paternoster proves that even super-qualified non-execs can achieve only so much.
Because Paternoster has run out of spare capital and has surrendered its permission to write new insurance business. It has gone into hibernation, not a condition that any business would happily choose.
That said, these non-execs with super-duper CVs have not been the governance equivalent of parsley: they've been more than decorative.
First and perhaps foremost, Paternoster isn't bust. Its long-term liabilities to the 103,000 beneficiaries of pensions that it manages are covered by £2.7bn of assets, with a bit to spare.
Second, Paternoster volunteered to stop growing before the FSA forced it to do so (which is what would have happened). The board pre-emptively took steps to protect the interests of policyholders or pensioners.
Even so, no one can argue that going into the business equivalent of a long deep sleep is exactly a triumph.
So what went wrong?
Well Paternoster is a highly specialist insurer. And it raised £500m of capital from the likes of Deutsche Bank, Eton Park, Jupiter, Polygon and CQS in order to relieve companies of the burden of their respective final-salary pension schemes.
For a while, it was a market leader in taking on responsibility - as an insurer - for the assets and liabilities of closed company pension schemes.
Now there are some who argue that Paternoster did these deals at the wrong price, though it would dispute this.
What's unambiguous is that having grown very rapidly, it was not especially well prepared for the near-meltdown of the banking system last autumn, which - as I think you know - triggered the worst global recession since the 1930s.
And it was this economic contraction which squeezed Paternoster's capital resources till the pips squeaked.
Because the FSA told all insurers that they had to assume that the default rate on corporate bonds would be eight times the historic average, up from just 1.5 times.
I'll translate: the FSA told insurers they had to hold sufficient capital to cover losses that would accrue if a calamitous number of companies went bust and were unable to pay back what these companies had borrowed from the insurers in the form of bonds.
If that weren't bad enough, the unilateral decision by rating agencies to downgrade the ratings on debt issued by most banks was a further drain on insurers' free capital. Paternoster estimates that the reduced value of downgraded bank debt has increased its requirement for capital by 20%, which is very significant.
So the banking crisis and regulatory response to it meant that Paternoster suddenly found it only had sufficient capital to cover its existing obligations. And raising new capital has turned out to be impossible.
What that means is that Paternoster's days as an independent are probably numbered - and as and when it sells out, there'll probably be a loss for its owners.
So here's the thing.
The non-exec grandees have let down one group they're supposed to represent, the providers of equity.
But institutional providers of equity like Deutsche and CQS are in the risk business. Losing money is just what happens from time to time.
By contrast, the interests of a far more numerous and important group, those whose life-savings are managed by Paternoster, seem to have been protected - which is what really matters.
If these innocents had been hurt, then the damage to the reputations of the present and past non-execs - including that of the serving chairman of the FSA - would have been immense, perhaps irreparable.
Update, 15.33: Simply for the sake of tidiness, I should point out that Adair Turner actually left Paternoster on 3 June last year, which was the date it was announced he would become chairman of the FSA (as opposed to the date he actually became the City's top watchdog).
This matters (a little) because Paternoster took on a bit of extra pension business after Turner quit. And so if Paternoster were to become an even bigger mess, not all of that mess could be laid at Turner's door.