Fears raised over close ties between RBS and top accountant

Steer clear of KPMG executives in hunt to replace Hester and Hampton, bank told

Concerns rose last night over the close relationship between taxpayer-owned Royal Bank of Scotland and the accounting giant KPMG, which dominates RBS's boardroom and wins a large share of the bank's multimillion-pound contracts.

News of the ties triggered warnings to RBS to reject candidates who have held senior KPMG posts as they hunt for a chief executive and – potentially – a chairman to replace Stephen Hester and Sir Philip Hampton.

RBS has no fewer than three former KPMG executives on its board, all of whom sit on the nominations committee which will select the new chief executive.

The bank has just hired a former KPMG executive as its head of regulatory affairs, an important position just below boardroom level, as well as another senior KPMG executive to run its data security operations.

Meanwhile, RBS has handed KPMG both of the most lucrative City outsourcing projects to arise from the wave of scandals that have swept through the banking industry in recent years: those dealing with the blizzard of claims from customers over the mis-selling of PPI and interest rate swaps. It has also carried out numerous data security contracts as well as other projects for the bank.

The seemingly incestuous links between the big accountants and City boardrooms have long been a feature of corporate life, and the situation has intensified as the number of firms has consolidated down to KPMG, Deloitte, Ernst & Young, and PWC. However, for one firm to have such a dominance in a company is seen as unusual.

The ex-KPMG board members are Brendan Nelson, Tony Di Lorio and Baroness Noakes. The bank recently appointed Jon Pain, another senior former KPMG executive, as its head of regulatory affairs, and Glenn Attridge, former KPMG head of data security, to the same role at the bank.

Jonathan Evans of the headhunter Sammons Associates said Mr Hester and Sir Philip's replacements should be "perhaps without the usual KPMG background that seems to be so prevalent on the board currently".

KPMG's links with bailed-out banks have already caused ructions. Its former head John Griffith-Jones has faced calls to resign as head of the Financial Conduct Authority due to the accountant's role as auditor of HBOS.

Sir Philip gave rise to speculation that he would also not be remaining for long after the appointment of a new chief executive. He told Bloomberg: "At the moment we will want to have stability and continuity. When we've got a new CEO in place then other aspects of board succession will be addressed."

KPMG said: "KPMG produces high-quality professionals and it is therefore no surprise that our alumni are appointed to some of the most senior roles in the City. We operate in a highly competitive marketplace and our clients choose from a wide range of firms, both in the accountancy profession and from boutiques. Of course our alumni are a valuable network but we also have to pitch fiercely against competitors to win project work."

Mann hunt

Anna Mann, doyenne of City headhunters, has won the prestigious contract to find Stephen Hester's successor, a chief executive position that City executives dubbed Britain's biggest poisoned chalice. Ms Mann has hired chairmen and chief executives for many of the FTSE 100's biggest companies. Rivals noted RBS chairman Sir Philip Hampton decided not to use that other queen of executive search, Carol Leonard, who headhunted him for his job.

A trained psychologist, Ms Mann set up Whitehead Mann in the 1970s, before quitting in 2004 and setting up her current business, MWM.