Business Analysis: Monuments to folly - When a new HQ spells trouble

Is RBS the latest victim of corporate hubris?

While Sir Fred Goodwin is busy trying to protect his reputation from ridicule by suing The Sunday Times for libel, another monument to his time as chief executive of the Royal Bank of Scotland is taking shape outside Edinburgh - a gleaming new £350m headquarters for the Scottish banking group.

While Sir Fred Goodwin is busy trying to protect his reputation from ridicule by suing The Sunday Times for libel, another monument to his time as chief executive of the Royal Bank of Scotland is taking shape outside Edinburgh - a gleaming new £350m headquarters for the Scottish banking group.

However, while Sir Fred's immediate concern is fighting for damages through the courts, history suggests it may well be the new corporate HQ that comes to be remembered most about the Goodwin years.

The past century is littered with examples of ambitious corporate architecture which has subsequently proved that pride comes before a fall and that shareholders should beware acts of corporate hubris.

Sir Fred's libel claim relates to allegations in The Sunday Times that he wanted a private road built between the bank's new headquarters and Edinburgh airport and that he had had a "personal onsite cabin" erected so he could inspect the new headquarters currently being built. A third allegation claimed Sir Fred "has been seeking membership of Bruntsfield Links Golfing Society" only to be told he had to join a 10-year waiting list. RBS and Sir Fred strenuously deny all three claims.

However, the lawsuit and the new HQ have raised the issue of corporate hubris once again. Not that RBS needs any reminding of how important the warnings from corporate history are.

National Westminster Bank had a 42-storey skyscraper built in the heart of the City of London in the 1970s to reflect its banking glory. But after years of subsequent lacklustre performance it was taken over by RBS itself and is now merely a brand owned by its once smaller rival.

RBS says it is confident that its new Edinburgh building will not join the list of monuments to fallen corporate egos. It says it is moving 3,250 staff from 26 separate offices to work together under one roof for very sensible organisational reasons. The £350m price tag, says the bank, is hardly outrageous given the cost of headquarters for rival companies based in London. A spokeswoman for the bank says: "It is appropriate to our operational needs and will play a part in making us an employer of choice."

Barclays is moving into a towering Canary Wharf skyscraper at the beginning of next year, but has decided to rent. HSBC already occupies a similarly imposing site near by, but again is renting.

However, the City of London is home to numerous follies to corporate hubris quite apart from the old NatWest tower. Lloyd's of London commissioned Lord Rogers to build its new home, which was completed in 1986, just a few years before the insurance market nearly collapsed in a scandal that left thousands of Names, or members, penniless.

Sir Peter Davis moved J Sainsbury into a gleaming glass and steel structure in summer 2001 at Holborn Circus. Although the company rents the site, its fortunes since the move have been disastrous. Its share price has fallen from a high of 444p to 262.25p. Its problems are all the more painful when you consider the modest, Eastern bloc-style architecture adopted for the Cheshunt headquarters of its bitterest rival, Tesco.

The European Bank for Reconstruction and Development moved into a prestigious address in the City, Exchange Square, in 1992 but not before ripping out the existing marble panelling for its own version at considerable expense.

The most famous addition to the City's skyline since the NatWest tower is the "Erotic Gherkin" - home to Swiss Re, the insurance group which has yet to finish finding tenants to join it in its Lord Foster-designed structure. Swiss Re decided not to name the building after itself, sticking to its rather more anonymous 30 St Mary Axe street address.

History would suggest the insurance group is adopting a sensible strategy. Among the leading experts to have analysed corporate bragging rights are Victor Neiderhoffer and Laurel Kenner, two US authors who have made a study of how to spot the corporate ego trippers.

One section of their recent book, Practical Speculation, deals with the share price performance of companies which have laid claim to "world's tallest building" over the past 100 years. The pair found that on average large public companies with skyscrapers named after them underperformed the market in the three years after completion by 9 per cent in year one, 19 per cent in year two and 22 per cent in year three.

The Sears Tower, completed in 1974, was a precursor to a horrendous performance by the retailer. Commerzbank, whose soaring HQ was finished in 1997, saw its shares fall in the three years after completion at a time when the stock market was booming. Chrysler finished its art deco tower in New York in 1930 - just as the US was engulfed by the Great Depression. Its shares fell, although not by as much as the market as a whole.

Another banking group splashing out is Santander Central Hispano, Spain's largest bank that has just taken over Abbey National. Although its new home won't be included in the world's tallest building category, it will be joining an elite of companies whose HQ includes a golf course. The €480m (£337m), 170-hectare site 20km from Madrid, boasts nine office buildings and an 18-hole golf course.

A company golf course will no doubt go down well with some members of staff, although it was the ill-fated Lucent Technologies that gave such facilities a bad name at the height of the technology boom.

RBS has said that it would be interested in buying the Gogarburn golf course next to its new HQ outside Edinburgh, although a spokeswoman said it was not clear whether it would be kept to play on or build on.

No doubt the bank will have the lessons of history in mind when it decides whether to tee off of top out.

Additional reporting by Julia Kollewe