DH – Hong Kong
A Chinese friend recently asked me if HSBC would ever see its ‘glory days’ again, a reference to a time when local families gave board lots of HSBC shares to their children as sound long-term investments. Good question. No good answer. But there ought to be.
She, in common with many others, not least HSBC staff, had been shocked by the pay-freeze-U-turn-fiasco, which has now been followed by disappointing financial results. That a huge corporation could be so out of touch with its staff, so lacking in basic competence it was forced to reverse a pay freeze within days of its announcement indicates underlying issues that the board should be examining and urgently.
These issues in ascending order of magnitude are: senior management style and competence, succession planning, and strategy.
CEO Stuart Gulliver has great intelligence, an acerbic wit, great loyalty to his closest associates, and a robust management style honed on the trading floor, a forum in which the taking of prisoners is disdained. His reliance on a coterie of loyal confidants of variable talent and sometimes-limited competence is exemplified in the person of Pierre Goad, HSBC’s head of HR. A former head of the group’s communications team, he had no prior, appropriate HR background when he was appointed in 2015. In the light of what has happened, how this appointment came to be made and if a more broadly based selection process for the most senior management should be adopted is something that the board should already be examining.
This is of greatest significance in succession planning. Whether or not there are senior people internally competent to take over from CEO Gulliver is a moot point. The most recently touted candidate left for Standard Chartered Bank.
But HSBC’s traditional approach to internal selection of CEOs and Chairmen (to date they have all been men) is under threat. Investor, business and regulatory sentiment has turned against what was once known as ‘growing your own timber’. The pressure will be intense for an external candidate for either Chairman or CEO.
Whether or not HSBC seeks to resist the pressure for an external appointment, the discouraging outcomes of the internal approach in recent years are less than persuasive. HSBC would struggle to make a case for a purely internal approach.
Timing of the appointment of successors to Stuart Gulliver and Chairman, Douglas Flint, is thus critical for two reasons: one, finding a suitable and willing external candidate is a lengthy process and, once found, they will need longer to settle into their new role; and two, it raises the issue of who should go first, Douglas Flint or Stuart Gulliver.
It is reported that the CEO wishes to stay until 2017 but it is not clear the board endorses this position. And there are good cases to be made for the early departure of either the CEO or Chairman.
Douglas Flint is a charming and hugely capable man possessing useful diplomatic skills. He has deep knowledge of the group, having been appointed Group Finance Director in 1995. Under his chairmanship Stuart Gulliver has been the dominant force in managing HSBC’s strategy and direction.
If an external Chair were appointed, the risk of a disruptive clash with Stuart Gulliver arises. The newcomer should be a robust personality with clear views on policy. Why else would they be appointed? Equally, he or she will be joining a huge and complex organization that takes time to learn. The process of mutual accommodation between Chair and CEO could be extremely difficult.
A similar issue arises if Stuart Gulliver is first to go. Would a new CEO be willing to defer to the Chairman while learning on the job? Tricky. But the board needs to make up its mind, soon. A last minute scramble would look unseemly and incompetent.
As far as strategy is concerned, there is little clarity on offer. HSBC is no longer ‘The World’s Local Bank’ but it practices a ‘universal banking model’ that is pivoting to China. Yet despite exiting from and disposing of many businesses in recent years it still looks much like the sprawling international beast that was created by Sir John Bond. And one that depends on Asia for 83.5 per cent of its profits. There exists still a lot of lumber awaiting disposal.
Yes, the current team have faced huge headwinds: Mexican money laundering, private banking scandals, improper selling practices, huge fines, balance sheet levies, and a difficult environment for business disposals, a long but not exhaustive list.
But the middle of a muddle generating poor financial returns is the point at which shareholders are owed a clear vision of where HSBC is going and how it will get there. If the current team cannot provide that then the board should find people who can. HSBC may never return to its ‘glory days’ but shareholders and customers are entitled to expect a competently run bank that can explain where it’s going and how it will get there. Time for the board to start earning their fees.