“None of this activity was picked up by our systems and flagged to me sitting in London.”
Chris Mears, head of HSBC private banking from 2006 to 2011.
This tells you everything you need to know about why HSBC is in the mess it’s in today—mainly because, according to the bank’s own top brass “the systems” failed to spot money laundering in its Mexico branch or dodgy tax behaviour in its Swiss branch.
Apart from these two high profile failures though, the list of other screw ups seems endless.
There’s the investigations and fines over its failure to prevent foreign exchange manipulation attempts in the UK.
Next there’s the fiasco of money laundering in the US, as well as sustained international legal and regulatory investigations and action over the alleged fixing of LIBOR, the rate at which banks lend each other short-term money.
Add to that the fines for miss-selling of payment-protection insurance and interest-rate swaps in the UK, and you can understand why the bank’s culture seems short of ethical leadership. One informed critic describes it as acting on a “narrow and technical definition of tax avoidance,” and consequently allowing a large-scale tax-avoidance industry to flourish.
Equally, the evidence suggests no one senior in HSBC seems to be fully accountable for what goes on its its sprawling empire.
Although Stuart Gulliver, CEO since the start of 2011, has performed a “root and branch reform of the bank,” to alter its overall structure, we’re still left wondering why the organisation failed so comprehensively to monitor what was really going on beyond the cosy tower block in Canary Wharf.
Rona Fairhead, the non executive who sits on the HSBC board admitted under fierce questioning at the recent public accounts committee the bank’s relevant oversight committee relied “on outside experts” for monitoring the company’s Swiss Bank.
The above quoted Mears also revealed that while he was indeed responsible for control failings, he was not in day-to-day charge of the Swiss arm of the private bank. It would be interesting to know how many times Mr Mears personally visited the Swiss branch to have a look for himself.
Systems that don’t tell you what’s really going on, over reliance on outside experts, re-structuring to solve governance issues, all suggest a management that does not fully understand the real requirements for ethical leadership.
Ethical leaders don’t just issue the essential and relatively easy “tone from the top.” They’re also committed to doing the right thing and constantly wanting to see things for themselves, making sure they’re not merely heard, but regularly seen on the front line.
Such visibility is impossible if your empire stretches across half the globe. Which is why the idea of keeping an organisation sufficiently tight so the leadership can “put its arms around the tree” makes so much sense.
Some banks, such as HSBC could simply have become “too big to regulate”. The number and types of legal jurisdictions it spans for example, and the amount of influence it can bring to bear upon regulators over extended periods of time could make it a positive threat to the entire financial system.
HSBC never the less tries to portray itself as a responsible bank, conducting legal and sustainable business, especially over environmental issues. However, even here the bank is in trouble.
Naturalist and comedian Bill Oddie was filmed in 2013 being evicted from HSBC’s London headquarters while protesting against the bank’s business ties to companies illegally destroying rainforests and abusing human rights in Sarawak, Malaysian Borneo:
“The UK’s biggest bank has so far made around £100 million by providing loans and services to some of the most destructive logging companies in the world, often in violation of its own policies.”
Bill Oddie’s Bank Watch
Pointing to the bank’s policies Oddie argues bankrolling logging and palm oil companies causes widespread environmental destruction and human rights abuses in Sarawak, Malaysia. This “goes against everything it tells its customers and shareholders.”
All of this merely adds to the picture of a bank with an ethical leadership deficit. It hasn’t helped that the CEOs’ personal affairs have involved a dodgy Panamanian holding company he once used for his own Swiss private bank account. Would you trust this man to sell you a second hand car?
Visible or impactful leadership
So what does it take to be a truly visible leader? Famously, Sam Walton of Wall Mart visited his stores regularly and expected his direct reports to do the same. He watched operations and made sure his drop-in appearances inspired his workers.
- Kaivanto, What’s gone wrong at HSBC? 25 February 2015, The Conversation
- V. Houlder and M. Arnold, BBC chief urged to quit over HSBC, FT 10th March 2015