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HSBC chairman admits bank too big to manage, so shrink it till it can be managed

Hsbc-cardDouglas Flint, the chairman of HSBC, put his finger on it when under scrutiny by the Treasury Select Committee last week: “I don’t feel that proximate to what was happening in the private bank (at Geneva)”. He felt ‘very ashamed’, but not enough to forfeit past bonus payments in response.

He was finance director when HSBC took over the Swiss bank subsidiary but tried to wash his hands of any responsibility by blaming the scandal of the local managers in Geneva. He argued that secrecy surrounding Swiss banking made it hard to have a direct line of sight of what was happening at the bank. So what is the point of having board directors in London supposedly governing the whole HSBC enterprise if they can’t prevent, have no knowledge of, major corruption at a foreign subsidiary? Even when the horrors of what went on at the Swiss bank are fully pointed out, he makes no apology about his own failings, but merely passes the buck.

Stuart Gulliver, his chief executive, goes even further: “Can I know what every one of 257,000 people (in HSBC) is doing? Clearly I can’t”. But that comment is disingenuous. Knowing what every employee is doing is not the leader’s responsibility. His duty is to imbue the company with the appropriate culture and to reinforce this with regular communication with all levels of the organisation. If the structure of the organisation is too massive or too unwieldy or remote to make that possible, then the company has become too big to manage and should be spun off into separate units or shrunk down to a size which is genuinely manageable.

It was recognised in 2008-9 that Britain’s Big 4 banks were too big to fail, yet all of them are now much larger than there were 7 years ago. Nor is this a phenomenon confined to banks.

G4S, the world’s third largest listed private sector employer, now has 618,000 employees on 6 continents, but with a loss of control embarrassingly manifested at the Olympics. Sodexo, with more than 420,000 workers in 80 countries, is another colossal conglomerate waiting for the next accident to happen.

So why after the HSBC debacle aren’t these giant behemoths reviewing the merits of downsizing to a level where accountability can be genuinely secured? The usual response is that economies of scale are the dominant driver, but in reality the real drivers are elimination of competition and enhancement of top directors’ pay, bonuses and power.

If further regular crises are to be averted, the incoming Labour government should make corporate governance, including excessive organisational size, a major priority for reform.

Image credit: Hsbc-card by Charly genio – Own work. Licenced under Public Domain via Wikimedia Commons – http://commons.wikimedia.org/wiki/File:Hsbc-card.jpg#mediaviewer/File:Hsbc-card.jp

4 Comments

  1. Peter Rowlands says:

    Absolutely, and a specific and unqualified commitment to do so was made by Ed Miliband at the Fabian Conference on January 17th. ( ‘We shall break up the big banks’ ). As Michael says this is a vital policy and one that would be hugely popular given the continuing record of serious misdemeanours by the big banks.

  2. David Pavett says:

    It is interesting to compare the main Labour Party policy document to date (The NPF Annual Report to Conference 2014). It contains the following rather more qualified statement than the one Peter quotes.

    If we do not see proper reform of the banks, with a tough ringfence between investment and high street banking, alongside a genuine change in banking culture, by 2015, the next Labour Government will break up the banks so that ordinary retail banking is completely separate from riskier investment banking. (Emphasis added)

  3. Peter Rowlands says:

    Presumably Labour has decided, and it would be difficult to do otherwise, that there has not been ‘proper reform of the banks’.

  4. David Pavett says:

    @Peter.
    Maybe but I note that Ed Balls was rather less clear about the issue in his speech to the British Chamber of Commerce on 10th February.

    But where markets are not working well – as in banking or energy – we will back the market reviews being undertaken by the independent Competition and Markets Authority to see how we can get more competition and choice and a fairer deal for businesses and consumers alike.

    I think Labour is going to backslide on this issue. I hope that I am wrong.

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