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    HSBC's big call: an external chairman

    Accountability Governance Leadership Performance
    Reports emerged today that the next chairman of troubled banker HSBC will be an outsider. If this is what "completely overhauled" means, then HSBC might have just made an inspired decision. However, it is not a slam-dunk. The decision is the first of many that will be required to get the organisation back on the rails and to re-establish much-needed credibility in the marketplace. 
    Another word of caution: an external chairman is no guarantee of success. Boards needs to be led well, and a high-performance culture and an effective strategy are also crucial elements. But to make the move away from appointing a chairman from amongst the executive team is a very big step in the right direction.
    Well done for taking an important step HSBC.
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    HSBC: Should the directors and executives be "banished from the City"?

    Accountability Societal Wellbeing
    In issuing an apology letter and statement that HSBC has been completely overhauled, Stuart Gulliver, chief executive, has put a stake in the ground. He wants to move on. Some may argue that more needs to be done because accountability and consequence are important foils to anarchy and chaos. However, the sentiment underpinning Gulliver's message is an important foundation of civil society: that sooner or later communities need to respond to scandals, make adjustments, and then consign them to history.
    With this in mind, should the directors and executives of HSBC be "banished from the City"?
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    More on the HSBC debacle: What does "completely overhauled" actually mean?

    Accountability Leadership Performance
    The debacle that has become known as #HSBCleaks continues to simmer. Stuart Gulliver, chief executive, went public today with a full-page letter in several Sunday papers. The letter offers an apology for the debacle, and it seeks to provide some assurances to both customers and the general public. 
    Statements that the bank has "completely overhauled" and "fundamentally changed" its operation sound good, albeit historical. But what of the executives and directors who were not monitoring business operations properly? Are they still happily drawing benefits without further consequence? Does accountability stop short of the executive suite and the boardroom? That Lord Green is the only head to have rolled so far raises more questions than it answers, including what "completely overhauled" actually means.
    HSBC and the wider business community must learn from this scandal.
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    ICMLG'15: Does ethics have any place in effective corporate governance?

    Accountability Ethics Governance Performance Research
    Patricia Grant of AUT, New Zealand, posed a very interesting question this afternoon. For some time now, she has been wondering whether ethics might be an important element in the oft-discussed but poorly understood relationship between what boards do and business performance.
    The seemingly standard response to corporate or systemic failures in recent decades has been to introduce a new layer or new type of structure or compliance framework. For example: Following the failures of the early 2000s (Enron, MCI Worldcom et al), Messrs Sarbanes and Oxley sponsored a new statute in the USA. While the intent was good, the implementation was terrible. In effect, the statute imposed a new set of compliance demands and overheads. A new generation of consulting businesses (to either implement or avoid Sarbox) followed not long after. Further, and worse, Sarbox did nothing in terms of preventing the GFC because, human nature being what it is, directors and executives eventually found ways to circumvent the provisions.
    Grant suggested that regulators and boards need to move beyond structural responses to failure because such responses can't be relied on to work consistently and effectively. She added that researchers, regulators and boards need to look at behavioural responses and, more specifically, at the ethics and moral motivations of directors. It turns out these dimensions have not received much attention. Grant has decided to dig into this. However, two rather demanding challenges need to be resolved before much more progress can be made:
    • While all directors (individually) have a moral or ethical compass to guide their decision-making, how does one go about making a group decision when there might be as many different moral compasses guiding the process as people in the room?
    • What exactly is 'ethics'? (yes, it does mean different things to different people, so a common understanding needs to be discovered and agreed.)
    The audience seemed to agree that Grant might be on to something quite significant. If you'd like to help Grant, or offer your board as a participant, please contact me and I'll put you in touch with Grant. If her idea gets some traction, it could spawn a whole new field of research, and move the expectations of and on directors to quite a different place. And that could be exciting or scary, depending on your frame of reference.
  • Published on

    ICMLG'15: the state of corporate governance research

    Accountability Conferences Governance Performance Research
    James Lockhart, of Massey University, presented the results of an investigation he undertook, to understand what the research community has added in terms of knowledge about corporate governance in the last two decades. He did this by re-reading every issue of the top corporate governance journal (entitled Corporate Governance: An International Review). Over the 22 years since the first issue, 782 papers have been published (totalling 11,063 pages!). Lockhart has reviewed all of them, categorised them and done some analysis.
    Sadly, his findings provide little comfort for the research community. They also challenge many of the commonly-held 'maxims' that have defined the commentary of belief system about the phenomenon:
    • There is no unifying theory—simply put, we don't have a common understanding of what corporate governance is or does
    • There is no coherent research agenda.
    • The rate of progress (of research) is perhaps best described as 'plodding'.
    • There seems to be a fundamental failure amongst researchers to understand the motivation of business.
    • While most researchers claim 'agency theory' is the dominant theory, the reality is quite different: Approximately 42% of the research is based on agency theory. The rest is fragmented across five or six other theoretical frameworks.
    • Only 21 of the 782 papers even attempted to attribute causality or approach the subject of prediction (that if boards do X, then the likelihood of performance outcomes is Y).
    Gosh, this is a real indictment. It's little wonder that boards are reluctant to admit researchers to boardrooms to undertake research. Researchers are producing outputs for sure, but the queue of companies and directors waiting to consume the findings because they are relevant is remarkably short.
    Lockhart's verbal summary was consistent with my own findings: that much of what business schools produce is of questionable value. If the research agenda is to be advanced in any meaningful way, then a whole new approach is not only warranted, it is crucial.
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    What can we learn from the HSBC scandal?

    Accountability Governance Leadership Management
    News of the HSBC scandal has been plastered over major daily newspapers and news websites for several days now. Twitter and other social media platforms have been abuzz as well. That the leaders of an esteemed bank could have allowed such practices to occur is a travesty of leadership and good business practice. 
    In the years to come, the HSBC scandal will make a great case study for students of business and human behaviour. However, in the meantime, the compelling questions are of corporate governance and leadership. What has been going on at HSBC? Why has the group chairman at the time (Lord Green) now gone quiet? Was the board aware of the practices? If so, why did it allow them to occur? If not, why didn't the board know?
    Ignorance is an unacceptable defence. Nor is silence. When will shareholders and others in the marketplace call time on this type of behaviour? Thankfully, some commentators are looking to the future. Dina Medland's opinion piece hits the mark. It's all about accountability.