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The end of paternalism

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‘VERY INTERESTING’ was Kit McMahon’s response in March 1989 to a report by two Midland staff on the distinctive Hongkong Bank culture, following a recent visit to Hong Kong. Over the years many journalistic profiles would focus on that culture, but this report had a particular freshness and authenticity:

Overall impression is of confidence, power, paternalism, high professional values and a clear goal-oriented vision.

The chairman, Willie Purves, is very much ‘hands-on’, and seems to be involved at fairly low levels, e.g. he personally authorises every overseas travel, and he sometimes intervenes in junior management appointments. This direct influence does not seem to be resented, but there is a certain pride that WP knows every inch of the business. He also personally visits 8 senior training programmes per annum, and conducts a ‘fireside chat’ with each attendee, which is quite a cult thing in the Bank and takes place after a formal dinner (WP sits in the lounge smoking a pipe!).

There is a very strong paternal and colonial influence evidenced by the close ‘old boy’ network amongst International Officers …

Extremely cost-conscious in everything they do, and partly for this reason, make very little use of outside consultants etc.

Hardly any female managers amongst the International Officer cadre or H.O. management. Hardly any Chinese managers above junior management.

In short, concluded the report, ‘evidence of a traditional, conservative and dominant organisation came through many sources’, while ‘one person described the bank as a “sleeping lion” which is now waking up’.1

Three years later – in October 1992, a few months after the acquisition of Midland – the insider’s voice of Hongkong Bank culture came through loud and clear when John Strickland addressed the first meeting of the IT management of the newly enlarged Group. Immediately he sought to knock on the head the view that he was part of an authoritarian organisation, even a ‘dictatorship’. ‘Observers are misled,’ he explained, ‘by our dislike of bureaucracy and our reliance on informal channels of communication. We work together as a team of players all of whom know each other well. In such an environment there is no need for blazing arguments to evidence differences of opinion.’ He also spelled out for his audience what a philosophy of ‘leanness’ meant:

Firstly, zero-based budgeting. As part of the annual planning process, we require all expenditure to be laid out and justified, not just incremental expenditure.

Secondly we pay our staff well but we have high expectations of what they will deliver in return. We have no time for demarcation disputes or clock watching. We make demands which impact and even threaten the private lives of our employees …

Thirdly we have a bias to making full use of what we have got, before buying more. The routine expectation that our staff will squeeze a quart out of a pint pot goes a long way towards achieving the desired result, and you will be surprised how often they will manage to achieve it, given the right encouragement and recognition.

It was a speech made in the knowledge (shared by his senior colleagues, from Purves downwards) that the cultural dimension would be crucial to determining whether HSBC’s post-1992 future as a significantly bigger organisation and with a new centre of organisational gravity would be as successful as its pre-1992 past had been. There were numerous imponderables. Could Hongkong Bank’s conservative, deeply embedded culture – of reliability and integrity of service; short lines of communication; a high premium placed on trust and loyalty; a tight-knit cadre of experienced International Officers (IOs), capable of responding quickly to the most challenging circumstances – be transplanted to new acquisitions and transcend their own cultures? And even more uncertain, could that culture itself survive in a much-changed environment which might demand very different management techniques and behaviour if the Group’s much larger business was to be properly controlled?

Cultural continuity

Over the next six years or so, the cultural continuities remained strikingly strong. Indeed, HSBC’s commitment to financial prudence and stringent risk control if anything increased. In April 1993, the same month that The Economist in its annual survey of international banking argued that ‘those who best define and manage risk will have a competitive advantage and prosper’,2 John Bond reassured Euromoney that tighter credit controls were now in place, so that ‘a single exposure on the Olympia & York scale will emphatically not happen again’ – a reference to the $757 million exposure to the Canary Wharf developers, whose recent collapse had led to large provisions.3 Some of the big-ticket lending in Asia still tended to be done on relatively informal lines, but practices were to tighten up as a result of the Asian financial crisis. Even before then, the Barings debacle of 1995 was a landmark moment in the world of risk, and within weeks a detailed paper to the Holdings board gave assurances as to ‘the framework of controls within the HSBC Group Treasury operations’.4

Complementing this was the ‘leanness’ culture, perhaps typified by a December 1997 memo from Alan Jebson (who had succeeded Strickland) to Purves, asking him to sign off the next year’s budget for GHQ IT: ‘It will be a year of fairly significant change, with a doubling of executive headcount (to 6! – in some mitigation I read today that Nations Bank have an IT Strategy and Planning Dept of 100 people).’ Or take the rather piquant ‘Millennium’ story, which had a reputational aspect but undeniably at some level was about not wasting the bank’s money on a government trophy project. It began in 1996 when the UK government asked British banks to make a sizeable contribution to the Millennium Dome. HSBC played as dead a bat as possible, before eventually agreeing in March 1998 to sponsor the more modest (and more elegant) Millennium Bridge. March 1999 saw a renewed approach to HSBC for a contribution, but in his reply Bond was adamant that board approval for sponsoring the Bridge had been ‘given on condition that there would be no further involvement with the Millennium Dome or other such major projects’.5

Controlling costs was, more generally, a crucial component of HSBC’s daily culture. Rivals might joke or even sneer about parsimony being the bank’s default position, but for those deeply imbued with that culture the justification was not only in the consistently impressive bottom line, but in the key part that a tight control over costs played in HSBC’s ability to turn round troubled acquisitions. The challenge from the late 1990s would be how to maintain a relentless grip in the context of an ever-expanding Group.

One cultural continuity, however, that transcended cost: income ratios and annual results was the bank’s traditionally resolute response – as the Second World War had amply shown – to an emergency. On a Saturday morning in April 1993 a huge bomb blast in Bishopsgate caused major damage to Hongkong Bank’s London office, but a tremendous round-the-clock effort by staff over the weekend ensured it was open for business on Monday morning;6 in the Shenzhen branch in the summer of 1994 there was similar resilience in the face of severe flooding.7 Perhaps inevitably, it was a culture that tended to prize teamwork, action and pragmatism above any whiff of intellectualism.

Still a federation

A further cherished continuity was the primacy of the man on the spot. ‘Instead of taking subsidiaries by the scruff of their neck and turning them in a different direction, the bank presides over a decentralised “federation of banks” which is unusual,’ noted the journalist Dick Wilson in a 1992 assessment of Hongkong Bank, pointing to ‘a general instinct that it is better to leave the man who knows the job to get on with it’.8 Inevitably, the new corporate structure made some difference to the old federal order. ‘From a holding company viewpoint, I see the benefit of focusing more sharply on each profit centre within the Group,’ Purves explained to Group News in June 1991, a year before Midland:

Because of historical circumstances, Head Office in Hong Kong has perhaps concentrated too much on The Hongkong and Shanghai Banking Corporation. What we’ve got to do and have begun doing is to focus more closely on our subsidiaries outside Asia. Now, that doesn’t mean that we want to take responsibility away from the Areas. Responsibility should stay in the subsidiaries, with their boards and their executives. But Head Office needs to be more closely involved. We need to avoid surprises. There have been a number of uncomfortable surprises – and that is not satisfactory.9

Still, for all his unremitting attention to detail, Purves’s overall instincts were probably never strongly centralist. ‘Some claim global banks are not successful,’ he reflected not long after the Midland purchase. ‘But they are talking about banks with businesses around the world that are managed from a central point. Our structure provides the separate banks with their own core deposits, management and direction that are guided, not managed, by a holding company.’10

A rather different emphasis, however, was emerging during the mid-1990s from Bond, chief executive from the start of 1993 and perhaps influenced by the more centralising approach of Citibank. ‘Unquestionably,’ he told Group News that April, ‘the biggest challenge we face is to prove that the whole of the enlarged Group is worth more than the sum of its parts’:

We can only do this by accepting that the major banks will have part of their operations run globally. There is nothing new in this – technology, international corporate accounts, treasury, and top-level human resource decisions are existing examples. But the new Group structure dramatically increases the importance of running such operations globally.

When we supported the formation of HSBC Holdings plc and the acquisition of Midland Bank, we elected to take on this challenge. This commitment means that HSBC Holdings plc is not solely an investment holding company, simply responsible for collecting dividends and allocating capital. It has a clear role to play in controlling risk and in certain other aspects of functional management.11

Bond was not quite seeking a transformational shift to the centre. ‘The country manager is expected to manage his business independently,’ he insisted to Banking World soon afterwards, adding that once those managers had worked together with head office to develop and agree a five-year strategic plan for their territory, ‘they are expected to get on and deliver it’.12 Ultimately, however, he knew – not least in an age of rapidly burgeoning globalisation and the accompanying rise of ‘matrix’ management – that there were going to be limits to the familiar local autonomy.

How did HSBC’s managers feel about changes to the old model? Chris Langley, writing in 1994 from Malaysia, identified ‘our responsiveness and our local initiative’ as lying ‘at the heart of our Federal concept’; and he asserted that the growth of a market-insensitive central bureaucracy was ‘quite possibly the greatest threat to the Group’s vigour and financial well-being in the future’.13 He was probably not alone in thinking the old system had combined autonomy and accountability in a successful formula. Yet Bond continued to push the other way. In 1996 he explained to David Eldon in Hong Kong why he felt it imperative to hold a meeting of the chief executive officers of the Group’s major banks – to ‘ensure that we are managing the Group in a coherent, interdependent fashion’;14 while in September 1997, after the belated arrival on his desk of Hong Kong’s Asia-Pacific acquisition plan, there was unmistakeable vexation about being kept in the dark:

Currently GHQ is learning via EXCO Minutes that acquisition proposals in Japan have been turned off and that we are looking at Macau, South India, Philippines and Mauritius. The plan tells us you have spent time on NAB, ANZ and Standard Chartered, all of which have been reviewed comprehensively in GHQ some time ago and turned off. Clearly we need much closer and earlier liaison to avoid this confusion.

In short, ‘GHQ and HHO [i.e. Hong Kong head office for the Asia-Pacific region] are not on the same “wave length” and we need to redress the situation’.15

Overall, on the eve of Managing for Value, geography continued to hold sway. ‘HSBC is still very much a federation, with local CEOs retaining ultimate control over what happens in their regions,’ reckoned Institutional Investor in June 1997, and that was probably right.16 Nevertheless, as Bond explained to Keith Whitson in January 1998, ahead of handing over the reins as Group CEO, the problem of keeping ‘the sensitive Head Office/Line relationship’ in ‘good repair’ was becoming increasingly difficult:

Head Office functions contained in a Holding Company are inevitably different from those contained in a line business, some of our colleagues have found this adjustment trying.

The broad principle we have applied has been to centralise major risk decisions (large corporate credits, the setting of overall market risk limits), to make all executive appointments of Grade H and above, to allocate capital and to set accounting policies; increasingly we need to exert more control over branding, press relations with international media, handling NGOs – otherwise we try to leave as much as we can to the subsidiaries.

‘You will occasionally mediate between what should be done in GHQ and what should be left to the subsidiaries,’ Bond added. ‘Provided sound reasoning and communication is produced these problems can usually be resolved satisfactorily.’17

On the cusp of change

Clearly HSBC was increasingly becoming a large, complex business, not least in terms of human resources and territorial reach. The key figures are revealing (see Table 2).

By 1997, following the Brazilian acquisition, the four main geographic areas of employment were the UK (35 per cent), Brazil (17 per cent), Hong Kong/China (16 per cent) and the USA (5 per cent).18 HSBC had in other words become a genuinely global organisation; and from now onwards there would have to be new ways of managing people and developing their skills.

Unsurprisingly, a group operating in almost eighty countries comprised a diverse ethnic mix. ‘A quarter of our employees are Chinese,’ Bond told the German Business Congress in March 1997, ‘six per cent are Indian, five per cent come from other Asian countries, two per cent are Arab and only half are Caucasian.’19 This did not mean that all ethnic groups were equally well represented in senior positions. ‘Like all other British enterprises in Hong Kong, HSBC is regrettably slow in training and grooming its local staff,’ complained the Chinese-language Hong Kong Economic Journal in October 1993. ‘Chinese have been reputed as the best experts in managing finance and why isn’t there any Chinese in the HSBC Group’s top management?’20 Five years later, looking back on how the Group had fared since the 1995 strategy review, Clive Bannister noted that although ‘we have maintained our franchise in Hong Kong through the transition [i.e. transfer of sovereignty], we have not been as successful in the promotion of Chinese executives’.21 As for the IOs, it was a gradually changing picture. By the late 1990s the cadre remained overwhelmingly British; yet tellingly, among the fairly typical 1998 intake, one third were non-British.22

Table 2 Number of HSBC Group employees, 1980–1997

 

Number of Group employees (full-time equivalent)

Countries in Group

1980

35,000

41

1990

55,000

47

1992

99,000

66

1997

132,000

79

It was slowish going, too, when it came to women. By 1997 they comprised well over half the Group’s total workforce, but occupied barely a quarter of the 28,000 or so executive positions.23 Among the striking exceptions by the mid-1990s was Marea Laszok, who in 1993 became managing director of HongkongBank of Australia – the first woman to be appointed managing director of a bank in Australia. It was particularly slow going among the IO fraternity. ‘When I became chief executive, my daughter said, “There’s something wrong in your bank, Dad, ladies can’t become international officers,”’ recalled Purves somewhat wryly in 1997. ‘And she said, “That’s wrong, something should be done about it,” so something was done about it.’24 By 1994 there had been twelve women training as IOs since 1989. ‘The Mess is where the IO culture and network starts,’ one of them told the New York Times, which described her as ‘like all international officers, starting near the bottom of the bank’s hierarchy, sitting at a desk in a vast room shovelling heaps of import and export documents around’.25 Four years later, six out of an intake of fifteen were female:26 hardly a majority, but six more than would until quite recently have seemed conceivable.

‘I’ve said many times that our scarcest resource, our most valuable resource, is people,’ Purves reflected in 1991. ‘Yet there’s no use having people, unless they’re trained at least to the level of their competitors. So we’ve had to invest in training.’27 Indeed, it is clear that from the late 1980s things were motoring on that front, with the introduction of assessment centres (replacing confidential appraisals), the establishment of a set of ten criteria for managerial success, and the introduction of the Junior Officer Development Programme.28 In 1994 there was another major step forward when Bricket Wood, a new management training centre near London, became operational and was soon hosting a new Senior Management Programme for all the Group’s businesses.29

A topic no doubt discussed was remuneration. By the mid-1990s a profound cultural shift in attitudes towards pay had occurred within the banking industry. Traditionally, Hongkong Bank had been a paternalistic organisation offering security and a perfectly good standard of living rather than outlandish riches. Moving to London in 1993 changed everything: not only was the increasingly Americanised City already in the habit of paying substantial bonuses,30 but those in HSBC’s new combined treasury operation, based in London, expected nothing less. Purves by all accounts swallowed hard and hoped to ring-fence the damage,31 but early in 1995 there came a potential flashpoint, after treasury had performed markedly less well in 1994 than the previous year. At a meeting of the Remuneration Committee (mainly comprising non-executive directors), unhappiness was expressed at the size of the proposed bonuses.

The Group chairman [Purves], Group chief executive [Bond] and Group treasurer [Stephen Green], who had already closely scrutinised the bonus proposals, joined the Remuneration Committee Meeting and assured its members that the proposals reflected the market norm. Parts of the business had been successful and it was appropriate to reward the relevant employees. Had no bonuses been paid, it was expected that the company would have lost the best employees. Management shared the reluctance of the Remuneration Committee regarding the payment of bonuses in these circumstances but, on this occasion, felt there was little alternative.

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The changing face of management – leadership course at Bricket Wood.

Accordingly, ‘the Committee reluctantly approved the bonus proposals’.32

The following year, 1996, saw the widespread arrival in the City of a classic oxymoron, the ‘guaranteed bonus’, as a device for poaching staff from other firms or retaining key individuals. HSBC was not immune, with Bernard Asher, chairman of the investment bank, explaining that November to the Holdings board that up to 200 key staff were being offered guaranteed bonuses in order to ‘avoid the disruption and cost of recruiting replacements’.33 In 1997, City bonus payments passed the £1 billion mark for the first time;34 and that December the Group Human Resources Committee agreed to formalise different maximum ceilings for different operations, in terms of the ratio of bonuses to pre-tax profits: 40 per cent for the investment bank, 35 per cent for asset management, 20 per cent for private banking, and 10 per cent for treasury.35 Amidst palpable unease, Asher, who personally loathed the increasingly rampant bonus culture, ‘again emphasised that the 40 per cent maximum would be the ceiling and this would be introduced concurrent with a movement towards medium to long term incentive payouts’.36 As for the larger picture, it was hard to miss a certain irony. ‘He was not even in the top 25 money earners at HSBC,’ one magazine profile would write about Purves after his retirement in 1998, ‘and one can say with some certainty that he has retired a comfortable man but definitely not an inordinately wealthy one.’37

Overall, there was a clear sense by this time of one era in corporate culture giving way to a rather different one. During the summer of 1998, while the MfV strategy was being formulated in London, some of the senior executives in the Asia-Pacific region put down on paper some of their thoughts. The wide range of opinions – and probably anxieties as well – was reflected in a handful of responses:

The functional vs federal management debate continues. We operate a ‘hybrid’ arrangement but increasingly favour the functional system. Sooner or later we will have to decide one way or the other because the ‘hybrid’ attracts criticism for its lack of clarity in terms of accountability and authority. If we go the functional route then we will have to accept that generalists may no longer suit the organisation – specialists will be in demand. (Connal Rankin, Singapore)

One of the most important strengths in my view is the awesome level of loyalty throughout the Bank: loyalty to and from the staff, loyalty of HHO to the Areas once strategies/projects have been agreed, loyalty to and from customers. As we go forward we need to nurture these loyalties, particularly where they involve our staff. We need to establish specific links between performance and benefits, and at the same time strengthen our ability to do so by improving our systems to determine where we are making profits.

Also, we need to harden our attitude toward under-performers; we are all guilty of allowing under-performers to get away with it for too long. (Bob Wallace, Taiwan)

We can be too self-critical and, whilst we need to buy more wholeheartedly into a Sales and Service culture and all that that entails, we must be very careful not to lose sight of the positives that have made us the rock-solid powerhouse we are today. (Richard Law, Sri Lanka)38

MfV: The cultural dimension

Managing for Value, the strategy endorsed by the Holdings board in November 1998, was primarily about a fundamental reshaping of the business; it also had an explicitly cultural dimension, which was in its way just as important as the more narrowly business aspect.

It addressed head-on the increasingly vexed question of the Group’s traditional federal structure. The key presentation to the board set out that structure’s pros and cons: on the one hand, it was ‘close to client, sensitive to regulators, responsive to business environment, attentive to local business priorities’; on the other hand, it was ‘“United Nations”, not uniform, fiefdoms, resistant to change, fails to exploit advantages of the Group’. In place of the existing structure, MfV proposed:

It was an elegantly conceived third way between the geographical and the matrix approaches. The goal was clear: this new style of collective management had to be implemented in such a way as ‘to reflect the economic importance of the client groups it serves and to prioritise future investments and resource allocation’.40

The other specifically cultural part of MfV concerned a further core strategic imperative, namely to ‘attract, retain and motivate the very best people’.41 This, it was explained, was to be done in five principal ways:

The ROs were locally grown or recruited Regional Officers: significantly less expensive to employ than IOs and often better qualified, their time was at hand.

Hanging over the strategic management and human resources goals was the larger question of whether MfV would succeed in capturing the minds and hearts of HSBC’s workforce as a whole. ‘MfV,’ declared Bond in a booklet (‘Managing for value and me’) distributed to over 150,000 staff in nine different languages during the closing months of 1999, ‘is a simple idea: everything we do should maximise the value of the Group to its owners.’ He went on: ‘MfV provides a framework for decision-making. It gives us a straightforward measure of our performance. Implemented properly, it establishes a clear link between business performance, individual reward and shareholder returns. It will use the skills and knowledge of our staff to give us a source of competitive advantage into the next century.’ The booklet itself, after explaining the strategy’s shareholder return objectives, stressed that MfV was not just an accounting exercise: ‘It affects our behaviour at work because it influences the decisions, aspirations and expectations of all of us. It requires each of us to answer the question: “Everything I do today will create or destroy value. Which is it to be?”’43

Adjusting to MfV

HSBC did not stop increasing in size during the early Managing for Value years. By the end of 2001, it had some 7,000 offices in eighty-one countries and employed 171,049 staff. Inevitably, this growth came with side effects. Speaking at a top-team offsite at Singapore in October 2000, Whitson pointed out that ‘two-thirds of all employees had joined HSBC within the last eight-and-a-half years’ and that ‘long-serving senior executives were spread thinly’.44 The latter factor was perhaps a particular worry – with the Holdings board in early February 2001 discussing management stretch.45 ‘Your overall assessment that the HSBC Group is “well controlled” is reassuring, as is the relatively short and general nature of your comment letter,’ Bond replied in February 2002 to the senior audit director of KPMG Audit.46 Much was down to the seasoned nature of that management. ‘Few British groups now have that continuity of top management, which saves so much time and wasted effort,’ Patience Wheatcroft reflected appreciatively in The Times in August 2000,47 while as Whitson observed a year later, the top management team of thirty-five executive directors and general managers had between them 880 years of service with HSBC, averaging over twenty-five years each.48 Even so, the bank did occasionally recruit externally at a senior level: in 1995 Douglas Flint came from KPMG to be Group Finance Director, and four years later Roberta Arena left Citibank to head up e-commerce.

In early 1999, some 270 senior managers attended Bricket Wood in order to become familiarised with the new concepts. ‘Managing for Value was welcomed by executives as a logical development,’ noted a report on the training programme. ‘Buying into the idea of managing the Group for the primary benefit of the shareholders was as good as unanimous. On a scale of 1 to 100, executives scored the importance of MfV at HSBC at a remarkable 99 per cent. However, concerns were expressed at our ability to implement MfV in practice.’ Understandably enough, these concerns took a variety of forms:

MfV was recognised as a change process. The fact that it was beginning from a position of relative strength was seen in some quarters as a handicap – ‘why change when we have been so successful?’ The Group’s rich cultural mix was seen as adding to the difficulties of implementing MfV, which in essence was viewed as a North American approach to business …

Groups were concerned to know what would change and how the process of change would be managed. Was HSBC embracing MfV as a total concept, or cherry picking? What were the boundaries? MfV is so potentially encompassing, does it mean total change at once?…

Questions were raised over how the Group’s traditional ‘command and control’ culture would blend with Managing for Value …

Templates were requested setting out the detailed steps for implementing MfV. There was discomfort in some quarters when managers were told that they did not exist and would have to be developed …

‘In reporting these issues,’ added the report, ‘it is acknowledged that this paper risks giving an unduly negative impression of management’s reaction to the programme and the strategy. It is emphasised that reaction was, in fact, overwhelmingly positive.’49

Collective management

Was the reaction to ‘collective management’ similarly positive? 50 By the autumn of 2000 at a top team offsite, Bond sought the ‘reinforcement of collective management culture’, reminding his audience of the need to ‘organise HSBC around our agreed customer groups, rather than geography and products’.51 By this time, there were two of these customer groups, CIBM (Corporate Institutional Banking and Markets) and PFS (Personal Financial Services) – while a third would be CMB (Commercial Banking) in 2002. This was a significant step forward, though in practice it would be some time yet before any of the groups had the structure and resources to act as major counterweights to the regional heads and country CEOs. By June 2001, Bond was sufficiently concerned about lack of progress to devote a managerial letter to ‘collective management’. After reminding his colleagues about the rationale, he went on:

This means thinking beyond geographic and functional boundaries, being aware of the Group’s capabilities, and being actively in touch with colleagues around the Group, who are in similar businesses, in order to learn from and support one another.

HSBC will help to facilitate this by bringing together teams from around the world at regular intervals to discuss marketing/selling, attracting new valuable clients and deepening relationships with existing clients.

One sentence spoke with a particular directness to its readers: ‘In future, top management of HSBC will be drawn from executives who have shown themselves capable of working unselfishly and constructively across geographic boundaries and internal structures in the interests of our clients and shareholders.’52

Nothing yet, though, was written in stone. Bond himself was fond of quoting Adam Smith’s adage that ‘there is a great deal of ruin in a nation’; and arguably the same would be true about the pull of geography in HSBC.

The rise of a meritocracy

The other specific ‘cultural’ imperative of the Managing for Value strategy was an explicitly meritocratic vision: ‘To Attract, Retain and Motivate the very best people.’53 It was a vision that put Group Human Resources (GHR) – run in these years first by Bob Tennant, then by Connal Rankin − far more at the centre of the picture than it had ever been before.

Here the recruitment process for future senior executives was obviously critical but initially it suffered from inherited problems: the separate graduate programmes run by different parts of HSBC, the failure to recruit Asian graduates from American universities and the general lack of awareness among bright graduates of the opportunities that HSBC offered.54 Although by September 2000 there was an increasingly ambitious range of campus presentations on both sides of the Atlantic, these were still relatively early days in terms of fulfilling the ‘Attract’ part of the MfV imperative.55 Later in 2000, Whitson reiterated his concern that ‘much more needed to be done at the front end of graduate recruitment to ensure HSBC attracted better-quality candidates’; and with reference to UK graduate recruitment, he noted that ‘the perception of HSBC was not helped when candidates were advised that applications should be submitted to Sheffield’.56

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Training event in London, 1999.

For those already recruited, career development and the identification of talent were becoming increasingly pressing management concerns. In September 2000, the GHR Committee endorsed a proposal by Rankin that every executive above Grade A underwent, every three to four years, a thoroughgoing executive development review, a process which would ‘not only increase the probability of early identification of talent, but also reduce the likelihood of inappropriate nominations to Development/Assessment Centre, movements, promotions, or international secondments’.57 This was relatively uncontentious, unlike the attempt during 2001 to identify a talent pool of 300 ‘high-potential executives, whose careers and development would be managed centrally in co-ordination with our businesses around the world’.58 That December the GHR Committee considered nominations for the first 300, only to find that there was a wide range of opinion about the suitability of some on the list, and ‘it was very evident from benchmarking some of the names, that the criteria and process used for identification of talent were not uniform’.59 Whitson was particularly critical. ‘There were many inconsistencies on the first list that was produced,’ he told GHR some weeks later, before a revised list was drawn up. ‘Someone who is the best in a bad lot may not be good enough to make the list of names for the best across the Group.’60

How exactly, though, did one identify and appraise talent? At least part of the answer, reckoned GHR, lay in a significantly upgraded executive competency model.61 In that way, it asserted in February 2002, ‘the current review of competencies/executive capabilities will provide a robust business-focused platform against which individuals can be benchmarked’.62 Over the next few months the Group Competency project began to be tested via a survey of 1,600 executives, whose responses would, the GHR Committee was told in May, ‘generate a cluster of capabilities that would form the core of the model to be adopted Groupwide’.

It was not all plain sailing. ‘In Argentina and Brazil, further integration of these businesses into the HSBC core culture is needed and, in particular, the disciplines of system and process,’ recorded a post-meeting note. ‘This contrasts with Asia for example, where, in the extreme, rigidity undermines personal responsibility for improvement and the opportunity for innovation.’63 Moreover, even before the project began, Whitson had struck a sceptical note. ‘You refer to the deficiencies of the existing competency model,’ he had written to GHR in February. ‘As far as I am aware, most observers regard the top management team in HSBC as amongst the best in the financial services world today. We have not achieved this purely by chance. We could do a lot worse than study how we got to where we are and seek to constantly reinforce the fundamentals which have helped us to achieve our present status rather than attempting to reinvent the wheel.’64

Over the years there had been no stauncher defender of the elite International Officer cadre than Whitson, but by the late 1990s it had become a shrinking cadre (down from some 550 in 1988 to around 380 ten years later),65 under a degree of pressure in a changing organisation. For instance, when in 1999 Tennant sought the views of CEOs, the underlying value of having IOs was fully accepted – ‘they provide an international perspective, transfer best practice, and are a fully mobile cadre which gives the Group its flexibility when it needs to react to a problem/opportunity’ – but the point was also made that ‘the strategic imperatives of delivering wealth management, and growing the Group’s personal asset management and insurance capabilities, will require a marketing and sales orientation which up to now has not been strongly demanded of the IO population’.66

February 2000 saw a symbolically important change. ‘We wish to use the name International Manager (IM) to replace International Officer (IO) with immediate effect,’ Bond informed the cadre. ‘The name “Officer” does not reflect the dynamic and forward-looking nature of HSBC.’67 Tennant and Rankin further explained that henceforth the career paths of IMs would have to follow the Group Strategic Plan (i.e. MfV), which in practice would mean fewer of them working in Asia-Pacific and the Middle East, while commercial, corporate and institutional banking would ‘no longer remain as the single most important route to senior management’. Even so, the fundamentals still applied: IMs would remain the embodiment and active champions of HSBC’s values and principles; they were ‘linked strategically to the centre of the Group, as has always been the case’; and their commitment to full mobility would still be ‘the most important differentiation between IMs and other executive cadres within the Group’.68 Yet, undeniably, it was now a civilian world that the IMs inhabited; and in June 2000, in the context of Regional Officers having recently been renamed Regional Managers in Asia-Pacific and the Middle East, Rankin observed to colleagues that ‘the demilitarisation of HSBC was proceeding apace’.69

It was a further sign of changing cultural times when five months later Rankin hosted a discussion with a group of IMs about the issues they faced. As in any HR context, pay and benefits featured, but there was plenty else on their minds:

IMs feel that the premium for committing to a lifetime of mobility is no longer appropriately reflected in the package. Compared to their peer group, who may have stayed in the UK, the financial incentives for an overseas IM career do not stack up. The wear and tear of constantly moving is becoming more exacting on family life – being asked to move two or three times every 2 years, whilst in the minority of cases, is not uncommon …

Some businesses are not IM-friendly and there is resentment to having IMs imposed on them. Not surprisingly this leads to negative assessments in the hope that GHQ will remove IMs – because they are easily moved. This makes the working challenge even tougher and the IM is ‘forty-love down before he/she steps off the plane’…

Whilst graduates are prepared to give up control of their careers, they do want some dialogue on the business stream they go down. They accept that geography is very much the domain of GHR.

Young people getting married today are both likely to have professional careers. There is no acknowledgement made at present for a spouse having to put a career on hold for the partner in HSBC …70

For Rankin, dealing with the IMs’ concerns was not always easy, but overall he took a fairly unyielding line. ‘We are not ready as an organisation to start recognising spouses who have given up their careers to follow their partners,’ he wrote to Bond in March 2001. ‘We therefore need to manage expectations from the outset.’ And he continued: ‘There is no substitute for stretch. The most successful IMs, I believe, have accelerated their development, and consequently their careers, through unplanned, unpredictable, and opportunistic postings. This is part of the philosophy behind the IM cadre.’ Mobility remained the sticking point. ‘Whether the premium for mobility is at the right level is difficult to assess, but I think we are the only organisation to retain such a condition of employment – we have no comparators.’71 Bond, a member of the cadre for forty years, almost certainly backed Rankin. ‘It was noted,’ ran a report on his desk in July 2001 about the latest IM focus group, ‘that most IMs were not capable of competing for the highest positions and that IM backgrounds lend themselves, in the main, to doing support roles, particularly in acquisitions.’ To which he wrote indignantly in the margin: ‘Who says this? Nobody makes me feel inferior without my consent.’72

Another critical part of Bond’s meritocracy agenda was diversity and equal opportunity. In terms of challenging the dominant position of men in leadership roles, the two rounds of IM recruitment in 2000 yielded an intake of six women to twelve men,73 while that year the figures for Group staff as a whole were 16,213 female executives to 31,986 male.74 ‘Gender remained an issue,’ the GHR Committee agreed in March 2001, three months after the putative ‘talent pool’ of 300 had included notably few women.75 A revealing insight had already come from Irene Dorner. Interviewed in early 2000, soon after being appointed as the UK bank’s first female general manager (leading the Marketing department), she was asked what advice she would give to young women joining the bank: ‘You need to understand the skills you have and be confident enough to use them. Overall I think men understand this better than women.’76 As for the ethnic aspect of diversity, the figures for 2000 showed that Caucasians were now in a minority in HSBC,77 described by Bond as ‘a good signal for a multinational organisation to give to the market’.78 Even so, the uncomfortable fact was that seventeen out of the eighteen IM recruits in 2000 were Caucasian,79 while in terms of the thirty-five executive directors and senior management in post in 2001, only seven were non-Caucasian.80

‘We talk a lot about diversity and equal opportunities,’ declared Bond in June 2001 in a managerial letter specifically on the subject, ‘but it would appear, on the surface at least, that actions are in short supply.’81 In fact, the US bank had recently appointed a Diversity Steering Committee, while in May 2002 – against a background of several recent widely publicised discrimination cases in London – the GHR Committee agreed to review diversity progress at all future meetings. ‘The board,’ it added, ‘is rightly asking questions about diversity, therefore we need to make sure we are paying close attention to it.’

Incentivisation and satisfaction

‘It is sad that money should be the main symbol of recognition and retention, but in our world it is,’ reflected Clive Bannister in 2001, by which time he was CEO of Group Private Banking.82 Remuneration was more than ever in the GHR frontline, not least in relation to the high-level executives. In November 1998 the Remuneration Committee, after noting that their remuneration levels had ‘fallen behind those in other major companies and that this had been commented upon in the press’, concluded that their ‘loyalty’ had been ‘taken for granted for too long’.83 The trend, however, persisted: in October 1999 a Sunday Times survey revealed that Bond was 70 per cent underpaid relative to his FTSE 100 counterparts;84 and in September 2000 the GHR Committee reckoned that ‘we were testing the loyalty of, and bordering on the unfair, with many of HSBC’s top management’, that indeed ‘what was once a virtue, paying our people below the market, was now a disadvantage if we were to keep the best people’.85 The consequence was a significant uplift, including board pay going up from £4.45 million to £7.75 million, as revealed in the annual results published in February 2001. Even so, as the finance director Douglas Flint pointed out in the Financial Times, remuneration for HSBC’s senior executives was still ‘a mile away from US levels and other competitors’.86

Outside the senior management circle, the whole question of incentivisation, in accordance with MfV thinking, was a keen subject of debate, and local variations inevitably persisted. In March 2001 a Group-wide progress report revealed that in Asia-Pacific, for instance, variable bonus schemes had been introduced in almost half the territories; that in Canada ‘performance management templates for all employees have been amended to align with the MfV philosophy’; and that in the Middle East ‘the 3-year Economic Profit rolling average will be introduced for performance year 2002’.87 Overall, the GHR Committee expressed measured satisfaction. Meanwhile, also in line with MfV, there was a steady drive to broaden and deepen participation in share option schemes and employee share ownership. By the end of 2001 there were some 58,000 participants in savings schemes and 34,000 in performance-related schemes; as for employee share ownership, some 3 per cent of HSBC shares were now owned by employees (compared with 2 per cent at the outset of MfV),88 with an eventual target of 5 per cent by 2005.89 It was a solid effort.

By this time there was increasing use being made of surveys of employees’ views, which again revealed marked local variations. Broadly speaking, the major contrast in the late 1990s and early 2000s was between those territories directly affected by the Asian financial crisis and its protracted aftermath, and those that were not. For instance, in the UK, where under CEO Bill Dalton there had been an intensive ‘Clear Water’ campaign to give the bank a competitive edge through its sustained focus on customers, a 1999 survey showed favourable responses running above 60 per cent for such key areas as working relationships, performance management and communication, with the main negative area being ‘workload and pressure’, down at below 40 per cent.90 It was a different picture in these years in buffeted Southeast Asia, and in 2000 employees in Hong Kong gave a fairly negative collective response. Top scorer, with 57 per cent favourable, was company image; while work organisation, management, supervision, career development, job security, compensation and benefits, job satisfaction, quality, and performance appraisal all fell below 50 per cent.91

More generally, what MfV highlighted, with its relentless focus on shareholder value, was the end of paternalism. A particular milestone was the decision in Hong Kong to phase out the ritual of the thirteenth-month bonus and to replace it with a variable bonus; responses were reported in June 1999 as, predictably enough, ‘neutral to negative’.92 A year later, a report commissioned from SCA Consulting sought to establish what progress had been made in MfV communication, acceptance and implementation. There had certainly been no shortage of communication – involving Bricket Wood MfV sessions, an MfV video, the ‘MfV and me’ brochure, a laminated card or mouse mat with the MfV precepts on all desks,93 training across the Group – and over 90 per cent of those interviewed, predominantly managers, ‘agreed’ or ‘strongly agreed’ that they understood the overall goal of doubling the share price and beating the mean TSR (total shareholder return). However, the report also found that, if understanding the goal was one thing, ‘individuals do not necessarily know what they need to do to achieve it’. In particular, ‘managers feel they know how business unit performance translates into TSR’, but ‘they cannot articulate the approximate EP [economic profit] needed to achieve the desired TSR’. As for further down the line, only some 60 per cent of managers reckoned that their staff could articulate the business strategy. Crucially, the report analysed ‘the extent to which operating decisions have changed’ as a result of MfV and concluded that so far it had been ‘limited’.94

Given that it was barely a year and a half since the board’s endorsement of the MfV strategy, this was hardly surprising, and Bond for one would continue to beat the drum for a fundamentally different mindset. ‘Perhaps the most important change/improvement we need to make to HSBC’s competency,’ he argued in February 2002, ‘is to develop a strong marketing culture which is built firmly on understanding fully and sympathetically customers’ needs.’95

On site

Two years earlier, Wisdom of the CEO, a book subtitled 29 Global Leaders Tackle Today’s Most Pressing Business Challenges, had featured HSBC’s Group Chairman. ‘Banking is not rocket science,’ declared Bond. ‘The underlying principles of success are simple. They are (1) focus on clients, (2) Group credit quality (so that your loan loss experience is better than the competitors), and (3) tight control over expenses. Banking is about doing: it is 90 per cent action and 10 per cent strategy. Tried-and-true teamwork is essential to running an international business, which, by definition, has more complexity than a domestic one. That is the key to competitive advantage.’96 In the midst of the embryonic MfV revolution, Bond had no wish to throw away the strengths of HSBC’s traditional culture. Similarly, also in 2000, HSBC’s banking analyst, Michael Lever, emphasised the time-honoured values when, as part of his internal appraisal of investor perceptions of HSBC, he itemised ‘HSBC culture and operational benefits’:

On this last item, according to Lever’s figures, HSBC’s cost-income ratio (of around 53 per cent) was less than Standard Chartered, Citibank, Barclays or NatWest.97

Figures, though, were only part of a larger cultural continuity, a continuity perhaps best illustrated by a sequence of snapshots from these years showing how the Group’s core characteristics remained unchanged. In March 1999, Andrew Dixon, in charge of HSBC’s Middle Eastern subsidiary, sent a memo to his immediate colleagues: ‘Whilst I am certain there will be nothing practical that I can achieve, I have decided to be on site for the first day of the new Millennium. I suspect that there will be no serious problems but from the point of view of showing a strong message to our regulators, staff and customers I believe that this is the right thing to do.’ In November 1999, Raymond Or was recommended for the post of general manager, Hong Kong, the first Hong Kong Chinese executive to assume that position. ‘He is noted to be a solid team leader who is tenacious in achieving his objectives,’ ran the rationale. ‘He is technically skilled, especially in Corporate Lending, and combines his in-depth knowledge of the local marketplace with intelligence and solid “common sense” to drive forward his team.’98 Similarly pragmatic considerations underlay Whitson’s wish soon afterwards, in February 2000, that Stuart Gulliver be appointed chief executive of the investment bank in Asia-Pacific; he would bring ‘commercial acumen, man management, leadership and sheer energy’.99 As for cost-consciousness, that hardy perennial, there was a nice moment in June 2000 when Bond asked the GHR Committee ‘if a less paper-intensive approval process could be adopted for the sign-off on travel’. Whereupon Whitson ‘agreed that a more streamlined process was desirable but cautioned against losing the deterrent effect, which the present process achieved’, and added that ‘at present an executive thought twice before submitting a travel form if they knew top management was vetting it’.100

The final episode in this sequence came on 11 September 2001. ‘If I could point to one thing that has sustained us through this difficult time, it would be the incredible teamwork displayed by HSBC employees,’ said Rob Muth, chief administrative officer of HSBC Bank USA, in the immediate aftermath of that terrible day. ‘Every single department in the bank began to pull together as a team. You truly felt that everyone was there for whatever needed to be done. I commend my colleagues for their outstanding efforts during this difficult time.’101

Home on the wharf

For the right sort of corporate culture to flourish, it needed the right sort of physical environment. The pursuit of maximisation of teamwork – not only in an emergency but every day – was the ultimate driving force behind HSBC’s most ambitious infrastructural project of these years.

It was at a Holdings board meeting in March 1998, just over five years since HSBC had moved its headquarters from Hong Kong to the City of London, that Sir Wilfrid Newton introduced a paper recommending the development of a new HQ building in Canary Wharf, a couple of miles downstream. Purves and Bond were fully behind the proposal, while the immensely experienced Newton (a non-executive director since 1986 and a former chairman of the MTR in Hong Kong as well as of London Regional Transport) was already proving a good man for the bank to have in its corner during the negotiations with the developers, Canary Wharf Limited. ‘Continued occupation of uneconomical buildings and inefficient location of staff are considered untenable in the long run,’ he asserted. ‘It is considered that relocating most City-based staff to a single building will result in considerable operating and management efficiencies. The cost of relocating is unlikely to reduce over time; however, the availability of the valuable EZCA [Enterprise Zone Capital Allowance] in what is much the most economical area of relocation will disappear.’102 The board duly gave its approval and three days later HSBC announced its plans, with the 8,000 staff then scattered in ten or more sites around the City to be consolidated into the single forty-two-storey building.103

It was a bold move, though arguably there was no choice – whether in terms of building a new HQ or where it should be located. During the second half of the 1990s, the expansion of investment banking in London led to a ‘space crunch’ and soaring commercial rents, with those in Canary Wharf significantly cheaper than those in the square mile.104 ‘You could not have delivered this size of building as easily elsewhere,’ observed Guy Napier of the letting agents Knight Frank soon after HSBC’s announcement. A rattled City Corporation did try to persuade HSBC to think again but the die was cast.105

The move teamed HSBC with Sir Norman Foster for a second time, almost twenty years after the commission for what became his acclaimed building for the bank in Hong Kong. This time round, though, the mood music was very different. ‘HSBC must establish a thorough ongoing monitoring progress to control architects and other consultants and to ensure the development is brought in within budget and on time,’ recommended a special committee (under Newton’s chairmanship) even before authorisation of the project. ‘A functional building with an interior, escalators, etc. that facilitated personal interaction would be required, but the building should not be an “architectural statement”.’106 From Bond, Whitson and Newton downwards, there was a steady determination over the next four years to keep the focus and avoid dramas, not least of budget or timetable. ‘After consulting the Group chairman,’ noted the Property Committee in December 1998, ‘it has been decided that the Group will not participate in a ground-breaking ceremony. It was considered more appropriate for the Group to celebrate the success of the completion of the building rather than the promise of its completion.’107 That month, Group News reported that construction was due to begin in early 1999, with completion scheduled by spring 2002 and occupation later in the year:108 all three targets were duly hit. Costs were also kept on track and the project was brought in under budget – a considerable achievement for such a major undertaking.

From the start of the process, there was a conscious attempt to engage with the staff as a whole and get their input into the new HQ. As early as July 1998, ‘some members of staff in Investment Banking suggested the inclusion of a swimming pool in the proposed health facilities’,109 though in the event that failed to happen. A year later, while discussing at the Building User Requirement Group ‘the various finishes that had been proposed at different times and in different places for this or that part of our new building’, Whitson pointed out that ‘decisions on these topics should not be taken lightly or in isolation – we, our colleagues and our future colleagues will have to live with these decisions for decades to come – and the costs are considerable’. Accordingly, he called for ‘a consensus group to be formed – of people not involved with the project – to view the materials and mock-ups and to provide feedback’.110 A major boost to winning over doubters about the whole project was the opening in September 1999 of the Jubilee Line extension from North Greenwich to Waterloo, stopping at the magnificent, Foster-designed Canary Wharf station.111 Transport had long been Canary Wharf’s Achilles heel, and this was a real breakthrough.112

It did, however, raise the question of whether HSBC should follow the example of Citibank (whose own building in Canary Wharf was being built virtually in parallel) and meet additional travel costs. Whilst noting Citi’s approach, Whitson told the GHR Committee in March 2000, ‘we should not seek to be guided by it, and we should be looking to find alternative ways of motivating and encouraging staff to transfer to Canary Wharf which did not impact on bottom line’.113 Some mutterings continued – ‘It was felt that any reluctance by businesses to making the move should not be countenanced,’ noted the GHR Committee in June 2000, with James Capel Investment Managers being cited as an example114 – but that summer a programme of riverboat visits to Canary Wharf, taken by over 5,000 employees, helped to generate some positive enthusiasm. ‘I was very impressed with the whole thing,’ said Pauline Lane of HSBC Treasury Investigations. ‘I must admit I wasn’t looking forward to the move but Canary Wharf has a good atmosphere and the number and type of shops was great.’115

Still to come, though, was the understandable psychological impact of 9/11. Bond’s immediate response was to ring the New Building project co-ordinator, Nic Boyde, and insist that as Group chairman he should be one of the first to move into the new building;116 while soon afterwards, in an open letter to all employees, Whitson stressed that the new building was being ‘constructed to very high safety standards’, including strengthened glass cladding as well as automatically pressurised escape stairs within a central concrete core, and that ‘contrary to any rumours you may have heard, we are pressing ahead with our plans to move to Canary Wharf and into a building capable of meeting the 21st Century demands of a financial services group such as ours’.117

Two concepts above all drove the way in which the new HQ at 8 Canada Square was designed and fitted out: functionality and interactive teamwork. ‘The overriding objective,’ agreed the Holdings board in October 1999, ‘is to provide a pleasant environment for staff working in the building rather than creating an aesthetically pleasing exterior.’118 To encourage teamwork, the decisive innovation at Canary Wharf would be open-plan offices – described by the Financial Times, on the eve of the move, as ‘the greatest cultural shock of all’ facing HSBC staff.119 Almost certainly there had been some debate. ‘I wish us to explore positively the advantages/disadvantages of open plan,’ Bond had told Boyde as early as September 1998. ‘I would like us to look at other modern head offices, such as British Airways and possibly Mars Corporation.’120 Nearly two years later, at the Group Executive Committee, ‘those present, most of whom would be located on level 41 of the new Group Headquarters building, were encouraged to embrace the proposed open-plan layout’.121 A more interactive environment was also consciously fostered by the concept of ‘transfer floors’, with meeting rooms and coffee bars.122 Yet, as ever in HSBC culture, the old mingled with the new, and not only through the judicious, low-key use of feng shui.123 ‘I anticipate that level 41 will be decorated and furnished in a fairly traditional style,’ Whitson wrote to the Group archivist Edwin Green, ‘making as much sensible use as possible of the Group’s collection of valuable antique furniture and artwork.’124

images

Four past and present chairmen of HSBC: from left to right, Guy Sayer, Lord Sandberg, Sir John Bond and Sir William Purves at the official opening of HSBC’s History Wall at the bank’s head office in Canary Wharf, 2002.

In one specific respect, the old and the new would come together brilliantly at Canary Wharf. This was the imaginative, cutting-edge History Wall, conceived as a permanent feature on the ground floor and showing a total of 3,743 images from the Group’s history around the world. ‘This remarkable History Wall’, declared Whitson without exaggeration in September 2002 as he unveiled it in front of an audience that included Guy Sayer and Michael Sandberg as well as Purves and Bond, ‘is testament to the bank’s achievements since it was established in 1865 in Hong Kong.’125 For HSBC, unlike some other financial institutions early in the new century, the heritage and lessons of the past still had their place.