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HSBC: WHO’S THE BOSS?

A Case Study

Presented to the faculty of the College of Business, Management and Accountancy

DE LA SALLE ARANETA UNIVERSITY
Victoneta Ave., Malabon City, Metro Manila

In partial fulfillment of the requirement for the degree of

Bachelor of Science in Accountancy

By

JOYCE BELEN
PSALM JOY CAWALING
SOFIA NICOLE FELIPE
JASMINE LIM

BS ACCTY-2A

To
Dr. Glen De Leon, CPA, FRIAcc, AFBE
2020
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Table of Contents
Page
TITLE PAGE.................................................................................................................1
TABLE OF CONTENTS...............................................................................................2
I. Case Overview..................................................................................................3
II. Discussion Questions
Item 1.................................................................................................................3
Item 2.................................................................................................................4
Item 3.................................................................................................................6
Item 4.................................................................................................................7
Item 5.................................................................................................................8
Roles of Chairman and CEO..................................................................8
Attributes of a Good Chairman............................................................10
Item 6...............................................................................................................14
Views...................................................................................................14
Pros......................................................................................................14
Cons.....................................................................................................15
Item 7...............................................................................................................18
Item 8...............................................................................................................22
III. REFERENCES................................................................................................25
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I. Case Overview

In September 2010, the business world was shocked by a public boardroom

debacle at HSBC. Incumbent Chairman, Stephen Green, had announced his pre-mature

departure from HSBC ahead of schedule, putting HSBC’s succession plan into the

spotlight. An unforeseen and public power struggle ensued, with speculation as to

whether incumbent CEO Michael Geoghegan or one of several other possible candidates

would get the top job. The chaotic succession process undermined HSBC’s stellar

reputation for smooth management succession, and damaged the credibility of the board.

The objective of this case is to allow a discussion of issues such as the importance of

board and senior management succession planning and what it entails, the difference

between a Chairman’s and CEO’s roles, attributes of a good Chairman, and whether

former senior executives should become board chairmen.

II. Discussion Questions

ITEM 1 — What is the purpose of a succession plan and what are the
components of a comprehensive succession plan?
Succession planning is the process where one or more successors are identified
for key positions, or when top-performing individuals are placed in a succession pool
of candidates for future leadership positions. Each successor is individually
developed for their future responsibilities. More simply put, succession planning is a
highly specialized form of employee development that ensures future growth and
security for the company. Succession planning can also provide a liquidity event
enabling the transfer of ownership in a going concern to rising employees.
Succession planning is more than just having a plan to promote employees from
within the company. Likewise, it is more than an employee development initiative. 
Successful succession plans have three key components:
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1. The first component is the development of a succession plan. This step involves the
following elements:

o Succession pool criteria (competency model) are determined.

o Candidates for the succession pool are identified.

o Gap analysis is performed to determine development needs.

o A development plan is designed to build a strong succession pool and address any
competency gaps that may exist.

2. The second component is leadership development. This includes:

o Internal communication of the needs and expectations of the business.

o Training programs and executive coaching.
o On-the-job development opportunities for candidates in the succession pool (i.e.,
cross-training, lateral job transfers to build breadth of business knowledge,
specialized project responsibilities).

3. Finally, the third component is to make the process ongoing with frequent attention to
the changing needs of the business and the associated implications to the succession pool.
Measurement and analysis are critical elements of this component.

ITEM 2 — How is succession planning for the board and senior management
different for companies with controlling shareholders?

In succession planning for the boards shall apply a due diligence process to
determine the suitability of every person who is being considered for being appointed
or re-appointed as a Director of the Company based on their educational qualification,
experience & track record, and every such person shall meet the ‘fit and proper’
criteria to ensure its continued effective performance through leadership continuity.
Appointing directors who are able to make a positive contribution is one of the key
elements of board effectiveness. Directors will be more likely to make good decisions
and maximise the opportunities for the company’s success in the longer term if the
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right skill sets are present in the boardroom. This includes the appropriate range and
balance of skills, experience, knowledge and independence. And accordingly any
appointment or re-appointment of a Director shall be subject to prior approval /
recommendation by Nomination & Remuneration Committee of the Company.

In succession planning for senior management, the Nomination & Remuneration

Committee shall periodically review and consider the list of senior managerial
personnel due for retirement/attrition within the year. The Committee shall also
consider the new vacancies that may arise because of business needs/up-gradation of
Department(s)/Regional Office(s). Considering the above, the Committee shall assess
the availability of suitable candidates for the company’s future growth and
development. The committee may also recommend to the Board to appoint other
suitable external candidate(s) as special recruitment in senior managerial level based
on job roles and competency in order to provide a continuous flow of talented people
to meet the organizational needs.The prevailing promotion/transfer policy of
Company shall be designed in such a way that the existing/proposed senior
managerial personnel shall get all-round exposure in various domains to facilitate
career progression, prepare them for administrative responsibilities and to discharge
their functions effectively in senior positions. Where it is decided to appoint an
external candidate, timely and planned steps shall be taken for selection of a suitable
candidate so that the appointment is made well before the retirement/relieving of the
concerned officer to ensure the smooth transition.

While in succession planning for the companies with controlling shareholders,

the contracting parties use a shareholders' agreement to agree the rights and
obligations associated with their position as shareholders. The contracting parties can
be just some or all the shareholders of a company. The purpose of the shareholders'
agreement as a tool for succession planning is to prevent the transfer of the company's
shares to non-shareholders on the one hand, and on the other to secure the
management and decision-making ability of the company. The shareholders'
agreement is used as a tool for succession planning both internally between the
members of a family as well as externally (e.g. in the case of a management buyout).
The following discussion of the possible contents of a shareholders' agreement used
as a tool for corporate succession planning only has general validity. A shareholders'
agreement must always be adapted to the specific circumstances, taking account of
other succession planning options (under marital, inheritance and company law).
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ITEM 3 — Identify the problems that arose as a result of HSBC’s Chairman

succession. What was lacking in HSBC’s succession plan?

HBSC has a long history of smooth senior management succession and board
reinforced by clear succession plans. However, in 2010 the business world was shock
by a public boardroom debacle at HBSC. Due to the announcement of pre departure
of Mr. Stephen Green the incumbent Chairman of HBSC. Mr. Green had initially
announced that he will be going to stay until May 2011, but he had suddenly decided
to leave before the year end leaving the bank with just three months to appoint a
replacement. It is an unforeseen event and the company needed to make swift
decisions regarding with the succession of the company’s Chairman.

The following are the problems encountered as a result of HSBC’s Chairman

succession:

 Chaotic selection of candidates

In selecting the next Chairman, the board members have a lot of potential
candidates however time was really limited. Candidates includes the CEO, Mr.
Geoghegan who has 37 years of work experience with the bank. A decisive and
quick-thinking CEO however certain factors hindered Geoghegan’s appointment.
His style was not suit well with the investors and the company want to cease the
tradition of CEO to Chairman appointment. Mr. John Thornton a non-executive
director who was more well-received by the investors and Mr. Douglas Flint he is
the Finance Director and viewed as a compromised candidate to placate both
investors and management although he had perceivably less showmanship and
experience at HSBC.

 Leakage of confidential information in the public

September 2010 in the Financial times, after the information was known to Mr.
Geoghegan that the board didn’t intend him to give the position of Chairman, he
threatened to resign. Although the top management thinks that Geoghegan’s
threat to resign might have been exaggerated. The damaged has been done and the
public has given an insight what was happening in the company.

 CEO to Chairman handover tradition

One of the traditions of HSBC was the CEO to Chairman handover. When the
company wants to cease this norm, the current CEO is Geoghegan he was a long
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serving HSBC banker with a lot of intimate knowledge on HSBC’s operations. At

some point this norm might influenced the decision of Geoghegan to threat his
resignation because of being unhappy with the possibility of being passed over by
Thornton a non-executive director.

What was the lacking HSBC’s succession plan?

1. Lack of disclosure policies and procedures that resulted to leakage of confidential

information.

2. Time given to decide the next Chairman is very limited.

3. Lack of consistency with the company’s tradition that affects the verdict.

ITEM 4 — What is the impact of poor succession planning on HSBC and its
stakeholders?

Poor succession planning affects the reputation of HBSC, because of the

information leaked in the public, it reflects the extremely disorganized and poorly
conveyed succession plan with HSBC. Questions arose if the transfer of
leadership had indeed been planned well. It came no surprise that HBSC’s share
price plunged when the news of Mr. Green leaving, investors & stakeholders
viewed his departure as the loss of a major asset for the bank. The pressure
intensified for HBSC to achieve a resolution as soon as possible, in order to
appease investors’ discontent, prevent divisiveness within the organization on
candidate selection and restore its public image. Investors reaction to the new
leadership team was generally positive, HBSC shares increased by 0.4 percent.
However, many institutional investors remained upset at the poorly executed
succession.
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ITEM 5 — What are the roles of Chairman and CEO? How are they different?

What are the attributes of good Chairman?

 Roles of Chairman and CEO

Reporting lines

The Chairman reports to the Board. The CEO reports to the Chairman (acting

on behalf of the Board) and to the Board

directly.
The Chairman is not responsible for The CEO is responsible for all executive

executive matters regarding the management matters affecting the Group.

Company’s business. All members of executive management

report, either directly or indirectly, to the

Other than the CEO and the Company
CEO.
Secretary, no executive reports to the

Chairman, other than through the Board.

General Responsibilities
The Chairman’s principal responsibility The CEO’s principal responsibility is

is the effective running of the Board. running the Group’s business.

The Chairman is responsible for ensuring The CEO is responsible for proposing

that the Board as a whole plays a full and and developing the Company’s strategy
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constructive part in the development and and overall commercial objectives,

determination of the Company’s strategy which he does in close consultation with

and overall commercial objectives. the Chairman and the Board.

The Chairman is the guardian of the The CEO is responsible, with the

Board’s decision-making processes. executive team, for implementing the

decisions of the Board and its

Committees.

The Chairman is responsible for The CEO is responsible for promoting,

promoting the highest standards of and conducting the affairs of the Group

integrity, probity and corporate with the highest standards of integrity,

governance throughout the Company and probity and corporate governance.

particularly at Board level.

Specific Responsibilities
Running the Board and setting its agenda. Providing input to the Board’s agenda

from himself and other members of the

executive team.
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Ensuring that Board agendas take full Ensuring that he maintains a dialogue

account of the important issues facing with the Chairman on the important and

the Company and the concerns of all strategic issues facing the Company, and

Board members. There should be an proposing Board agenda items to the

emphasis on strategic, rather than Chairman which reflect these.

routine, issues.

 Attributes of a Good Chairman

Integrity — The person leading the Board of the organization must be seen to have the

highest personal standards with regard to honesty, reliability, and commitment to the role.

They must lead by example. There should be no doubt that they can be trusted at all

times. They must always do the right thing, and have the right conversations, even if this

is difficult.

Ability to influence others, without dominating — The Chair is responsible for ensuring

all Board members are using their own unique skills for the good of the organization. A

good Chair recognizes that each and every Board member is there for a reason, and has

knowledge, expertise and experience to give. They must ensure all Board members

contribute to discussions and the decision making process. The Chair must present the

options available to the Board, and clearly state the rationale for any recommendations.
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However, they must also allow each Board member to express their views, even if they

conflict with the view of the Chair.

Personal strength — A good Chair gives strength and support to others while being

resilient themselves. This requires a strong personality, which must be tempered with the

need to get the most out of other Board members, as discussed above.

Clear vision and passion for the work — The Chair needs to be clear about their vision

for the Board, and also to ensure that the Board and senior staff share a clear vision for

the organization. The best Chairs lead the Board in setting the vision and values for the

organization, and ensure this is communicated to staff and other key stakeholders.

Emotional intelligence — An emotionally intelligent Board leader can identify when an

element of conflict leads to more effective challenge and more robust decision making,

and when it might be detrimental to the Board. A great Chair is an excellent facilitator,

who can make everyone feel confident and safe enough to share their views, challenge

the views of others, and then reach a joint decision.

Intellect and Experience — It means that the Chair understands the need for having the

right people around the table, focusing on the right issues, doing the right thinking,

having the right conversations, challenging and supporting the Chief Executive in the

right way, and making the right decisions based on the best information.

Decisiveness — Great Chairs know what to prioritize, when to take action, and what

judgement to make in difficult circumstances. They use the best information to make
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decisions which balance the needs of all stakeholder groups, and are in the best interests

of the company.

Ability to chair meetings —Most of the work of the Board is done in meetings, and the

ability to manage those meetings effectively is key. This includes planning the agenda,

ensuring balanced input from all members, ensuring clarity about decisions and actions

agreed, and following up to make sure agreed actions are carried out in line with Board

decisions.

Coaching skills — As a leader of the Board, the Chair’s role is to get the best from every

Board member and from the Chief Executive. The role of the Chair is to ‘conduct the

orchestra’ rather than play the loudest tune. Coaching is a useful way of supporting on-

going learning and development of each Board Member, thus creating synergy and

ensuring they are contributing as much as they can as an individual.

Courage — Given the importance of Board work, the nature of decisions needed, and the

inevitable tensions between the Board and senior staff, there are times when the Chair

needs to make courageous decisions in the best interests of the company, which are not

always popular.

 Relation to Discussion

In Chapter three (3), it is taught that a company should be headed by a competent,

working board to foster the long-term success of the corporation, and to sustain its

competitiveness and profitability in a manner consistent with its corporate objectives and
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the long-term best interests of its shareholders and other stakeholders. Furthermore, it is

important to establish clear roles and responsibilities of the board. The fiduciary roles,

responsibilities and accountabilities of the Board as provided under the law, the

company’s articles and by-laws, and other legal pronouncements and guidelines should

be clearly made known to all directors as well as to shareholders and other stakeholders.

Take note, it is clearly recommended that Board should be headed by a competent and

qualified Chairperson, so upon election, the experiences and qualities of the candidate

must be strictly observed. Members of the Board are duty-bound to apply high ethical

standards, taking into account the interests of all stakeholders.

The SEC Code of Corporate Governance also noted that the positions of

Chairman of the Board and the Chief Executive Officer should be held by separate

individuals and each should have clearly defined responsibilities. It is recommended to

avoid conflict and to foster appropriate balance of power, increased accountability, and

better capacity for decision making.

ITEM 6 — What are the pros and cons of having the CEO becoming the

Chairman? In your view, has HSBC addressed the concerns of the CEO becoming

Chairman by appointing the Finance Director as Chairman?

 Views
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Yes. Flint (Finance Director) suddenly emerged as a serious contender after the

divisions on the board made it almost impossible for the board to choose between

Geoghegan (CEO) and Thornton (Non-executive Director). Investors felt he would be a

"popular compromise". By this decision, the HSBC did not undermine shareholders'

wishes. Also, it did not impede the company's effort to keep up with changes in the

governance landscape. This act showed that they complied with the corporate governance

guidelines since 2003 that recommends that British companies should not elevate CEOs

to Chairman. Reports further showed that investors' reaction to the new leadership team

was generally positive.

 Pros

The advantages of the unified position are just as obvious when considering the

day-to-day operations of a corporation.

The CEO, as the manager of the corporation, has a superior knowledge of the

operations of the business. When that role is unified with his role as Chairman of the

Board, one person occupying both of these roles may better be able to lead the

corporation and to identify any problems that may arise. This can provide superior

knowledge to the board and increase the information available to it. This unified

leadership structure creates efficiency by allowing the unified executive to operate in

both capacities at once. The other board members can have confidence that their
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Chairman/CEO is fully aware of the corporation’s strengths and weaknesses, along with

what issues need to be addressed moving forward.

 Cons

Concerned shareholders often urge that a unified role leads to a lack of oversight

and diminishes the independence of a board. 

The board is directly responsible for the hiring and firing of the CEO, and is

charged with general oversight of the corporation’s affairs and its management. As a

result, installing the CEO — the one person directly responsible for that management —

as Chairman could indicate a conflict of interest.

This is further complicated by the fact that the CEO is hired and fired by the

board. An independent Chairman of the Board can create an independent source of

authority with tangible authority to address the concerns of the board. This independent

perspective creates an opportunity for the board to more effectively address any abuses

that may occur, and to address any concerns about the performance of the CEO. 

The potential conflicts of interest described above can create opportunities for

abuse, as the Chairman in his CEO role may abuse his position and conceal from the

board potential problems and any issues created by his management.

 Relation to Discussion
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In Chapter two (2), it is stated that management and the board have

responsibilities to act within the laws of society and to meet various requirements of

creditors, employees, and the stakeholders. Given that fact, HSBC demonstrated their

compliance to the British governance guidelines upon choosing Flint as the new

chairman. Regarding the decision, good corporate governance proposes separation of

duties between the chairman of the board (who should represent the interests of external

stakeholders) and the CEO, who executes the board-approved strategy by means of the

staff. In well-governed companies, the board holds the CEO accountable for the

execution of the strategy and the consequent company performance. In organizations that

permit the CEO to become chairman, there is a distinct conflict of interest and potential

abuse of authority, because now the CEO suddenly has the power to decide if his/her own

performance is up-to-scratch. We all know that the Board should endeavor to exercise an

objective and independent judgment on all corporate affairs to facilitate effective

decision-making.

Splitting these positions is very important because each party involved have their

respective broad role and specific responsibilities (defined and disclosed in the Board

Charter). Besides being a basic rule of corporate governance, one person holding this

dual role can only threaten ethical principles and behavior. Professional ethics, however,

does not only affect the person, but also the society and organization as a whole.

Additionally, the Board should have a policy that includes process of nomination,

election, and replacement of a particular position, aligned with the strategic direction of
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the company. In cases where the Chairman and CEO are combined, putting in place

proper mechanisms like appointment of a strong lead director ensures independent views

and perspectives.

ITEM 7— How should a company balance its needs against the expectations of

external stakeholders with respect to compliance with good practice?

How to Balance the Demands of Stakeholders With Reality

PRINCIPLES OF GOOD BEST PRACTICE

CORPORATE GOVERNANCE RECOMMENDATIONS

1) A big part of finding a To gain stakeholder trust, many large

balance between short- and companies have started to produce

long-term goals comes down so-called integrated reports over the

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to improving communication past few years, which combine

with stakeholders — a tactic traditional financial metrics with

that may seem obvious but is explanations regarding long-term

not practiced enough.  value creation. This approach helps

convey strategy — and how both

short-term and long-term goals play

into the company’s broader vision —

in a more digestible manner.

2) Take a Holistic Approach To get all stakeholders on the same

page, management needs to identify who

the stakeholders are, and which key

issues are their drivers. At the same

time, management needs to keep in mind

the fact that long-term profitability is

essential to the survival and success of

the company. Stakeholders similarly

must acknowledge that a “profit at any

cost” mantra is a short-term business

decision that usually results in short-

term survival.

3) Avoid Conflicting Demands Setting clear business expectations and

goals will eliminate daily conflict in the

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tug of war between stakeholder

expectations and demands and what's

achievable. It provides a reference point

that keeps the big picture in mind –

helping stakeholders understand the

steps required to achieve the overarching

strategic plan. Knowing what is out of

bounds for the company is as essential as

knowing what the keys to success are.

And having a clear vision to stay on that

path will help a company stay true to its

stakeholders.

4) Stakeholder Service Levels Working with a group purchasing

and Savings Potential organization (GPO) can provide the

company immediate access to pre-

negotiated agreements that leverage the

group’s collective spend. This will

increase the company’s speed to savings

and its spend influence. 

5) The interests of the Integrate stronger role for boards and a

corporation are distinct from system of accountability for boards and

the interests of any executives that includes but is broader

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shareholder or constituency than accountability to shareholders.

group.
 more attention to risk analysis

and political and environmental

uncertainty

 a strategic (rather than narrowly

financial) approach to resource

allocation

 a stronger focus on investments

in new capabilities and

innovation

 more-conservative use of

leverage as a cushion against

market volatility

 concern with corporate

citizenship and ethical issues that

goes beyond legal complianc

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So just to recap, keeping stakeholders engaged and keeping their expectations tethered

to reality come down to these four keys:

1. Make sure "project success" is clearly defined before the project begins

2. Don't make stakeholders wait too long before they start to see value

3. Execute against the objective to ensure project success

4. Keep it simple when communicating with project stakeholders

ITEM 8— Imagine you are Sir Robertson right after the news broke about the

CEO threatening to leave. How would you resolve the situation within and

outside HSBC to protect the firm from adverse market reaction?

A CEO stepping down from their role might cause panic and confusion. Their

responsibilities now must be delegated or assumed by new management, which can

impact the structure the company worked hard to build over time. Additionally, CEOs

are often viewed as the core of a business, and changes in upper management often

lead to upset among staff.

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When
Your Chief
Executive
Leaves

Managecommunications (and
ensure positive closure with Ensure leadership
your current executive). continuity

Manage communications (and ensure positive closure with your current executive)

Good communications play an essential role in the success of the transition. This

includes how the departure announcement is handled, how the successor’s appointment is

announced, and how frequently the stakeholders are updated throughout the process.

Communications — good or poor — have an impact on the organization’s stakeholders.

And, they reflect the board’s professionalism in handling the transition.

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Key stakeholders, such as major funders, will want to hear about the transition

firsthand. Letting them hear about it through the grapevine is a huge faux pas. Staff

should be kept appropriately updated as the transition progresses. And, all may need

some reassurance if the departing executive is leaving “big shoes,” or if the departure

circumstances were rocky.

Ensure leadership continuity

First, make sure that the departing executive is clear about their role in the

transition work. Part of the departing CEOs job as a leader-in-transition is to support the

board’s transition work, help the organization get ready for the successor and prepare a

handoff plan.

Second, plan for some overlap of the executives so there can be a proper

handoff. The overlap can range from a few hours to a few days depending on the

complexities of the job and the organization. The board should take this into account in

budgeting and transition planning.

Third, clarify whether the incumbent will have an ongoing role with the

organization. Any ongoing involvement should be approached with a great deal of

caution. And the board should disclose any proposed arrangements to candidates during

the interview process. Also, the board should make it clear that the new executive has

control over any proposed contract or employment arrangement. In other words, it

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shouldn’t saddle the new executive with promises the board makes but the new executive

is expected to keep. And, don’t put the departing executive on the board. (These hedging

attempts are almost always a bad idea.)

III. REFERENCES

Bower, J. L. (2017, June). MANAGING FOR THE LONG TERM. Retrieved from
Harvard Business Review Home: https://hbr.org/2017/05/managing-for-the-long-
term

Cabrera, M.E., Cabrera, G.A. (2019). Corporate Governance, Business Ethics, Risk
Management and Internal Control. Manila: GIC Enterprises & Co., Inc.

Conlan, C. (n.d.). What to do when multiple executives leave your company. Retrieved
from Monster: https://www.monster.com/career-advice/article/when-executives-
leave-company
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Reed, S. (2019, August 5). HSBC’s Chief Steps Down, in a Surprise. Retrieved from The
New York Times: https://www.nytimes.com/2019/08/05/business/hsbc-ceo-john-
flint.htmlHSBC’s Chief Steps Down, in a Surprise

Strauss, D. (2019, August 5). HSBC's CEO is out in a shocking departure, and the firm is
set to lay off thousands (HSBC). Retrieved from Markets Insider:
https://markets.businessinsider.com/news/stocks/hsbc-ceo-john-flint-surprising-
exit-thousands-of-layoffs-announced-2019-8-1028417957

Stockham, M. (2013). Corporate Compliance Insights. Retrieved from:

https://www.corporatecomplianceinsights.com/split-decisions-the-pros-and-cons-
of-separating-ceo-and-chairman-roles/ Attributes of a Great Chair. Retrieved
from: https://www.leadinggovernance.com

Tebbe, D. (2019, March 21). What to Do — and Not Do — When Your Chief Executive
Leaves. Retrieved from Board Source: https://blog.boardsource.org/blog/what-to-
do-and-not-do-when-your-chief-executive-leaves