What to make of the HSBC tax calamity?

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For those of us who have long admired and respected HSBC as a company with a strong sense of values, the last few days have been painful.

 

Nils Pratley’s piece in Saturday’s Guardian is a reasonably fair account. The conclusions?

 

First, as with BP and Texas City, acquisitions are dangerous. You buy a company and it is difficult to know how cultures differ. When things went wrong in health and safety at BP and people died it turned out that the order in BP to cut costs aggressively was interpreted in the acquired company (Amoco) as overriding safety concerns, whereas in BP the safety culture was so strong that any suggestion of compromising safety in the interests of costs would have been quickly dismissed.

 

And so with HSBC. You buy a company in Mexico and they assure you that all the rules and values are being respected. But you don’t know if they actually interpret them in the same way.

 

You buy a company which owns a Swiss bank, and you cannot be sure that what the local management views as ‘normal practice’ is actually in line with what you at HQ regard as acceptable.

 

Since 2012 and the Mexico disaster HSBC have been centralising and imposing a top down approach, BUT all this would have been too late for Switzerland.

 

So while Margaret Hodge, Chairman of the UK’s Parliamentary Public Accounts Committee, can easily say that Lord Green as Chairman was ‘asleep at the wheel’, that does no justice to the sheer complexity of governance and stewardship.

 

The problems are not confined to the private sector. In the UK’s healthcare we learn of the disastrously incompetent and uncaring treatment of patients at the Mid Staffordshire NHS Foundation Trust.

 

Life on a board is full of dilemmas. ‘Trust the management – let them get on with’.is good advice, but so is ‘trust…but verify’. Boards get criticised when they focus too much on values and ignore performance, but they can get it wrong the other way too.

 

I don’t believe board members in either the HSBC or Mid-Staffs case were in any sense asleep. It’s really tough being a non-executive. How do you get a clear and separate view on what is happening? How do you decide when to doubt what the management is telling you?

 

One answer may be to create a new kind of post, at or near the board. Our new publication, Tomorrow’s Risk Leadership will have some ideas and principles which may help companies strengthen this approach.

 

But let’s not be fooled by glib statements about ‘Asleep at the wheel’. Good governance depends on eternal vigilance – but we are all imperfect and all tempted to concentrate on closing yesterday’s barn door while ignoring tomorrow’s bolting horse!

 

This post originally appeared here.