HSBA Hsbc Holdings Plc

By Simon Clark 

Global banking giant HSBC Holdings PLC has made clear that its business destiny is in China. Its board, however, remains an Anglo-American affair.

The London-based, Asia-focused bank appointed three board members along with a chief legal officer and a chief operating officer in the past 12 months. All are American. Just two out of 14 board members are Chinese.

HSBC exemplifies the difficulties multinational companies face navigating tensions between the U.S. and China. The bank has received competing demands for pledges of loyalty from Washington and Beijing after China imposed a national-security law on Hong Kong. The U.S., the U.K. and other Western governments opposed extending the law to Hong Kong.

The high-level appointments come even as the bank is scaling back its already modest U.S. operations and shutting branches there.

"It doesn't make good business sense," said Gregg Li, a Hong Kong-based investor who advises companies on governance, pointing out that Shenzhen, China-based Ping An Insurance -- HSBC's largest investor -- doesn't have a representative on the bank's board. "Given where China is going I would think you would start working much closer with the Chinese economy and major players," Mr. Li said. Ping An declined to comment.

HSBC earns more money in Asia than it does in the rest of the world. The bank's British chief executive, Noel Quinn, is refocusing on the lender's lucrative network in China and Hong Kong while scaling back operations in Europe and the U.S.

Mr. Quinn played down the importance of nationality in an interview. "You've got to look at our experience, not just the nationality," he said.

In May, former Hong Kong Chief Executive Leung Chun-ying called on HSBC to express support for the security law or risk losing business. HSBC wasn't among the banks that arranged a Chinese government dollar-bond sale in October, the first time in years that it wasn't involved in such a sale.

"I shall watch with interest now that the bank has a new board," Mr. Leung said in an email from Beijing. "Any business should have sufficient collective expertise on the board level of its major markets."

Mark Tucker, HSBC's British chairman, led the appointment of former Citigroup Inc. President Jamie Forese, former Bridgewater Associates LP Co-CEO Eileen Murray and former Microsoft Corp. executive Steven Guggenheimer to the board this year. Bob Hoyt was appointed chief legal officer in October and John Hinshaw was appointed chief operating officer in December.

Along with directors Jackson Tai and Heidi Miller, Americans represent 36% of the board, up from 25% in 2016, before Mr. Tucker became chairman. There are more American directors than any other nationality. There are four British citizens and three other Westerners: Henri de Castries from France, Pauline van der Meer Mohr from the Netherlands and José Antonio Meade Kuribreña from Mexico. Ewen Stevenson, the finance director, holds British and New Zealand citizenship. The two Chinese nationals on the board are Laura Cha and Irene Lee.

HSBC is starting a new digital wealth planning and insurance unit in China called Pinnacle, which will hire between 2,000 and 3,000 employees in the next four years. Pinnacle has obtained a fintech license in China, a first for a foreign financial institution in the country, according to the bank.

Bob Tricker, a former Hong Kong University professor of finance who helped draft the Asian port city's corporate-governance code in the 1980s, says the nationality question isn't complicated.

"It's intuitively obvious," Mr. Tricker said. "If their strategy is to see their future in China then they need to orientate their governance, which is concerned with the way power is exercised over a company, in China."

Mr. Quinn emphasized the Asian experience of board members including himself, Mr. Tucker, Mr. Tai and Mr. Forese, who have all worked in the region. Ms. Cha and Ms. Lee are "very strong," he said.

"We have a very strong management team in Asia," Mr. Quinn said. " Peter Wong has grown up and lived in Asia all of his life apart from some time in the U.S. when he was at university."

Mr. Wong is chief executive of HSBC's Hong Kong-based unit, whose local board, one rung below the main board of directors, is chaired by Ms. Cha and composed mainly of citizens of Asian nations. Earlier this year, an HSBC Chinese social-media account posted a photo of Mr. Wong signing a petition backing China's security law.

Opponents of the law criticized Mr. Wong, arguing it would undo Hong Kong's autonomy and threaten its Western-style pillars of free speech and independent courts. Chinese politicians have said the law was necessary after a year of protests. Beijing this month ousted four pro-democracy Hong Kong lawmakers, prompting the rest of the opposition bloc to resign.

Nationality has long been a strategic consideration at HSBC, which was founded by British bankers in Hong Kong in 1865. Faced with the prospect of HSBC becoming a Chinese bank when the U.K. ceded control of Hong Kong, Michael Sandberg, the bank's chairman until 1986, devised an international strategy called the "three-legged stool" to build out operations in Europe and the Americas to balance those in Asia.

Mr. Sandberg said in 1986 that if HSBC found itself confined to China after the 1997 handover of Hong Kong "it must be absolutely as night follows day that we would become a Chinese bank" and that in such circumstances it would be "a complete anachronism to have all our senior officers British."

HSBC expanded to 88 territories in the 1990s and early 2000s, marketing itself as the world's local bank and moving its headquarters to London. Following setbacks in Mexico and the U.S. it scaled back in the wake of the global financial crisis of 2008. The bank has sold billions of dollars of assets in the past decade and now operates in 64 territories. Hong Kong and mainland China are by far its most profitable. HSBC reported pretax profit of $2.41 billion in Hong Kong and mainland China in the third quarter of this year, equivalent to 78% of its total pretax profit in the period.

British nationals still have an outsize share of senior leadership positions, and the need for more Asians in those roles is discussed by employees, according to people familiar with the situation. British nationals represented 16% of HSBC's workforce but 36% of senior leaders in 2019, while Chinese nationals made up 23% of employees and just 9% of senior leaders, according to the bank. Indian nationals were 17% of the workforce and 6% of senior leaders.

"That exactly reflects the colonial past of the bank," Mr. Tricker said. "They haven't grown in China and with China in the way that they could have done and should have done."

"What we're looking at is building a strong Asian leadership base," Mr. Quinn said. "We're continuing to diversify the bank."

Frances Yoon and Julie Steinberg contributed to this article.

Write to Simon Clark at simon.clark@wsj.com

(END) Dow Jones Newswires

November 15, 2020 08:14 ET (13:14 GMT)

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