Thursday, May 13, 2021

A demerger is HSBC’s only way to solve its Hong Kong problem | HSBC

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A new (ish) chief executive is at the helm of HSBC, so it’s time for another bout of corporate introspection. “We’re going to stop trying to be everything to everyone,” says Noel Quinn. Was that – finally – a recognition that life as a socially responsible UK-regulated bank is impossible to square with the commercial necessity to dance to Beijing’s tune when Hong Kong’s last freedoms are being squashed?

Actually, no. Quinn’s version of HSBC’s longstanding “pivot to Asia” strategy was merely about shedding retail banking operations in the US and France. The UK operation is staying put, apparently. For good measure, he added an ode to the joys of the soulless Canary Wharf.

Well, maybe, but the dual-headed London/Hong Kong structure is hard to trust for the long term. Yes, as Quinn told a UK parliamentary committee last month, all banks have to comply with the laws where they operate, but it was still shocking to see Peter Wong, HSBC’s top executive in Asia, sign a public petition last year in support of Beijing’s draconian security laws.

Tensions between China and the west seem likely only to intensify with Joe Biden’s arrival in the White House, meaning HSBC is more exposed than ever to political blasts. About 90% of the profits come from Asia, so nobody should be under any illusions about the bank’s priorities if push comes to shove. The question is if, or when, the board feels a split is inevitable.

Quinn and Mark Tucker, the chairman, clearly want to cling to the current setup as long as possible, and one can understand the temptation to sit tight and hope for the best. A demerger of the old Midland Bank that was bought in 1992 (and could be rebranded as First Direct for today’s world) would be a dramatic move.

But note also Quinn’s reference to how “the Covid-19 pandemic and the impact of geopolitics weighed heavily on our share price throughout 2020”. Take the latter to be an admission that a “Hong Kong discount” sits on HSBC’s valuation, which is clearly the case.

An effective cut in the dividend won’t improve the mood and, unless things improve soon, one suspects shareholders, rather than western politicians, will demand reform to clear the political fog. The UK bank is ringfenced already and should be worth £10bn at a bare minimum. Demerger is the obvious next pivot.

Where are the female CEOs and chairs?

What’s the best way to get more women into boardrooms of big public companies? The debate five years ago was whether voluntary targets would improve the scandalous level of under-representation, or whether quotas were needed.

The UK took the voluntary route and, credit where it’s due, the aim of 33% female representation on FTSE 100 and FTSE 250 boards, as set by the 2016 Hampton-Alexander review, has been achieved. Not by every company, of course, but the average for the FTSE 350 has risen from 21.9% in October 2015 to 34.3% in January 2021. And the number of “one and done” boards has fallen from 116 to 16.

A few countries that took the quota route (France, Sweden, Norway and Italy) score better. Equally, some quota countries (the Netherlands, Spain and Germany) sit lower. Yet the big-picture headline numbers for the UK obscure an uncomfortable fact: the number of female chief executives and chairs remains tiny.

There are only eight female chief executives of FTSE 100 companies, a net gain of only two since 2017. And the low representation in the chair’s job – an increase from six to 11 – is almost more shocking because the role is usually a non-executive one and the increase in female non-executives has contributed most to the overall tally. There are more women in the boardroom but it seems they’re not getting the top posts.

The final Hampton-Alexander report urges improvement but is short on explanation for the failures. On the chair point, here’s the candid view of one woman who has served on a few FTSE 350 boards. First, there is a clue when companies use phrases such as “credibility in dealing with complex stakeholder situations” in their job adverts. The subliminal message, as she puts it, is: “Are you a man who will dominate a room?”

Second, chief executives have an effective right of veto over the appointment of a chair and a significant proportion of the men probably still don’t want to work for a woman. Depressing – but also probably accurate.

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