It can take at least 24 hours for the enormity of a corporate governance scandal to be fully comprehended. But it should never take eight to ten years for it to be revealed.
The UK’s corporate governance code balances on the workability of ‘comply or explain.’ It sets standards for corporate behaviour, and seeks to encourage best practice, exhorting business to ‘tone from the top’, via its boardrooms. But what happens when boardrooms shroud themselves in complexity and when it comes to the moment of reckoning, the inhabitants have moved up and out?
Evidence that the Swiss private bank of HSBC, the world’s second largest bank, helped clients conceal undeclared accounts and provided services to criminals and corrupt businessmen is still reverberating around the world. On Twitter you can take your pick from #HSBCLeaks, #SwissLeaks or #HSBCFiles.
Those files were obtained through an international collaboration of news outlets, including The Guardian, the French daily Le Monde, BBC’s Panorama program and the Washington-based International Consortium of Investigative Journalists. This was not the result of a regulator at work, but an uncovering precipitated by a whistleblower, Herve Falciani.
The files cover the period from 2005 to 2007, amounting to what The Guardian terms “the biggest banking leak in history, shedding light on some 30,000 accounts holding almost $120bn (£78bn) of assets.” During that period, Stephen Green was the global bank’s CEO, then group chairman until 2010. He then left to become a trade minister in the House of Lords in the new UK government led by David Cameron – becoming Lord Green.
“As a matter of principle, I will not comment on the business of HSBC, past or present” Lord Green has said. Yet in the past he has declared: “Corporate Governance is the very essence of a company.” An ordained Church of England minister, he has branded himself an ethical banker, finding the time to write a book in 2009. Entitled Good Value: Reflections on Money, Morality and an Uncertain World, it argues that business leaders should behave not just legally but ethically, going beyond “what you can get away with”.
As part of its response to the revelations HSBC said: “We acknowledge that the compliance culture and standards of due diligence in HSBC’s Swiss private bank, as well as the industry in general, were significantly lower than they are today. At the same time, HSBC was run in a more federated way than it is today and decisions were frequently taken at a country level.”
The changes to its line of management control were made in 2011, after Lord Green had moved on and Stuart Gulliver had become CEO.
But while HSBC could now face legal action in the US over Swiss accounts, the furore in the UK has been focused around the fact that until now the bank has faced no legal action there. This is despite the fact that Her Majesty’s Revenue And Customs (HMRC), the UK tax authority, has had 6,000 British names from the French authorities since 2010.
That information was passed to the UK a few months before Stephen Green’s new appointment was announced by the UK government, according to The Guardian.
David Gauke, UK Treasury minister responsible for tax matters, told the Financial Times that the data were handed to HMRC in 2010 by the French authorities “under very strict conditions” preventing the sharing of the data with other law enforcement agencies. Apparently, this situation has just changed.
With the UK facing a general election in May, this scandal is going to run and run, fuelling questions about whether corporate governance is working – and to whose benefit.
The most chilling feature of the laborious research into the HSBC files is the documentation of the knowing wrong-doing perpetrated by managers at various levels throughout the bank – and the flippancy with which it was undertaken. From ‘code names’ for clients to widespread collusion, it is clear there is complete contempt for the law.
Against this backdrop it is difficult to agree with recent suggestions that corporate governance for large financial institutions would be improved by the addition of yet more committees in the boardroom. For the general public – shareholders and stakeholders – to restore their faith in listed businesses and their role in society, accountability is key. If you don’t comply, it’s time to explain.