HSBC, tax and why good firms go bad
HSBC was surely hoping for a better start to its 150th birthday year than its CEO, Stuart Gulliver, calling its behaviour a “source of shame”.
The confession was particularly striking as the shame, the tax evasion scandal at HSBC’s Swiss private bank, happened largely under the leadership of Stephen Green, now Lord Green, an ordained Church of England priest and author of a book called Good Value: Reflections on Money, Morality and an Uncertain World.
HSBC is not the only company that has tried to project a responsible image, only to be upended by the bad behaviour of some of its staff.
There was GlaxoSmithKline’s bribery scandal in China, which led to the company apologising to “the Chinese patients, doctors and hospitals, and to the Chinese government and the Chinese people”. And there was the involvement of several banks in foreign exchange and Libor-rigging scandals.
Why do companies that spend so much time and money promising to be good do bad things? Is it because those promises are pure hypocrisy? No. Many, possibly most, of the leaders making those promises mean it. Only a small number of businesses, such as Bernard Madoff’s, are thoroughly rotten at the top.
There is no single reason why companies employing many decent people fall into disgrace. But, observing corporate scandals over the years, I have noticed some patterns.
A central issue is that although we talk about “corporate culture”, few companies, particularly global ones, have a single culture. Departments, subsidiaries and certain types of jobs within the company have their own microcultures.
This may be because a bit of the company was an acquisition. HSBC said this was true of its Swiss private bank, which “was not fully integrated into HSBC, allowing different cultures and standards to persist”.
Even in long-standing parts of the business, some employees have more in common with those doing similar work in other companies than they do with the rest of their organisations.
You could see this in the Libor and foreign exchange scandals. In one set of messages between three traders from Citigroup, JP Morgan and UBS talking about whether to invite a fourth into their chatroom, one said: “Is he gonna protect us like we protect each other against our own branches?”
In this case, the traders knew what they were doing was wrong. In many others, those involved persuade themselves that it is not, even when, as with HSBC’s Swiss bank, they were giving clients “bricks” of cash and helping them to set up offshore companies to hide their wealth.
In explaining itself, HSBC said the Swiss private banking industry used to think that it was clients’ responsibility to declare their wealth and that it was not up to the bank to second-guess them. The implication is clear: any bank that did not accommodate these clients would have lost them to someone else.
As Warren Buffett said in a 2006 message to managers: “The five most dangerous words in business may be ‘Everybody else is doing it’.” This is why people often pay bribes. Everyone in that market does, they say; if you do not, you will not get the business.
If those at the top do learn of shady practice, there are a number of reasons they may choose to ignore it: it has been going on for so long it must be all right; or a previous manager clearly agreed to it and must have had good reason; or unravelling it would set off a reaction that would damage the whole business.
When corruption does come out, it damages the whole business anyway, with the added charge that those at the top should have acted sooner.
What should business leaders do? Ethics hotlines may help, but anyone who has spoken to whistle-blowers knows that speaking out often wrecks their lives.
The tone, as they say, comes from the top, but many employees pay little attention to those at the top.
Gulliver’s question “Can I know what every one of 257 000 people is doing?” may sound like the whine of a man under pressure, but he is right.
The only defence against corruption is to be out all the time, digging into the business and repeating the importance of not damaging the company’s reputation. It is a battle leaders have to fight every day. — © The Financial Times, London