September 23, 2010
By LANDON THOMAS Jr. and JULIA WERDIGIER
LONDON — The chief executive of HSBC, Michael Geoghegan, is expected to step down after failing to be promoted to the chairman’s job, a surprise development that has rattled a bank not generally known for boardroom intrigue.
Mr. Geoghegan is to be replaced by Stuart Gulliver, who currently runs HSBC’s investment banking business, according to a person with direct knowledge of the plan, who declined to be identified until the decision was made public.
While such sharp-elbowed tussles are common on Wall Street, they are unusual for tradition-bound HSBC, a global behemoth with roots dating to the heyday of the British Empire. They also underscore the extent to which bank boards have become sensitive to corporate governance issues in choosing leaders.
The shakeup is unlikely to affect the bank’s strategy, however, which has been to move away from its disastrous foray into the U.S. subprime market and expand its already substantial operations in Hong Kong, mainland China and elsewhere in emerging Asia.
“The strategy doesn’t look like it’s going to change, so that will calm investors,” said Keith Bowman, an analyst at the asset management firm Hargreaves Lansdown in London.
Mr. Geoghegan recently moved to Hong Kong to head the bank’s shift in focus toward Asia. He had received credit for having maintained the bank’s profitability during the financial crisis better than its peers.
But the ambitious and quick-tempered Mr. Geoghegan was resisting a move by a board succession committee to appoint a chairman from outside the bank’s ranks. That would have broken a longstanding precedent at HSBC of chief executives’ moving directly up to the role of chairman.
The issue came to a head two weeks ago when the current chairman, Stephen Green, said he was stepping down for a job as trade minister in the new British government, ending a 28-year career at the bank.
Over the past few months, John Thornton, a former Goldman Sachs president who recently joined HSBC’s U.S. operations as a nonexecutive chairman, had emerged as a leading candidate to take the overall chairman’s job, which is still based in London.
The chairman still has an executive role, but responsibility for the main strategic decisions has shifted over the past year toward the chief executive. Still, Mr. Geoghegan dug in, and the board succession committee began to look for other options.
It appears to have settled on Douglas Flint, the chief financial officer, as chairman based in London, according to the person with direct knowledge of the matter. The chief executive’s post would remain in Hong Kong.
HSBC’s board is scheduled to meet in Shanghai on Tuesday and is expected to vote on the appointments then.
“There seems to be an underlying sentiment that now may be a good time for a new management,” Mr. Bowman said. “There’s also an element of fatigue, and it seems banks are through the worst and now is a time to step aside and let someone else do the job.”
HSBC shares were up slightly in midday London trading.
The changes are the latest in a series at London-based banks. Earlier this month, Robert E. Diamond Jr. was named to replace John Varley as chief executive of Barclays, and Eric Daniels, the chief executive of Lloyds, has said he will step down at the end of the year.
For the ever-striving Mr. Thornton, the near miss with HSBC is certainly a blow.
Earlier this decade, Mr. Thornton, as president of Goldman Sachs, missed out on the top job there when Henry M. Paulson Jr. passed him by, prompting his departure. Since then, Mr. Thornton has thrown his considerable energies into China, teaching at a university and advising corporations and politicians there.
The HSBC chairmanship would have been a coup, giving him a substantial corporate platform with one of the most globally oriented financial institutions.
While Mr. Gulliver is an investment banker by trade, he does not typify the risk-happy, larger-than-life mold set by Mr. Diamond — a prototype that has set political teeth on edge in Britain amid concerns that Barclays would become beholden to the big bets taken by its bankers and traders. In fact, since taking the helm of the bank’s markets division in 2006, Mr. Gulliver has worked on aligning investment banking efforts with the group’s broader focus of continuing to expand in emerging markets.
And in so doing, he has reversed an earlier course set by the bank to build up a U.S.-style investment institution by hiring banking superstars, most notoriously John Studzinski, a former Morgan Stanley banker who for a period shared the title of investment banking head with Mr. Gulliver before he left to join the Blackstone Group.
As with Barclays, the investment bank — called global banking and markets — drove profitability at HSBC, generating half of the group’s pretax profit through the first six months of last year. But with the focus on emerging markets, as opposed to U.S. capital markets, the risk profile for the division is lower.
Still, Mr. Gulliver, 51, a Briton who has worked at the bank since 1980, was paid £9 million, or more than $14 million at current rates, in shares last year, along with a base of £826,000, making him the highest-paid banker at HSBC.
As for Mr. Flint, he is a well-regarded executive whose tight grip on the bank’s finances should make him an appealing chairman for investors.
What remains unclear is the extent to which the boardroom divisions will heal over time. Mr. Thornton, in addition to his position in the United States, is a group director and head of the remuneration committee, and it is uncertain how his having narrowly missed out on the job would affect his fiduciary duty as a board member.
What is more, by having two longtime executives running the bank, HSBC runs the risk of being seen as having a less independent board than its main peers in London, Barclays and Lloyds, both of which have chairman who have not held executive positions at the banks they preside over.
“The decision to settle a bitter succession battle by appointing two insiders to top positions is a troubling reminder that an ‘independent board’ remains more hope than reality in financial services giants such as HSBC,” said James Post, a professor of corporate governance at Boston University school of management.
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