What is HSBC?
An IO with a view
He opened the door to see a room full of swivel chairs, arranged haphazardly no people. He had deliberately arrived early for the Saturday morning assembly of 40 or so senior managers his first experience of the bank's bi-monthly meeting.
The senior executive, new to the ways of the HongkongBank, went to check some other rooms. Maybe, he thought, embarrassed, he had picked the wrong floor. Eventually he got back to his starting point and found a crowd of suits outside the meeting room, drinking coffee. As the newcomer lifted a cup, John Strickland, the bank's chairman, put his own down. At this signal, without a murmur, everyone else did the same and followed Strickland into the room full of chairs.
It was 8.45 exactly. Strickland sat in the centre, the rest went to what appeared to be random chairs. Without further ado Strickland swivelled round and addressed by his first name the man who caught his eye, asking him what was going on in Malaysia. A few minutes later Strickland swivelled 45 degrees and fired out another request for information.
After a few of these meetings, the senior executive realized that nobody sat in the same chair twice apart from Strickland, that was. Positioning was indeed purely random. And all the men knew each other. Most were from a bunch called international officers. Many had actually lived together in an officers' mess in Hong Kong called Cloudlands.
"I might get a call from the head of Indonesia," says Andrew Dixon, HongkongBank's general manager for Asia (excluding Hong Kong and China). "He needs $20 million right away. I've known him for 30 years. I trust him. I know his strengths and weaknesses. So I can give an approval over the phone."
Welcome to the financial world's most idiosyncratic and powerful network: that of the international officer in common parlance the IO. Until 1989 it excluded women. And until about the same date young recruits to it couldn't marry without the chairman's permission a period between the ages of 22 and 30 referred to in bygone days as being "on ice". IOs' service was traditionally measured from when they "went east" and disembarked in Asia, not when they first joined the bank in London. IOs there are currently 367 of them among the group's 17,000 executives are mostly white British males who share the same values. Brevity and cost-consciousness figure highly.
This is evident at board meetings. When one finishes, its duration is measured and its cost calculated on the basis of the salaries of those present and other overheads. The figure is read out and put in the minutes. A meeting held last month cost HK$30,000 ($3,876).
Three business heads are asked to make presentations to the board. Strickland gets them in his office beforehand, lists the types of information he and the board members want, and gets out a stopwatch. The unit head has exactly 10 minutes, and is told to proceed on a dry run of what he intends to say. "It actually makes people realize time is precious," says Sir William Purves, the no-nonsense Scottish taipan of HSBC Holdings, the world's most profitable financial institution, the core of which is the Hongkong and Shanghai Banking Corporation HongkongBank for short.
To-the-point memo-writing is emphasized. Some outsiders find this hard to adapt to, others like Philip Gray, do not. The incoming executive chairman of James Capel, a part of the HSBC Group, wrote a memo which consisted of three lines: "In the interests of brevity, I agree with the memo dated x by y. I disagreed with point z on memo dated w..." A couple of hours later he received a telephone call from the HongkongBank chief executive, David Eldon, congratulating him on an excellent piece of memo-writing.
The IO culture of cost control, concision and mutual confidence has plainly worked. In the first half of 1996, HSBC Holdings made pre-tax profits of $3.5 billion, with a return on equity roughly comparable to Citibank's, but using only half the balance sheet leverage of the US bank. In the full year HSBC may break through the $6 billion mark, a first for any financial institution. But there are severe challenges ahead. It's not for nothing that Andrew Dixon expects some fundamental organizational changes. "We will have the luxury of the mess culture for [only another] 10 years," he muses, looking forward nostalgically.
In Hong Kong, which contributes 40% of group profits despite having only 6 million inhabitants, there is the handover to China this year to come to terms with. This involves the bank jettisoning the colonial past and bringing more Chinese into senior management. Then there is the need to expand business in Asia, learning from and seriously challenging Citibank's success. Perhaps most important is the assimilation of the values and organizational structures of HongkongBank into HSBC as a whole, a process that carries heavy risks.
Mandarins and matrices
HongkongBank still has to make its mind up about how much more like Citibank it wants to be. A recent move to functional reporting and matrix-style management is a step in that direction, overturning for the first time in the bank's history a system in which individual country heads members of the IO elite ran their turf with little or no interference from head office.
Senior figures in the bank don't like to use terms like matrix, less still admit that the bank's devotion to the all-powerful man on the spot is in any way being challenged. Michael Broadbent, HongkongBank's head of public affairs, says: "We're developing more of a matrix-style management but the country CEO still has primacy. If he's not happy about something, it won't happen. Why? Because it has held us in good stead."
The process is most advanced in the HongkongBank treasury, headed by Stuart Gulliver. Gulliver, of course an IO himself, knows full well the concerns of IOs on the ground. The central issue so far as he is concerned is who owns the local treasuries. His answer is frank: "I have a joint responsibility with the chief executive it's not a dotted line or some touchy-feely bullshit. We jointly own it."