The culture that powers HongkongBank

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"Much may be made of a Scotchman if he be caught young." So Dr Johnson had it. In the case of the Hongkong and Shanghai Banking Corporation, an institution founded by Scots and still governed by one, it has grown to be the world's most profitable financial group. The unique international officer culture that has driven it – young men caught young, trained up, messed together, posted, reposted, in the bank for life and rarely back in the UK – will have to change, but it's bending and adapting rather than breaking. Steven Irvine reports on its fitness for the 21st century.

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IN ADDITION        


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 several challenges ahead. It's not for nothing that Andrew Dixon expects some fundamental or 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 the 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 with some touchy-feely bullshit. We jointly own it.” 

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David Eldon, HongkongBank

"This policy, he continues, has been laid down by Bond [HSBC Holdings’ chief executive] and Eldon [HongkongBank chief executive]. Technology and the world is changing. The country as an isolated concept is being threatened." 

Many banking analysts agree. They also wonder whether the IO's traditional mobility is an outmoded approach. Typically an IO, whether at junior or senior level, will transfer internationally after three years. This practice, as well as producing regional generalists, was reckoned to be a force against fraud. Today this is less of a concern than the fracturing of local relationships that occurs when a new man is moved in and the old man is posted elsewhere. 

Purposeful mobility has been the making of the group so far. Founded in 1865 on "sound Scottish banking principles", HongkongBank financed the growth of Hong Kong before spreading across Asia. It has since assembled a network of banks elsewhere. By the time it acquired UK retail bank Midland Bank in 1992 and adopted a London-based holding company structure, HSBC Holdings had become a global institution with 105,000 employees and operations in 72 countries. 

HongkongBank may be just one part of a complex federation, but it remains culturally dominant. HSBC Holdings' headquarters is in a former Midland Bank building in London, but its heart remains on Queen's Road, Hong Kong, where two bronze lions, Stitt and Stephen, imperiously guard the bank's values. 

The upper layer of management has been at "the bank'' almost as long as Stitt and Stephen. Group chairman Purves joined in 1955, group chief executive John Bond went east in 1964 and HongkongBank chief executive Eldon and his senior managers all joined in the 1960s. 

Central to the bank's strategy are the IOs, the inner core of managers. Their turnover rate is extremely low – 5% year on year, half of which is accounted for by retirement, which is offered at the age of 53. "It is not a terribly poetic phrase," says Chris Langley, HongkongBank's head of Hong Kong and China, who came east in 1966, "but the IOs are the HongkongBank's glue." When the group doubled its head count in 1992 by acquiring Midland it was two years before it was recognized that an IO needed to be put in charge. Keith Whitson, who came east in 1965, was made chief executive. The chief operating officer of Marine Midland in the US is also an IO, as is the deputy chairman (who acts as chief executive) of the British Bank of the Middle East. 

The HongkongBank ideal 

What makes an ideal HongkongBanker? Purves, known internally as Willie, has all the traits say insiders. He is a HongkongBank man through and through – he always wears a tie embossed with the bank's emblem, based on a St Andrew's cross. The 65-year-old Kelso-born Scotsman is remarkable for his attention to detail and the way he bypasses bureaucracy. He answers his own phone. He sends back memos with the English corrected. And if you're boring him unforgivably with waffle and jargon, he's likely to interrupt you and say: "Where's the real meat here?" 

Purves started his working life as a tea boy at the Royal Bank of Scotland, before winning the DSO for courage under fire in the Korean War, the first British national serviceman to wear the medal. Starting his career at HongkongBank in Hamburg, he managed six branches before becoming chairman Sir Michael Sandberg's heir apparent in 1986, succeeding him in 1987. The Sandberg years were perhaps marked by uncharacteristic excess but Purves took the bank back to its Scottish roots. As the adage goes, that means short arms and deep pockets – and cautious conservatism. 

Straightaway he swapped the bank's Rolls-Royce for a Jaguar and sold off Sandberg's residence, aptly named Sky High. A lavish mansion at the top of Hong Kong's Peak, with no dining room because Sandberg disliked entertaining at home, it recently changed hands for £30 million ($48 million). 

"Sir William treats himself so modestly," says Vincent Cheng, the only Hong Kong Chinese staff member on HongkongBank's board. "Look at what he gets compared to heads of US corporates. He is a fine example of how a HongkongBank executive should behave." 

Purves, in spite of the group's huge profits, fails to make its top-20 earners' list – a fate reserved for the investment bankers. He even took a pay cut to around £600,000, when he moved from Hong Kong to London. His approach to pay is described by one senior executive as "Calvinistic". 

Costs are treated with similar rigour and as with everything about Purves this permeates the organization. "He came to a lunch hosted by the Hong Kong Monetary Authority,” recalls one executive. "We were talking about Eurotunnel and he said that he had used it and that first class was excellent because the wine and even champagne were included in the price. Someone said that's good, how much is it? Willie said he didn't know, which surprised everyone, because it didn't sound like him.” Purves then admitted to having bought an economy ticket – the price of which he certainly knew – having got his wife to upgrade it by way of a coupon offer in the Financial Times

"Oh my God," the bank executive recalls thinking, "this will become standard. Use coupons whenever you can! This is an indication of how he spends the bank's money.” 

Another time Purves is said to have given HK$10 to HongkongBank's chief financial officer, Simon Penney, to photocopy a recipe for Lady Purves. Perhaps it was an object lesson for Penney, recently seconded from Midland, in what cost control really meant at HongkongBank. 

Only one, perhaps apocryphal, story is told of a young IO besting Willie. After noticing a young recruit had nipped out for a while Purves asked him where he'd been. "To the barber, sir." "What, in office hours?" said Purves. "But my hair grows in office hours, sir," the young man replied. "Some of it does,” says Purves. "I didn't have it all cut, sir." 

Is the next generation of international officers being crafted in Purves's image? ''A HongkongBanker has definitely got to be a team player," says Eldon, another Scot. "It is also essential to be an ambassador." 

He does not mean this literally, though many of his colleagues have OBEs (Orders of the British Empire) such as Dixon, Langley, and most recently the CEO of Taiwan. Langley has also been honoured in Malaysia, and is the only foreign banker to have been awarded a dato-ship (a chieftaincy title), which he received in 1995 on the birthday of the sultan of Negri Sembilan. 

Go east, young man 

In the old days, the bank's London messenger would routinely answer the enquiry from passers-by: “Are you a bank?" with the dignified reply: "No, sir. This is an institution for learning young gentlemen to become bank clerks." In those days the young gentlemen were trained for 15 years, and after this apprenticeship became "adults" – a term still used today, though young trainees are now called "jodpurs" (an acronym derived from junior officer development programme) and the apprenticeship takes only five years. 

The system used to prescribe that service started the day an IO stepped off the P&O steamer in Hong Kong or at his first eastern posting. At this point the IO would be entered in the "blue book", a large tome listing officers' seniority. 

Even in the 1980s the blue book was still talked of. One senior IO was said to have been particularly miffed when a colleague, six months his junior according to the blue book, was promoted first. 

There are many IO cultural traditions. For example, a clean-desk policy means staff are discouraged from leaving the office while there's still paperwork on the desk. Traditionally loans are approved in 24 hours. The staff manual still refers to annual "leave" and there are still those who talk in terms of a "tour" – the traditional posting being three years. It used to be the case that memos were addressed "My dear Bloggs" and signed off, "Yours very truly" – but only a very limited number cling to this practice. 

When an IO signs up, he does so in the knowledge that he may never work in his home country – traditionally the UK. A powerful network is created, and IOs have tended to get promoted more quickly than non-IOs. Their personal tax is paid by the bank, a process that levels tax regimes and prevents certain postings from appearing more lucrative than others. And hardly anyone leaves. 

An IO can be asked to go anywhere at any time – even relocate overnight. Incoming Canadian head of group human resources Steve Tait recalls his first morning in the job. “I had to place someone in Azerbaijan. I said, ‘How in the world do you get someone to move to Azerbaijan?' I was told you just pick up the phone and tell them they're going." 

Tait pulls a typical IO off the computer. Born in 1957, Mr X joined the bank in 1977. After training in Hong Kong he went to the United Arab Emirates in cash remittances, then did bills in Yemen, returned to Hong Kong in an import-export role, entered the group head office, had a brief attachment in New York, went back to Hong Kong as a credit manager, was made a branch manager in Indonesia, returned to Hong Kong to do asset recovery and is still in Hong Kong in shipping finance. Tait describes him as "tracking well in his career". 

The title head of human resources is a relatively recent innovation. There used to be a staff manager, and the joke in Hong Kong was that he decided an IO's next posting by the throw of a dart. Nowadays, an eight-year-old automatic planning database matches jobs and individuals a little more methodically. When there's a vacancy, three or four IOs will be selected by the system, which seems to boast a sense of humour. The recent promotion of Peter Kirrage as deputy managing director of Saudi British Bank in Riyadh was greeted among fellow IOs in Hong Kong with wry grins. Kirrage was reckoned to be HongkongBank's resident wine expert. 

An IO called the international resourcing manager (IRM) operates the database and reports to Tait. Because of the wealth of personal information this IO has access to, it is a powerful position. The IRM, who serves the standard three years, is selected in consultation with Purves himself. 

In past times the young gentlemen of the HongkongBank were housed in the romantically named Cloudlands, an IOs' "mess". There the bank's future leaders would get to know each other's strengths and weaknesses, and lifelong friendships were born. As were military-style japes – one former Cloudlander remembers how an IO's car was spirited into the building and left under the stairs in the middle of the night, ready for its owner to find it the next morning. 

"It was rather like a military mess," says Dixon. "The environment aimed to create an esprit de corps. It was a process. You could be sitting down at a meal with a bachelor of eight years' service. It was a predetermined policy for giving advice, and ensuring information flow.” 

That sort of environment bred resourceful characters. The present head of human resources at HongkongBank is David Hodgkinson, who as manager in the Philippines dealt with a year-long strike in Manila in 1993. What started out with rather light-hearted non-cooperation – tellers wearing Citibank T-shirts, for example – eventually turned nasty when local staff blockaded the bank two days before Christmas and refused to allow food in. At 6.30pm on Christmas Eve, Hodgkinson chartered a helicopter and airlifted himself and the captive managers off the roof. "This sent a strong signal that we were in control of our destiny," he says. 

In those days, when Cloudlands was a powerful tool for building the next generation of leaders, it was common for each IO to have a mess-boy. On one occasion a young IO was sure his mess-boy was pinching his sherry. Colleagues asked how he knew, and he replied that he had marked the level on the bottle and it continued to go down, even after he refilled it with urine. Just prior to leaving Cloudlands, he gave the boy a dressing down and said he knew he'd been pinching his sherry. 

"I marked the bottle, and I know you've been taking it." The boy denied the accusation, and finally explained: "The only time I take your sherry, sir, is when I want to flavour your soup." 

Today Cloudlands is a building site. A residential complex is being constructed in its stead that will house senior bank employees. It will incorporate a large number of family flats, seven town houses, two four-bedroom houses and a 25-metre swimming pool. And the training of the bank's young cadre of IOs has moved from the lush heights of Hong Kong to a sometimes chilly English manor house in St Albans called Bricket Wood. 

HongkongBank IOs are no longer trained separately, being mixed in with resident officers or ROs. An RO can come from any part of the disparate HSBC Group. Last year the nine-week executive training course included two Armenians. The emphasis is on group values. The Bricket Wood residential blocks are called Griffin (after Midland's logo) and Wayfoong – HongkongBank's Chinese name, which means "abundance of remittances" or "the focus of wealth". 

"There was a group that started on January 1," says Ray Campsie, head of group training. "The first thing I said to them was when was the last time they had expected to live, laugh, drink, study and work with people from nine countries." The HSBC Group may be cost-conscious but it views training as an investment. Each trainee's nine week course costs about £15,000. 

Fewer men, less rugger 

The man directly in charge of training the executives, Tony Turner, is an IO. Unusually, he was given the option of turning down this three-year posting. Campsie had no intention of bringing an IO "kicking and screaming from the field" to a job charged with turning 250 trainees a year into the group's glue of tomorrow. 

Turner was one of Cloudlands' last occupants. He recalls its last mess Christmas party in 1983. Senior bank executives were there, and the 20 or so occupants gave the old building its last rites in fitting fashion. They hired 30 Gurkhas from the Hong Kong defence force to play the bagpipes. 

The macho IO culture is undergoing a change on all fronts. The bank's leaders of tomorrow are less likely to be so British, so male – last year half the recruits were women – or so keen on rugby football. 

Generally young men who liked rugby, and came straight out of good schools or the army, were in with a good chance. Up until the early '80s – the 1980s – it was even a source of pride that none of the senior management had been to university. Which is not to say that senior managers have not made up for it since. Dixon was later sent by the bank to Harvard Business School, while Eldon and Langley were subsequently sent to the MIT's Sloan School. 

HongkongBank still has a rugby team; and there's still an annual grudge match against Swires, the British hong (trading house). The bank usually loses. The bank will end its long association with the Hongkong Sevens rugby tournament in 1998. More heavily promoted is Trailwalker, a 100-mile trek across Hong Kong's New Territories. Last year the bank entered 24 teams. 

The present cadre of IOs is drawn approximately 50/50 directly from British universities and from within the 105,000-strong HSBC Group. The latter recruitment path involves executives of operating companies being asked if they have anyone of IO calibre they wish to put forward. Between 12 and 15 IOs are recruited each year, using such modern methods as psychometric tests. The aim is to find those who display traditional IO virtues: leadership foremost, closely followed by "emotional stability" and "a hard-headed concern for the bottom line". 

Apart from a fair share of places for women, an effort has been made to "internationalize" the IO cadre. Of the current 367 IOs, 54 are non-British. Change is not set to be dramatic. In the past five years 40 of the 61 recruits were British. New IOs include two Malaysians, five Indians, five Canadians and one Hong Kong Chinese as well as seven other nationalities. 

“The bank is looking to groom talent from around the globe to head up local franchises," says David Koh, a 30-year-old Malaysian IO based in Hong Kong. So far, though, unlike Citibank, which has a profusion of Asians running Asia – Thailand by a Pakistani, Malaysia by an Indian – HongkongBank's 17 Asian country heads are distinctly unlocal. 

Koh is a former RO who was trained at Bricket Wood. "I got lucky – there was an opportunity to become an IO," he says. US-educated, he works in a department with six other IOs, all British, and is due to get a new posting in June. All he knows is that it won't be in Hong Kong. "I won't say my wife's looking forward to it," he says, "but she accepts it." 

Koh, wearing a worsted silk tie and cloud-and-moon cufflinks, represents the next generation of IO. "As an IO you are more aware of the group as a whole," he says. "You know what sorts of jobs are out there, at what grades – what jobs are coming up and when." He pulls out a printed list of all the IOs with their location and telephone numbers. It is regularly updated and includes details of new recruits and those about to retire. 

Those still to join the list were enduring snowy weather in Bricket Wood when Euromoney visited but Turner's 15 trainees, mostly Asians, were still outdoors on group-building exercises. Out in the snow, the group was split in two. One was trying to ford a ditch with only a plank and a rope swing, the other was trying to get over what was supposed to be an electric fence with the aid of an oil can. Turner rubbed his frozen hands together and spoke in guttural Arabic to the only Saudi in the group: "I bet he's feeling the cold." 

Will the networks woven during nine weeks together at Bricket Wood last the test of time like the friendships made at Cloudlands? 

The IO network gives HongkongBank short lines of communication, and a culture built around powerful individuals – there are no credit committees. Perhaps uniquely the network has all the associated benefits of a small bureaucracy within a big group. Dixon concedes that it will be a great loss if his successors can't give approvals for large sums down the phone as he can, thanks to the Cloudlands mess culture he and his colleagues were brought up on. He says the "proof will be in the pudding" whether the new training methods keep the lines of communication so short. 

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Bricket Wood: a Cloudlands home from home?

Gulliver's travails 

Being an IO remains a source of great pride. HongkongBank treasurer Gulliver is an unusual example. He was recruited in 1980, but for 14 of his 16 years' service he has specialized in the treasury area. Normally an IO is trained as a general banker and actively prevented from specializing, but the bank wanted someone of the corporate management cadre in the capital markets division. It's perhaps a sign of the system's ability to unselfconsciously adapt to change. 

"I’m an IO," says Gulliver, "not an RO." Is it important being an IO? "It's not something I would surrender lightly" is Gulliver's revealing answer. (That's not to say that subtle gradations aren't chewed over in jest. Head of group training Campsie remembers that when he was made an IO, one of the IOs working at Bricket Wood said Campsie was really a QIO, or quasi-IO, whereas he was an RIO, or real IO.) 

Gulliver is at the vanguard of change, and reckons that being an IO has helped him, for example, in getting the corporate bank to set up a capital markets division and bring capital markets business to HSBC Markets. "We trained up those account officers, and they are now salespeople for the dealing room," he says. 

Gulliver's perspective on being an IO can be put tersely. There is, he says, "very low bullshit, very little politics." There is also the loyalty thing. 

The challenge is to maintain all that is good about the IO culture in a new environment. Its defining quality, mobility, is still unquestioned. But the HSBC group's human resources department in London is wondering, for example, how the culture will deal with maternity leave, an issue it knows it will have to face up to as the average age of its female IOs reaches the late twenties. 

New-style managers are also being drafted into HongkongBank in an effort to go toe-to-toe with Citibank. Eric Tai, the newly created head of personal banking development, has been with the bank for only three and a half years. His task is to expand the personal banking franchise in Asia, to meet a target of raising 30% of the HSBC group's revenue from non-Hong Kong Asia by 2000 – it’s 17% at the moment. A former Citibank, Chase and ANZ employee, he says with a smile that he will be with the bank "for the immediate future". He was hired for his marketing skills – the bank recognizes this is an area where its management culture sorely trails Citibank's. "The target over the next five years is to increase our business in the hundreds of per cent," says Tai, who has an inflatable banker in the corner of his room which he puts in his chair whenever he's travelling. 

Wu's seal of approval 

Of course HongkongBank already has satisfied and highly influential customers. With string music coming from two large speakers at the back of his office, Gordon Wu, Hong Kong entrepreneur and head of infrastructure conglomerate Hopewell Holdings is glowing in his praises. "HongkongBank bends over backwards to try and stay with you," he says. "The people change every two or three years but the corporate culture stays the same." Wu has had 36 years' experience with the bank – "and no-one knows the bank better than me." 

Wu's company, Hopewell, derived its name from "let's hope everything goes well", raised its initial HK$15 million capital from Hongkong Bank in 1969. The loan officer was William Purves. 

Things didn't always go well, Wu recalls: "In 1973 the stock market crashed. My borrowing from the bank was bigger than the share value of the shares I had pledged. I did a summary of my personal situation and went to see the chief accountant, a very nice gentleman called John Boyer. He said: 'Look you've got a fine company, the fundamentals are there, we'll stick with you.' I remember walking to the door with him. He smiled at me and said 'We don't have any alternative anyway.'" 

When HongkongBank moved its domicile to London after the Midland acquisition, Wu was one of those who explained to the Beijing authorities that the move was not designed to make China lose face. As one of the original 44 Hong Kong advisers to Beijing, Wu went to see an ex-governor of the People's Bank of China, then working at the Hong Kong and Macau affairs office. "I don't know much about politics," Wu told him, "but I know one thing. The bank's move to London should not be misunderstood." 

He explained how the Bank for International Settlements would categorize Hong Kong as a third-world country, and how this would affect the bank's debt-raising capability. "The bank has provided more expertise and capital for China than any other foreign bank," Wu continued. "This move is to try and make the bank more useful you." 

The HongkongBank is keen to get past 1997 without putting an ex-colonial foot wrong. The bank's 21st century exo-skeleton on Queen's Road hardly symbolizes an institution clinging to its colonial past. It does, however, hang on to the best of the cost-saving mentality: built-in cranes can undertake repairs without calling on outside plant, and water to flush the toilets is pumped from the harbour through a private pipeline. 

New order of Chinese 

"Chinesification" has been under way for several years inside the bank's HQ. But early efforts did not go well. In the mid-1980s Lydia Koo was made manager of Mongkok branch, the second most important in Hong Kong. But she left the bank after less than a year in the job. 

More recently there has been a spate of promotions among promising Hong Kong Chinese. EC Lau is head of personal banking. RC Or is head of corporate and institutional banking. The chief executive for China is Eddie Wang. The head of Shanghai is Jethro Lau. Vincent Cheng, a former chief economist and one of China's Hong Kong affairs advisers, is the first Hong Kong Chinese executive director. 

He recalls his reaction when former HongkongBank chairman John Gray told him in November 1995 he was putting his name forward to join the board. "I was pleasantly surprised. In fact, I was a bit shocked. I said: 'Hang on, have you thought this through. Are you sure?’” 

It was not just modesty. The composition of the HongkongBank's board says a lot about Hong Kong. The colony's biggest names have traditionally been on the board. The new chief executive of Hong Kong, CH Tung, was a member until his election, whereupon he resigned. And the British hongs were always represented. However, the so-called noble house, Jardine Matheson – which has so successfully antagonized China in the last few years – recently resigned its seat. 

"We don't promote people based on their ethnicity," says Cheng, a fluent Mandarin speaker in Cantonese-speaking Hong Kong. "That would be a wrong policy. We are an international institution with shareholders from many countries. If you promote a Chinese because he is Chinese what will the Brits say?" 

Cheng, who is widely tipped to be HongkongBank's next chief executive, is not an international officer. "As a local officer I have the right not to go somewhere if the bank asks. But I probably would. I think we owe the bank our loyalty and are obliged to do the job where it is needed." 

But, he adds dryly: "I suppose you are not willing to die for the bank. That is too much to ask.” 


What is HSBC? 

The Hong Kong and Shanghai Banking Corporation (HongkongBank) is only a part of the London-based financial group HSBC Holdings. It has total assets of $368 billion and a return on average shareholder funds of 22.6%, making it one of the world's biggest financial groups. It is also the most profitable. The group is listed in London and also Hong Kong, where it constitutes 17% of the Hang Seng index. Over the past 25 years there has been 22% compound annual growth in the share price. 

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HongkongBank: well placed for profit

HongkongBank, as the table shows, is the single-biggest contributor to the group, although the largest contributor to the staff head count is the UK's Midland Bank, which was acquired in 1992. After the Midland acquisition the group moved its domicile from Hong Kong to London. The overall approach is a federal one. Each subsidiary has a large amount of autonomy – for example, its own board and chief executive. The group's chairman, Sir William Purves, was previously HongkongBank's chairman. 

The group's presence in the US – HSBC Americas – is principally through Marine Midland, a regional bank in New York State, which Midland acquired in 1980, but which is still not a major contributor to profit. Its presence in the Middle East is principally through British Bank of the Middle East, which it bought in 1959, although HSBC Holdings also bought 40% of Saudi British Bank in 1982. 

The group is also involved in investment banking through HSBC Markets, HSBC Investment Bank and James Capel. At the latest count there are 105,000 employees. In spite of its presence in 72 countries the group makes 56.6% of its profits in Asia. And Hong Kong remains the mainstay of profitability, providing 40% of group profits. The group has two subsidiaries in Hong Kong: the HongkongBank and Hang Seng Bank. The 61.51% controlling interest in Hang Seng was acquired in 1965 in a HK$50 million ($6.5 million) bank rescue – this investment has since gone up 150,000%. Together with the Bank of China, HongkongBank/Hang Seng have about 60% of the colony's deposits, leading some to describe the competitive environment as benign. 

Hong Kong remains a profitable location. Consumer loans are made at an average of 420 basis points above funding cost. And the average default rate on residential mortgages is a modest 0.2%. 

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An IO with a view 

Sir William Purves's view over the Thames is one of the finest in London. "I don't have time to look at it," says Purves gruffly, getting in a quick spot of work at his desk while he waits for the head of public affairs to arrive. In a room awash with naval landscapes, his thick Scots accent – which friends and colleagues invariably try to imitate – rings out: "If your question is, when do our short lines of communications cease to work, I'll tell you. The short line breaks when the chief executive or group chairman shuts his door. My door is always open – all day – unless there is a meeting, and any executive can come and pop his head through the door and say by the way... You don't find that in every organization." 

Purves, better known as Willie, joined the bank in 1954. "I can tell you exactly how many international staff there were – 255. I was number 255. In those days we published a blue book listing staff by seniority when they joined the bank. It was published in June 1955 and I was the last name on it." He looks slightly wistful: "255, and I can remember as a young man – I wasn't quite so young – I remember wondering after being in the bank six months, I wonder if I will ever get to the top." He ponders, as if considering the issue for the first time, wondering how John Gray, the retired chairman of HongkongBank would have ranked. ''I'm not sure if I would ever have been number one... Maybe I would." 

He refers with pride to the international officers – the IOs – the group's unique asset, but adds: "There's no way 300 international officers can run a bank like this and of course some of the more senior people are no longer IOs: the head of Marine Midland, for example, and head of the HongkongBank Canada. Neither is an IO." 

Pistol-packing Purves 

Purves went out to Hong Kong in 1955, starting at the chopping (document stamping) desk with a pistol at his side – "I never found out if it was loaded." Unexpectedly, he is prepared to reminisce. "In 1955 the P&O [liner] would dock on a Monday morning between 7.30 and 8am. You had the cheapest indoor cabin and you would get a knock on your door, and you would get onto an old riverboat that still exists, the Wayfoong, and sail across the harbour. Someone met you and took you to the office, and one of the boys from the mess was waiting and took your trunks away. You said how do you do to the divisional head and at 9.30 you were hard at work having got off the ship at 8.00. That's the type of discipline we encourage and expect.” 

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Sir William's door is always open

Purves has a reputation as a workaholic. How long is an average week? "Oh, I've never worked it out," he says, as if it would be a waste of time to do so. "I work as long as there is work to be done." He likes six hours' sleep, but five and a half will do, and luckily he can sleep on aeroplanes. He tries to get into the office for 8am but is sometimes a few minutes late thanks to London traffic. Traffic snarl-ups are a pet hate – according to one story he missed a wedding because he got stuck in a traffic jam, and he hasn't forgiven London's roads since. 

He obviously travels a lot, but is reluctant to use the words "first class". He admits that at his level he can travel first class if the flight is over six hours and he has to go straight into a meeting. But usually he finds business class fine. "You're not going to meet many businessmen in first class," he says. "And quite often business is achieved. I don't push it. I'm not going up to everyone I see and handing out my card. But there is business on the bank's books today that was the result of a conversation on an aeroplane." 

His subordinates talk about him a lot. "I suppose I'm a much more hands-on chairman than you would normally have, and that's probably because I used to be chief executive. But I'd be disappointed if many of my executives felt I was looking over their shoulder. It's fair to say I ask questions. Some would say I have a knack of finding an error or putting my finger on a soft spot. It’s not because I'm clever, I'm not. But if you’ve been doing this for 40-something years you start knowing what to look for. Yes I ask questions and they are uncomfortable questions. It's not a bad thing because it means they're doing their job properly and their homework, and are ready for the unexpected question. But I believe once you've appointed somebody you let them get on with their job." 

A few years ago a Myers Briggs psychometric test was carried out on the top 25 bank executives and produced an uncanny result – they had very similar personalities. "Oh I can't remember the detail. But I remember being present when the details were put on a screen. I think they were all the characteristics you would expect: cautious, conservative, some were entrepreneurial. I don’t think dull was used but sometimes that’s used to apply to bankers.” 

Why were the tests done? “We were introducing some of these tests in our recruiting and we felt it was quite inappropriate to introduce them if we hadn’t subjected ourselves to them." 

The new intake have a cocktail party. "Yes either myself or [group chief executive] John Bond attend. I give them some fatherly advice. I encourage them and tell them they’re executives and must learn not to be spoon-fed. They will go as a young officer into a department and will work with people who are far more experienced. If they have to ask one of the senior clerks what to do in the second week, then they're lost. Little tips like that, which," he adds gesticulating with both hands, "because they come from the group chairman, most of them will remember."

Daughterly advice 

There are women in the IO ranks now. The reason turns out to be simple. "When I became group chief executive, I guess my daughter said there's something wrong in your bank, dad, ladies can't become international officers. I said really, and she said that's wrong something should be done about it, so something was done about it." 

Purves has an abhorrence of decision-making by committee, and of consultants. "We don't have consultants sitting in on our meetings – decisions are taken by individuals, who have grown up within our organization, and are given authority. I don't think any of us want a load of waffle at meetings. 

“Now sometimes it's good to get advice from the outside," he notes. "But chances are the people working in the bank know more about your business and the business they want to address than a consultant. We don't believe in hiring consultants to come to conclusions we can come to in much less time ourselves." 

Purves is 65 and has been going to retire for three years. The favourite to succeed is Bond, although Keith Whitson has won plaudits for turning Midland around. And some say Whitson is more in Willie's image than Bond. 

“The board are of a mind and we believe... " Purves pauses. "Well, I am still fairly well known in Hong Kong," he continues, "and I have good contacts in China. It's a unique year in the history of Hong Kong and the HongkongBank, and the board asked me to at least stay over for a little bit longer than 1997. Otherwise I would retire."