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Tom Holland

The departure of HSBC Holdings chairman Stephen Green to a job with the British government offers the banking giant a perfect opportunity to drag its antiquated governance structure kicking and screaming into the 21st century.
It is now 18 years since the Cadbury Report on corporate governance called on British companies to appoint non-executive chairmen. The idea was that a company's chairman should stand back from day-to-day management and instead focus on overseeing the board and protecting the interests of shareholders.
Following a string of corporate scandals on both sides of the Atlantic, these days Cadbury's recommendations are widely accepted around the world as best practice.
But change has been slow to penetrate HSBC's boardroom. Traditionally, the chairman's office has been all-powerful, occupied by men of the stamp of Michael Sandberg, responsible for the bank's landmark building in Hong Kong, and Willie Purves,  who shifted HSBC's headquarters to London in the early 1990s when he bought Britain's ailing Midland Bank.
Today, alone among major British-based companies, the banking giant's chairman retains an executive role.
In the past few years, that role has increasingly been seen as anachronistic, and has become a lightning rod for criticism from aggrieved shareholders.
The concentration of power in the hands of former chairman John Bond was seen as a key factor in HSBC's disastrous 2003 decision to spend US$16 billion acquiring US subprime lender Household International; a decision that has since cost the bank a massive US$59 billion in cumulative write-offs.
That blunder has led to some erosion of the chairman's power within the company. Last year, HSBC announced that chief executive Michael Geoghegan  would assume partial responsibility for group strategy from chairman Stephen Green, who  had been chief executive at the time of the Household purchase.
Now Green's departure to Britain's House of Lords presents an ideal opportunity for the banking group to go the whole hog and appoint a non-executive chairman.
Traditionally, HSBC's chief executive would have been expected to move upstairs to the chairman's office. But HSBC insiders say Geoghegan, famous within the bank as a hands-on manager, would be highly unlikely to accept a diminished role as chairman, especially if that meant the  ambitious head of HSBC's investment bank Stuart Gulliver stepping into his shoes as chief executive.
As a result, HSBC looks set to appoint a non-executive chairman for the first time in its history, finally implementing the separation of offices, which has been generally accepted as corporate best practice for the best part of the past 20 years.
Front runners for the job are non-executive directors John Thornton and Simon Robertson. Thornton, just 56 years old and an American to boot, would be a radical departure from HSBC's history as a clubby British colonial bank. But as a former chairman of Goldman Sachs Asia and a professor at Tsinghua University in Beijing, his appointment would confirm the bank's new emphasis on developing its Asian businesses.
At a venerable 69, Robertson, currently chairman of Rolls-Royce and another former investment banker, would be a more conventional choice. Alternatively, City of London veteran Brian Williamson would be a safe pair of hands to steer HSBC through the choppy regulatory waters which lie ahead.
Either way, Green's departure is bound to lead to renewed speculation that HSBC may be planning to move its group headquarters away from London.
That speculation was given fresh impetus last week when HSBC's head of investment banking Stuart Gulliver said the bank's bosses might quit Britain if a current regulatory review forces banks to split their retail operations from their investment banking businesses.
Such speculation is hardly new. But recent talk that HSBC might switch its headquarters to Australia is absurd. Moving from Britain, where the standard rate of corporate tax is set to fall to 24 per cent by 2014, to Australia, where it is 30 per cent, would cost HSBC's shareholders more than US$1 billion a year.
In contrast, returning the group headquarters to Hong Kong, where the chief executive is already based and where profit taxes are just 16.5 per cent, would save them a fortune.
But tax rates are not the only consideration. So far, HSBC has insisted it wants to remain in London, with Britain's Financial Services  Authority and the Bank of England as the group's lead regulators. And although a move to Hong Kong is possible in theory, it is extremely doubtful whether the Hong Kong Monetary Authority  has either the capacity or the desire to take over as main international regulator for one of the world's biggest and most complex financial groups.
So although HSBC's governance may finally be entering the 21st century, it won't be returning to its 19th-century birthplace just yet.



Green's departure means HSBC can finally enter the 21st century