10 March 2007
'Living and Leading in Transparent Times'
Keynote Speech by Mr Vincent Cheng, Chairman
The Hongkong and Shanghai Banking Corporation Limited
'Ethical Leadership for the New Generation' Youth Summit
Baptist University, Hong Kong

Good afternoon Ladies and Gentlemen. Let me begin by thanking Moses for the invitation to speak at this conference on the importance of ethical leadership. I must say it is both a pleasure and an obligation. An obligation not because Moses is a good friend. Rather, an obligation because I believe it is important for one generation to pass its wisdom on to the next, whether the next generation wants to hear it or not!

Seriously, I think it is absolutely critical for business people like me - who have more summits behind than ahead - to spend time discussing key issues with people like you - the incoming generation of business leaders.

I also believe that there is no bigger issue facing companies than the issue of ethics. Simply put, it is difficult to open the business section of the newspaper these days without coming across examples of business people being accused of behaving badly. For example, executives in places like the United States being investigated for backdating stock options for their own personal gain. Another example is staff of multinationals in China being detained as part of a bribery crackdown.

Of course, movies like this one don't help the image of business either. I don't know how many of you have seen Casino Royale, the latest James Bond film. If you have, you will know that it features the famous British agent battling a banker. A banker who manages money for terrorists. Hardly the type of image banks strive for.

Against this backdrop of both facts and fiction, it is perhaps not surprising that big companies - including big banks - are often perceived to be guilty of inappropriate behaviour until proven innocent. Indeed, it almost seems that any time some business person somewhere does something good, the initial reaction is one of surprise. Even shock.

For example, not all that long ago I came across a column along these very lines. Let me read you some of it. "What is going on?" the column's author questioned. "Company executives and Wall Street analysts are actually doing the right thing. Even playing Mr Nice Guy," he noted. This particular columnist then went on to cite several examples of good corporate behaviour as if it had never happened before. And as if such good behavior is unlikely to ever happen again.

One example he cited was good behaviour by an analyst, an analyst at JPMorgan Chase. This analyst advised people to dump shares in HJ Heinz because he felt the ketchup and pasta maker was unlikely to succeed in fending off an upset shareholder. Why is this good behaviour? Because at that time, his company, JPMorgan, had been hired by the HJ Heinz to help deal with the angry shareholder.

He then went on to cite the good behaviour by a company. In this case, PepsiCo. Apparently, a secretary who worked for a Coca-Cola brand executive reportedly tried to sell stolen documents and a sample of a drink in development to rival PepsiCo. But Pepsi rejected the offer and informed Coca-Cola.

And finally the columnist cited good behaviour by the guru of all capitalists. Namely Warren Buffett, the world's second richest man. In particular, Warren Buffett's decision to give away billions of dollars. To hand some 85 per cent of his personal wealth over to charity.

This particular columnist went on to lament that such examples of good corporate behaviour do not necessarily constitute a trend. But they do perhaps, just perhaps, suggest that there is "a smidgen of brighter news" amidst all the corporate scandals.

Clearly, corporate ethics - or perhaps I should say a lack of corporate ethics - have become a hot topic in recent years. Events such as this Forum are evidence of the growing interest in this topic. What should also be clear, however, is that not all big companies are unethical. Likewise, not all CEOs are focused on making a quick buck with little regard to interests of customers, shareholders or employees.

Indeed, the vast majority of businesses and the people who run them do try to do the right thing. They try very hard to serve their customers. They try very hard to generate a reasonable return for their owners or shareholders. They try very hard to provide stable jobs for their employees. They try very hard to help the communities in which they operate. And the vast majority also try very hard to stay within the boundaries of the regulations under which they do business.

Consider HSBC. One of our goals is to make HSBC the world's best financial services brand. In other words, we want customers to think of HSBC as the best place to bank. We want governments and regulators to know us as an ethical organisation. We want people to see us as a great place to work. An organisation that is fair and respectful, progressive and responsive.

To achieve this goal, we continue to build on our name recognition through advertising and marketing initiatives. That said, we are fully aware however that our reputation is and will always be based on what we do and not on who we say we are.

Consequently, we abide by the spirit as well as the letter of local laws and regulations. We have offices in 82 countries and territories which means by definition we are guests in at least 81 and therefore must behave accordingly. We also take a completely apolitical stance. We do not see it as our job to act as international judges of different political or economic structures.

In terms of good corporate governance, we emphasise performance over conformance. We believe we can gain a competitive advantage by going beyond generally accepted corporate governance standards. And our efforts to be transparent, responsible and accountable to our shareholders have been recognised.

We also expect and demand the very highest standards from each employee. We demand commitment, loyalty, hard work and above all integrity. We operate according to a set of 'Key Business Values' and the number one point on this list calls for the highest personal standards of integrity at all levels.

Other values on our list include a commitment to truth and fair dealing. Putting the Group's interests ahead of the individual's. Being a fair and objective employer. Also using a merit approach to recruitment and selection and promotion. Delegating authority with accountability. And last but certainly not least, promoting good environmental practices and sustainable development.

When I started at HSBC in the 1970s, the Bank had a written set of standards - or Head Office Standing Instructions as they were officially called back then - which spelled out the basic principles by which we wished to conduct business worldwide. The topics covered included risk and reputation. There were clear rules covering assets, liabilities and profit and loss accounts. Staff issues, such as salaries, annual appraisals and conditions of service were also covered. It was mandatory for executives to read the instructions every year and to certify they were in compliance. Adherence to the manual was checked by Internal Audit on a regular basis.

Today, these rules and supporting guidelines have evolved into a Group Standards Manual. A document that any employee anywhere in the world can access at any time on our Group-wide intranet. And by the way, compliance with such principles remains mandatory wherever we operate.

The importance of codifying our standards in this way is obvious if you consider our growth. Twenty-five years ago, HSBC had some 42,000 employees. Today we have 312,000. Simple math confirms that many are relatively new to our organisation. Coming to HSBC through acquisitions and organic growth. Simple logic suggests that if this many people are going to share the same standards, then these standards have to be clearly articulated and readily available.

I am delighted to be able to say our efforts seem to be working. Or at least being recognised. In the annual ethical reputation rankings put out by a Geneva-based company called Covalence, HSBC was ranked as the best-performing bank overall. Out of more than 200 multinational corporations, we ranked sixth overall.

This is not to say HSBC is some sort of perfect organisation. It isn't. Indeed, like any organisation, we have problems. We encounter situations where employees make mistakes or have lapses. We also strive to address such issues as soon as they arise.

All of which brings me to a key point. A key point about the issue of leadership and ethics. It does not take an advanced degree to figure out that we all live in a world where some people are tempted to adjust their values to meet the pressures of the day. A world where effective leadership requires more, much more than technical expertise or managerial abilities.

Of course, providing leadership means different things to different people.

To some, leadership means recognising the need for change and communicating that need to the people in their organisations. As we all know, the speed at which such communication can happen has increased dramatically. Technology today allows leaders to reach more people in less time and at less of a cost. To others, leadership is something that can be accomplished by setting a good example and or by direct involvement. This style of leadership is less about words and more about attitudes and actions.

Meanwhile, some believe transparency is the key to effective leadership. In other words providing specific goals and tasks so people know what is expected of them and how they will be judged and rewarded. Such an approach also requires the appropriate delegation of authority as well as accountability.

Most would agree that one element which is central to the idea of ethical leadership is the issue of integrity. Or to put it another way: ensuring that the people realise there ain't no right way to do the wrong thing. Indeed, some universities are incorporating some interesting elements into their MBA programmes along these very lines.

For example, I have heard of future business leaders at some schools using a scared-straight approach. Taking their students to visit white-collar inmates in federal prisons. To hear firsthand from former high-level executives who are now sitting behind bars. Hear them tell their life stories and where they went wrong.

I have even heard of future business leaders at other schools being put through a mini-version of the Amazing Race Asia. Just like the popular television series, participants are divided into teams. And armed with basic supplies they must find their way from point A to B. Up mountains and down rivers. Past a variety of challenges and obstacles. But unlike the television show, they must do so while protecting a raw egg. The apparent goal is to reinforce class discussions on leadership, responsibility and the consequences of one's decisions.

Of course, a lack of understanding of what is and is not responsible behaviour is seldom the cause of ethical problems in corporations. As one observer noted: the fantasy seems to be that if up-and-coming business people just knew a little more about ethics, then they would know better than to falsify their reports so as to drive up the value of company stock. In other words, knowledge is not the issue, compliance is.

Then there are organisations which continue to use - for lack of a better term - the 'spray and pray' approach to ethical leadership. Such an approach usually involves hiring a consultant to come in and do some training sessions. In effect, spraying the company with a few principles. The organisation then spends its time hoping that any unethical habits will somehow disappear. Unfortunately this technique rarely works as integrity is an all-the-time requirement, not a once-in-a-while thing.

Personally speaking, I have served under a variety of different types of leaders at HSBC. In almost three decades at the Bank, I have worked with and for leaders who - in keeping with our organisation's Scottish roots - were extremely frugal. Very cost conscious in terms of day-to-day business activities. Always flying economy class for example. I have also served under individuals who were visionaries when it came to banking. And I have served under individuals who also devoted an enormous amount of their spare time to the community.

I can also honestly say that all of the leaders I have served under at HSBC led by example when it came to ethics. When it came to doing the right thing. Also when it came to not doing some things. Things which may have resulted in HSBC gaining profits but could have hurt our long-term reputation or our relationships with customers or governments.

Let me leave you with one final thought.

I have spent most of my time today talking about ethics in business. About how big companies in general are facing an increasing scepticism. About how HSBC is working to maintain high ethical standards within our organisation.

In other words, I have spent most of my time talking about a subject that may seem far removed from the concerns that many of you have as students.

In reality, however, the subject of ethics is something that is directly relevant to all segments of society. Indeed, students like you face ethical decisions each and every day. From something as serious as plagiarising someone else's work off the internet. To something as common as downloading a few songs from the Web for your personal listening pleasure. In fact, simply choosing where you buy a Casino Royale DVD like this one - either in a legitimate commercial outlet or off a hawker on the street - is, in reality, an ethical decision.

The thought I want to leave you with is straightforward. If you somehow think ethical dilemmas don't or won't apply to you, then you need to think again.