Keith Mullin

Now and again, something emerges into the sphere of financial news that causes astonishment because of the nature of the news at the same time as it causes amazement that it could be leaked in such lurid detail.

I’m referring to the odd sequence of events surrounding the appointment of former KPMG man Brendon Nelson as HSBC’s permanent group chairman ( who, for transparency, I don’t know and over whom I cast no aspersions ). It’s more the process that’s come under scrutiny than Nelson’s inherent skillset. HSBC has previous form in this area, having experienced disarray regarding chair and CEO appointments over the past quarter-century.

Nelson had only been appointed interim chairman on October 1st, a little over four weeks before being formally appointed to replace outgoing chair Mark Tucker on December 3rd. What was odd about the appointment is that reports suggested Nelson had initially been passed over for the role in favour of external candidates.

If having sensitive internal board deliberations leaked and chronicled in the media is bad enough, particularly when it suggests discord, disharmony and disarray; the Laurel and Hardy-esque nature of the internal narrative it shone a light on portrayed a dysfunctional, divided board with a tentative grasp of what it wanted and whose left hand didn’t know what its right hand was doing.

More seriously, a board whose vacillation made group CEO Georges Elhedery look truly silly at the FT Global Banking Conference, when he announced the day before Nelson’s appointment that Nelson did not want to serve a full term. Leaving the CEO in the dark and letting him say that Nelson had ruled himself out of the running is unforgivable.

That HSBC is the world’s largest non-US global systemically important bank, Europe’s largest bank but with half of its customer accounts by value in Hong Kong, mainland China and elsewhere in Asia – along with a fractious Chinese minority shareholder to boot – means that the HSBC story is a global story and an Asia story. In that context, the disorganized appointment process aside, giving the job to someone with no dedicated China experience is, let’s just say, a big call. As is, incidentally, appointing a 76-year-old to a tough, deeply political role with a hellish travel schedule and a poor compensation package relative to other G-SIB glitterati.

HSBC’s website lays out the aims of its board as promoting long-term success, delivering sustainable value to shareholders, and promoting a culture of openness and debate. Maybe doing it discretely and carefully should be added to that last one.

The bank said the decision to appoint Nelson came after a “robust process” that considered both internal and external candidates. That could be construed as a thinly veiled reference to a lack of board agreement about the right candidate, something the resolute leaks clearly portrayed.

Board competence under the spotlight

Succession planning is a critical board function. Outgoing chairman Mark Tucker’s May decision to leave by the end of 2025 may have been a shock internally, but the very fact that it took until October 1st to appoint Nelson even an interim chairman smacks of indecision by a board that was getting panicky because it was running out of time ( it was … ). The very fact that Tucker’s earlier-than-expected departure caused a sharp intake of breath at all is another factor pointing to poor board performance, as scanning for suitable senior candidates is a standard, ongoing board responsibility.

And let’s face it: the fact that they had whittled the headhunters’ reported initial list of 100 candidates down to former UK finance minister George Osborne and Goldman Sachs’s Asia ex-Japan president Kevin Sneader before confirming Nelson, having screened or spoken to a motley group of candidates ( none of whom were obvious shoe-ins ), speaks volumes about the lack of board unanimity. The ragged process has not been lost on UK regulators, who will no doubt have been horrified at its amateur-hour nature.

The chaotic process won’t necessarily or unduly render CEO Elhedery’s stated target of being a top-five player in HSBC’s chosen areas – including M&A and equity capital markets in the Middle East and Asia – any more difficult. But by the same token, having a board that is unable to organize the proverbial you-know-what in a brewery won’t make it any easier.

Elhedery has already said he would need to be ruthless to achieve his goals for the bank. Talking of being ruthless, I’d have loved to have been a fly on the wall during discussions the CEO will surely have had with members of the board the day Nelson was appointed, following his unintended faux pas.

Will Nelson serve a full term, or was his appointment just a stopgap to buy the board more time before a more permanent chair can be found? Like many others, I have my suspicions, but I’ll wait for the next batch of leaks to find out.