HSBC faces thorny issues in hunt for new chairman

LONDON Wed Sep 8, 2010 11:20am EDT

An HSBC bank sign is seen outside a branch in central London August 2, 2010. REUTERS/Toby Melville

An HSBC bank sign is seen outside a branch in central London August 2, 2010.

Credit: Reuters/Toby Melville

LONDON (Reuters) - For a bank that prides itself on smooth successions, HSBC (HSBA.L) (0005.HK) is suddenly scrambling to pick its next chairman.

The frontrunners to succeed Stephen Green, set to become a British government minister in January, are said to be former Goldman Sachs (GS.N) banker and HSBC non-executive director John Thornton, 56, and current chief executive Michael Geoghegan, 56.

Both have a wealth of experience of China, Asia more broadly, and an inside track on the complex and far-reaching financial services giant.

HSBC's choice is complicated by it having to decide where the chairman will be based, past trouble with investors when it ignored best corporate governance and the sheer complexity of managing the world's third biggest bank.

The lender said its reach across 86 countries and diverse operations explained why it needed a full-time chairman with international banking experience.

Green, who will become Britain's trade and investment minister in January, announced his exit on Tuesday, earlier than expected and without a successor being named. The bank said it had started a search for a replacement.

Thornton spent 23 years at Goldman Sachs including spells as president and co-chief operating officer and was head of its London operations and chairman of the Asia business. He has been a non-executive director at HSBC since 2008.

Irish bookmaker Paddy Power makes Thornton the 5/4 favorite, with Geoghegan at 15/8.

Other candidates linked with the role include Simon Robertson, another non-executive; Vincent Cheng, chairman of HSBC Bank (China); Douglas Flint, finance director; Mervyn Davies, former boss of rival Standard Chartered (STAN.L); and Adair Turner, head of Britain's financial watchdog.

TOO SOON FOR GEOGHEGAN

HSBC has a history of promoting from within.

If Geoghegan was to step up -- and it is not clear he wants the position -- the favorite to succeed him as CEO is Stuart Gulliver, boss of the fast-growing investment bank arm for seven years and now also chairman for Europe, Middle East and Africa.

"The promotion of Michael Geoghegan and Stuart Gulliver to the respective roles of chairman and CEO seems to be 2-3 years too early, for both the individuals and for the execution of the renewed Asia focus," Oriel Securities analyst Mike Trippitt said.

The role has also shifted in recent years -- the chairman is now more ambassadorial and less involved in day-to-day operations than in the past when chairmen such as William Purves and John Bond clearly ran the show.

As Geoghegan said in a statement on Tuesday: "For HSBC it is business as usual; I continue to run the company."

When Green, then CEO, was promoted five years ago, it angered some investors.

PIRC, an advisory service for investors on corporate governance issues, said on Wednesday it is "very difficult for a former CEO to be objective about strategic company decisions when they have previously been responsible for that strategy."

PIRC said it listened to exceptions but generally did not support such a move, and it opposed Green's election as chairman when it was voted on in May 2006.

Before that vote Brian Moffat, then head of the bank's nomination committee, wrote to shareholders to explain why the bank had not complied with best corporate practice, citing HSBC's size, geographical spread and complexity.

"HSBC is a remarkable organization with a distinctive character and culture. The business is managed through international teamwork and HSBC believes this is best achieved by management continuity and amongst colleagues who have similar values," Moffat said.

(Editing by Dan Lalor and David Cowell)

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