Annual Financial Report - 37 of 56

RNS Number : 6341S

HSBC Holdings PLC

18 March 2016

 

Corporate governance codes

HSBC is committed to high standards of corporate governance.

During 2015, HSBC complied with the applicable code provisions of: (i) the UK Corporate Governance Code issued by the Financial Reporting Council in September 2014; and (ii) the Hong Kong Corporate Governance Code set out in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The UK Corporate Governance Code is available at www.frc.org.uk and the Hong Kong Corporate Governance Code is available at www.hkex.com.hk.¹ 

The Board has adopted a dealing code for transactions in HSBC Group securities by Directors (Code for Dealing in HSBC Group Securities). This code of conduct meets the requirements of the FCA Listing Rules and the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited, save that The Stock Exchange of Hong Kong Limited has granted waivers from strict compliance with the Rules which take into account accepted practices in the UK, particularly in respect of employee share plans. Following specific enquiry, each Director has confirmed that he or she has complied with the code of conduct throughout the year. All Directors are routinely reminded of their obligations under the Code for Dealing in HSBC Group securities.

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1   The Group Risk Committee is responsible for the oversight of internal control (other than internal control over financial reporting) and risk management systems (Hong Kong Corporate Governance Code provision C.3.3 paragraphs (f), (g) and (h)). If there were no Group Risk Committee, these matters would be the responsibility of the Group Audit Committee.

Board of Directors

The Board of Directors of HSBC Holdings (the 'Board') aims to promote the long-term success of the Company and deliver sustainable value to its shareholders.

Led by the Group Chairman, the Board sets the strategy and risk appetite for the Group and approves capital and operating plans presented by management for the achievement of the strategic objectives. Implementation of the strategy is delegated to the Group Chief Executive.

Directors

The names and brief biographical details of the Directors are included on pages 249 to 254.

Executive Directors

The Group Chairman, Group Chief Executive, Group Finance Director and Group Chief Risk Officer are HSBC employees.

Non-executive Directors

Non-executive Directors are not HSBC employees and do not participate in the daily management of HSBC; they bring an independent perspective, constructively challenge and help develop proposals on strategy, scrutinise the performance of management in meeting agreed goals and objectives and monitor the Group's risk profile and the reporting of performance. The non-executive Directors bring a wide variety of experience from the public and private sectors, including the leadership of large complex multinational enterprises.

Non-executive Directors' terms of appointment

The Board has determined the minimum time commitment expected of non-executive Directors to be about 30 days per annum. Time devoted to the Company could be considerably more, particularly if serving on Board committees.

Non-executive Directors are appointed for an initial three-year term and, subject to re-election by shareholders at annual general meetings, are typically expected to serve two three-year terms. The Board may invite a director to serve additional periods. All Directors are subject to annual election by shareholders.

Letters setting out the terms of appointment of each of the non-executive Directors are available for inspection at the Company's registered office in London.

Group Chairman and Group Chief Executive

The roles of Group Chairman and Group Chief Executive are separate, with a clear division of responsibilities between the running of the Board and the executive responsibility for running HSBC's business. Descriptions of the roles and responsibilities of the Group Chairman and the Group Chief Executive are available at www.hsbc.com/about-hsbc/corporate-governance/board-committees. Their key responsibilities are set out below.

Key responsibilities

Group Chairman - Douglas Flint ·  Leads the Board and ensures its effectiveness ·  Develops relationships with governments, regulators and investors ·  Leads the Group's interactions on matters of public policy and regulatory reform with regard to the banking and financial services industry ·  Maintains corporate reputation and character ·  Undertakes performance management of the Group Chief Executive Group Chief Executive - Stuart Gulliver ·  Develops, and delivers performance against, business plans ·  Develops Group strategy, in agreement with the Group Chairman, for recommendation to the Board ·  Drives performance within strategic goals and commercial objectives agreed by the Board with support from the Group Management Board

 

Senior independent non‑executive Director and Deputy Chairman

Descriptions of the roles and responsibilities of the senior independent non-executive Director and Deputy Chairman are available at www.hsbc.com/about-hsbc/corporate-governance/board-committees. Their key responsibilities are set out below.

Key responsibilities

Senior Independent non-executive Director - Rachel Lomax ·  Acts as an intermediary for other non-executive Directors when necessary. ·  Leads the non-executive Directors in the oversight of the Group Chairman. Deputy Chairman - Sir Simon Robertson ·  Deputises for the Group Chairman at meetings of the Board or shareholders and supports the Group Chairman in his role.

Appointment, retirement and re-election of Directors

The Board may at any time appoint any person who is willing to act as a Director, either to fill a vacancy or as an addition to the existing Board. The total number of Directors shall not be less than five nor should it exceed 25. Newly-appointed Directors retire at the Annual General Meeting ('AGM') following appointment and shall be eligible for election. The Board may appoint any Director to hold any employment or executive office and may revoke or terminate any such appointment. Shareholders may, by ordinary resolution, appoint a person as a Director or remove any Director before the expiration of his or her period of office.  Under the UK Corporate Governance Code all of the Directors are subject to annual re-election by shareholders.

During the year Irene Lee and Pauline van der Meer Mohr were appointed to the Board. Additionally, Paul Walsh and Henri de Castries have been appointed to the Board with effect from 1 January 2016 and 1 March 2016 respectively. Further details on Paul Walsh and Henri de Castries skills and experience can be found in the biographies on pages 250 and 253.

Powers of the Board

The Board is responsible for overseeing the management of HSBC globally and, in so doing, may exercise its powers, subject to any relevant laws and regulations and to the Articles. The Board has adopted terms of reference which are available at www.hsbc.com/about-hsbc/leadership. The Board reviews its terms of reference annually.

In particular, the Board may exercise all the powers of the Company to borrow money and to mortgage or charge all or any part of the undertaking, property or assets (present or future) of HSBC Holdings and exercise any of the powers conferred on it by the Companies Act 2006 and/or by shareholders. The Board is able to delegate and confer on any executive Director any of its powers, authorities and discretions for such time and on such terms as it thinks fit. In addition, the Board may establish any local or divisional boards or agencies for managing the business of HSBC Holdings in any specified locality and delegate and confer on any local or divisional board, manager or agent so appointed any of its powers, authorities and discretions for such time and on such terms as it thinks fit. The Board may also appoint any person or persons to be an agent of HSBC Holdings and may delegate to any such person or persons any of its powers, authorities and discretions on such terms as it thinks fit.

The Board delegates the day-to-day management of HSBC Holdings to the Chief Executive Officer but reserves to itself approval of certain matters including operating plans, risk appetite and performance targets, procedures for monitoring and controlling operations, credit, market risk limits, acquisitions, disposals, investments, capital expenditure or realisation or creation of a new venture, specified senior appointments and any substantial change in balance sheet management policy.

Board meetings

Seven Board meetings and four strategy meetings were held in 2015. At least one Board meeting each year is held in a key strategic location outside the UK. During 2015, Board meetings were held in Hong Kong and mainland China.

The table below shows each Director's attendance at meetings of all Board and Committee meetings during 2015.

During 2015, the non-executive Directors and the senior independent Director met regularly without the executive Directors, including to appraise the Group Chairman's performance.

2015 Board and committee attendance

		AGM	Board	Group Audit Committee	Group Risk Committee	Group Remuneration Committee	Nomination Committee	Financial System Vulnerabilities Committee	Conduct & Values Committee	Philanthropic & Community Investment Oversight Committee
Number of meetings held		1	7	7	10	10	5	7	5	3
Group Chairman
Douglas Flint		1	7	-	-	-	-	-	-	-
Executive Directors
Stuart Gulliver		1	7	-	-	-	-	-	-	-
Iain Mackay		1	7	-	-	-	-	-	-	-
Marc Moses		1	7	-	-	-	-	-	-	-
Non-executive Directors
Phillip Ameen		1	7	7	-	-	-	-	-	-
Kathleen Casey		1	7	7	-	-	-	7	-	-
Safra Catz1		1	7	-	-	-	-	-	-	-
Laura Cha		1	7	-	-	-	4/5	-	4/5	3
Lord Evans of Weardale		1	7	-	-	-	-	7	5	3
Joachim Faber		1	7	-	10	-	-	-	-	-
Rona Fairhead		1	7	-	-	-	4/5	7	-	-
Sam Laidlaw		1	7	-	-	10	5	-	-	-
Irene Lee2		-	3/3	-	-	-	-	-	-	-
John Lipsky		1	7	-	10	10	5	-	-	-
Rachel Lomax3		1	7	7	10	-	2/2	-	5	-
Heidi Miller		1	7	-	10	-	-	-	3/5	-
Sir Simon Robertson5		1	7	-	-	10	3/3	2/2	-	-
Jonathan Symonds		1	7	7	-	-	-	-	5	-
Pauline van der Meer Mohr4		-	2/2	-	-	-	-	-	-	-

1   Resigned from the Board 31 December 2015.

2   Appointed to the Board 1 July 2015.

3   Appointed to the Nomination Committee 24 April 2015.

4   Appointed to the Board 1 September 2015.

5   Resigned from the Financial System Vulnerabilities Committee and the Nomination Committee 24 April 2015 .

Board balance and independence of Directors

The Board comprises a majority of independent non-executive Directors. At the conclusion of the 2016 AGM, the Board is expected to comprise 18 Directors (the Group Chairman, the executive Directors and 14 independent non‑executive Directors). The size of the Board is considered to be appropriate given the complexity and geographical spread of the business and the significant time demands placed on the Directors arising from the various Board committees that exist to underpin the Group's corporate governance framework.

The Nomination Committee regularly reviews the structure, size and composition of the Board (including skills, knowledge, experience, independence and diversity) and makes recommendations to the Board with regard to any changes.

The Board has adopted a policy on Board diversity which is consistent with the Group's strategic focus on ethnicity, age and gender diversity for the employee base. Further information on the Board diversity policy can be found on page 271.

The Board considers all of the non-executive Directors to be independent. When determining independence the Board considers that calculation of the length of service of a non-executive Director begins on the date of his or her election by shareholders following appointment as a Director of HSBC Holdings. Sam Laidlaw, has served on the Board for more than seven years and Rona Fairhead and Sir Simon Robertson have served on the Board for more than nine years and, in that respect only, do not meet the usual criteria for independence set out in the UK Corporate Governance Code and the Hong Kong Corporate Governance Code. The Board has determined Sam Laidlaw, Rona Fairhead and Simon Robertson to be independent in character and judgement, notwithstanding their length of service, taking into account their continuing level of constructive challenge of management and strong contribution to Board discussions. Rona Fairhead and Sir Simon Robertson will retire from the Board at the 2016 Annual General Meeting.

The Board has concluded that there are no relationships or circumstances which are likely to affect a non-executive Director's judgement and any relationships or circumstances which could appear to do so are not considered to be material.

In accordance with the Rules Governing the Listing of Securities on the Stock Exchange of Hong Kong Limited, each non-executive Director determined by the Board to be independent has provided an annual confirmation of his or her independence.

Information and support

The Board regularly reviews reports on performance against financial and other strategic objectives, business developments and investor and external relations. The chairmen of Board committees report to each meeting of the Board on the activities of the committees since the previous Board meeting. The Board receives regular reports and presentations on strategy and developments in the global businesses and principal geographical areas. Regular reports are also provided on the Group's risk appetite, top and emerging risks, risk management, credit exposures and the Group's loan portfolio, asset and liability management, liquidity, litigation, financial and regulatory compliance and reputational issues.

The Directors have free and open contact with management at all levels. When attending Board offsite meetings and when travelling for other reasons, non-executive Directors are encouraged to take opportunities to visit local business operations at first hand and to meet local management.

Role of the Group Company Secretary

All Directors have access to the advice and services of the Group Company Secretary, who is responsible to the Board for ensuring that Board procedures and all applicable rules and regulations are complied with.

Under the direction of the Group Chairman, the Group Company Secretary's responsibilities include ensuring good information flows within the Board and its committees and between senior management and non-executive Directors, as well as facilitating induction and assisting with professional development as required.

The Group Company Secretary is responsible for advising the Board on corporate governance matters.

The agenda and supporting papers are distributed in advance of all Board and Board committee meetings to allow time for appropriate review and to facilitate full discussion at the meetings. All Directors have full and timely access to all relevant information and may take independent professional advice if necessary at HSBC Holdings' expense.

Induction

Formal, tailored induction programmes are arranged for newly appointed Directors. The programmes are based on an individual Director's needs and vary according to the skills and experience of each Director. Typical induction programmes consist of a series of meetings with other Directors and senior executives to enable new Directors to familiarise themselves with the business. Directors also receive comprehensive guidance from the Group Company Secretary on Directors' duties and liabilities.

Training and development

Training and development is provided for Directors. Executive Directors develop and refresh their skills and knowledge through day-to-day interactions and briefings with senior management of the Group's businesses and functions. Non-executive Directors have access to internal training and development resources and personalised training is provided, where necessary. The Chairman, with support from the Group Company Secretary, regularly reviews the training and development of each Director.

During the year, Directors received training on the following topics:

·   The Volcker Rule covering the investment activities of certain US banks;

·   UK Financial Services (Banking Reform) Act 2014 including the Senior Managers' Regime; and

·   the changing financial and regulatory reporting landscape.

The table below shows a summary of training and development undertaken by each Director during 2015.

Training and development

		Training areas
		Regulatory updates	Corporate Governance	Financial industry developments	Briefings on Board committee related topics
Executive Directors
Douglas Flint		ü	ü	ü	ü
Stuart Gulliver		ü	ü	ü	ü
Iain Mackay		ü	ü	ü	ü
Marc Moses		ü	ü	ü	ü
Non-executive Directors
Phillip Ameen		ü	ü	ü	ü
Kathleen Casey		ü	ü	ü	ü
Safra Catz		ü	ü	ü	ü
Laura Cha		ü	ü	ü	ü
Lord Evans of Weardale		ü	ü	ü
Joachim Faber		ü	ü	ü	ü
Rona Fairhead		ü	ü	ü	ü
Sam Laidlaw		ü	ü	ü	ü
Irene Lee			ü	ü	ü
John Lipsky		ü	ü	ü	ü
Rachel Lomax		ü	ü	ü	ü
Heidi Miller		ü	ü	ü	ü
Sir Simon Robertson		ü	ü	ü	ü
Jonathan Symonds		ü	ü	ü	ü
Pauline van der Meer Mohr		ü	ü	ü	ü

Board performance evaluation

The Board is committed to regular evaluation of its own effectiveness and that of its committees. In 2014, the review of the effectiveness of the Board and its committees was undertaken by Bvalco Ltd¹, an independent third-party firm.

2014 Review of Board effectiveness

The findings of the 2014 review were presented to the Board, an action plan developed and progress against these actions reported to the Board during 2015. The themes emerging from the 2014 review and the actions taken included:

Harmonising interactions between Group and subsidiaries	The governance arrangements for the regional risk committees and the audit committees for principal subsidiaries and certain global businesses have been enhanced to provide better transparency in the reporting of significant issues to the GAC and GRC and to provide better communication between the committees.
Increasing diversity on the Board of Directors, consider recruitment of a director with an Asian/Chinese business background	Irene Lee was appointed to the Board in July 2015.
Continuing efforts to balance the agenda at Board meetings, focusing on priority strategic issues and in particular technology	Additional time has continued to be provided for the debate of these issues at meetings. The Group Chief Operating Officer delivered updates on the Group's global change programme priorities, and the Chief Technology Officer also presented a new technology strategy in 2015.
Allocating time in Board meetings to address the transition processes relating to the Senior Managers' Regime	Preparations for the Senior Managers' Regime have become a regular Board agenda item.
Senior Independent Director to build on relationships with regulators and with all members of the Board	Meetings held with regulators, Board members and shareholders during the period.

1   A legal firm which is engaged from time to time by the Company to provide legal services holds a 20% shareholding in Bvalco Ltd. Bvalco Ltd has confirmed that it does not have any other connection with the Company.

Director performance evaluation

Evaluation of the individual performance of each non-executive Director is undertaken annually by the Group Chairman. During this evaluation, the Group Chairman discusses the individual contribution of the Director, explores training and development needs, seeks input on areas where the Director feels he or she could make a greater contribution and discusses whether the time commitment required of the Director can continue to be delivered. Based upon their individual evaluation, the Group Chairman has confirmed that all of the non-executive Directors continue to perform effectively, contribute positively to the governance of HSBC and demonstrate full commitment to their roles.

Evaluation of the individual performance of each executive Director is undertaken as part of the performance management process for all employees, the results of which are considered by the Group Remuneration Committee when determining variable pay awards each year.

The non-executive Directors, led by the senior independent non-executive Director, were responsible for the evaluation of the performance of the Group Chairman.

The Board monitors the implementation of actions arising from each performance evaluation.

It is the intention of the Board to continue to undertake an evaluation of its performance and that of its committees and individual Directors annually, with independent external input to the process, as appropriate, at least every third year. The 2015 performance evaluation review process is being undertaken currently by the JCA Group, an independent third-party firm.

Relations with shareholders

All Directors are encouraged to develop an understanding of the views of major shareholders. Non‑executive Directors are invited to attend analyst presentations and other meetings with institutional investors and their representative bodies. During the year, a corporate governance seminar, hosted by the Group Chairman and the principal committee chairs, was held in London to which a number of institutional shareholders and their representative bodies were invited.

All executive Directors and certain other senior executives hold regular meetings with institutional investors. The Board receives a regular investor relations activity report which provides feedback from meetings with institutional shareholders and brokers, analysts' forecasts, information from research reports and share price performance data. The Board also receives regular reports from its corporate brokers.

The Group's shareholder communication policy is available on www.hsbc.com/about-hsbc/corporate-governance/ corporate-governance-codes.

On several occasions during 2015, non-executive Directors, including the senior independent non-executive Director, chair of the Nomination Committee and chair of the Remuneration Committee, met or corresponded with institutional investors and their representatives to discuss corporate governance topics and executive remuneration.

As senior independent non-executive Director, Rachel Lomax is available to shareholders should they have concerns which cannot be resolved or for which such contact would be inappropriate through the normal channels of Group Chairman, Group Chief Executive, Group Finance Director, Group Chief Risk Officer, or other executives. Ms Lomax may be contacted through the Group Company Secretary at 8 Canada Square, London E14 5HQ.

Conflicts of interest, indemnification of Directors and contracts of significance

The Board has adopted a policy and procedures relating to Directors' conflicts of interest and can determine the terms of authorisation for such situations. Should they arise, the Board's powers to authorise conflicts are operating effectively and the procedures are being followed. A review of situational conflicts which have been authorised from time-to-time and the terms of those authorisations are undertaken by the Board annually.

The Articles of Association provide that Directors are entitled to be indemnified out of the assets of HSBC Holdings against claims from third parties in respect of certain liabilities. All Directors have the benefit of directors' and officers' liability insurance.

None of the Directors had, during the year or at the end of the year, a material interest, directly or indirectly, in any contract of significance with any HSBC company.

 

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