I have just spent over two hours watching Margaret Hodge and the Public Accounts Committee questioning Stuart Gulliver, Chris Meares and Rona Fairhead of HSBC. The Guardian's running commentary on the event is available here. I tweeted on it quite extensively, but what I am now interested in is the questions that this hearing raises.
The first, and obvious, question is why the Rev Lord Stephen Green was not present? He was the man responsible for this bank at the time that the alleged tax evasion took place, and appears to be wholly unanswerable for his actions despite being a member of the House of Lords. I would have loved to have seen him appear, but presume that the Conservative members of the committee objected. The committee works on the basis of unanimity.
Second, Stuart Gulliver's credibility was in question throughout the hearing. As Margaret Hodge made him reveal, he has a British passport, he votes in the UK and has a home here, and as we already know, he educates his children here, and has spent a great deal of his life in this country and yet still maintained that he was domiciled in Hong Kong, and that was his home. Even he admitted that some might find that hard to believe. He also admitted that some might find it equally hard to believe that his salary was paid to a Panamanian company that accounted in Switzerland just for privacy reasons. I might be one of those, but he is of the opinion that we are all wrong. I think he knows how close the edge he is. I am not sure how he can survive this.
Chris Meares, who has been head of global private banking for HSBC also had a considerable credibility problem. His reliability as a witness was in doubt from the start when he kept refusing to answer a straightforward question of whether he accepted responsibility for what happened in the Swiss bank that reported to him, or not. He had obviously been trained to provide an answer which sought to evade the issue, and from then on everything he said appeared evasive, whatever it was. Whoever advised him got this response completely wrong. He should have said yes, and accepted the consequence, and he didn't, and from then on there was doubt to the point where at the end of the hearing one MP questioned whether he had been a reliable witness.
That said, for very many ways, my greatest concern was with Rona Fairhead, who as a non-executive director (but chair of HSBC USA) chaired the audit committee of the bank throughout much of the period of concern. There were a great many reasons why her evidence seemed to me to be indicative of serious failings.
The first was her lack of understanding of audit. She kept saying that one of the people she relied upon to make sure that there was no fraud was the external auditors. There is no way on earth that this was a reasonable assumption on her part: this tax evasion would never have misstated the accounts of HSBC as a whole, and as such it was quite unreasonable of her to think that they would report any error of this sort.
What she also kept saying was that tax evasion was illegal, and therefore HSBC should not have been doing it in Switzerland. For that reason she actually said she never asked directly about it because it had never occurred to her it might happen. But, she was completely wrong to think this. Tax evasion has not been illegal in Switzerland. It is not been a crime. And it has not been, certainly during the relevant period, what is called a predicate offence for money-laundering purposes, which means that no money laundering system in Switzerland was required to look for tax evasion. Her assumption that these systems would therefore provide her with assurance were, therefore, completely inappropriate, and I think she should have known that, especially given the amount that she was paid to know it.
Thirdly, she kept saying that when matters were drawn to the attention of the audit committee they took action. What she clearly did not understand was the fact that the audit committee is not there to be a reactive body, but is there to be a proactive body, consciously seeking to make sure from a position of non-executive authority that the systems in place in the bank are appropriate. There was, again, a fundamental lack of understanding in my opinion on her part when saying this.
Fourthly, and just as troublingly, was a continual claim that she was entitled to rely upon the systems of the bank and the information that they supplied. This appears to me to be wholly misplaced faith, especially in an audit role when there must always be reasonable doubt that data is wrong. It is also wrong as a non-executive because I believe that the role of a non-executive director is to question whether the systems are reliable, and the information that they produce is of use. The whole purpose of paying people a lot of money to be non-executive directors is to get them to apply their sound judgement to the data they get to test its credibility. It seems apparent she did not do this, and so it is reasonable to assume others did not do so either.
So, the conclusion for me was that HSBC had executives who were shifty and non-execs not aware of their role. And that's serious, because it not one perosn having these issues; many are being questioned.
In that case the obvious question is whether or not this is a bank that can survive.
And even whether it is a bank that deserves to survive.
The faults were not in the past. They are apparent now. And that's worrying.
Just as worrying is the fact that the Establishment clearly cannot manage such situations.
The possibility that capitalism is out of control is very real. And that's more worrying than any individual performance today.
PS For the record, Margaret Hodge was on form.
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I could not disagree more.
If being ‘on form’ is the wholly unacceptable, abusive, aggressive and unprofessional behaviour of Margaret Hodge this afternoon then the world is much the worse for it.
I was shocked that someone in this position of power and authority could behave in such a manner which does not serve to bring out the information required.
Margaret Hodge in my view is the one who should resign or be removed from her position. Made worse that she was clearly enjoying her ‘bullyboy’ tactics.
I have no connection or interest in HSBC – a disappointed lay person that this person holds this position.
Abuse would have flourished without Margaret Hodge
I think that Hodge does her job as a parliamentarian and as a human being extremely well because she presents what I think is the real face of public anger and frustration with the cosy and distorted world of Finance – a world that seems to have different rules to the rest of us.
Parliamentarians exist to send our feelings and wishes to the source of power in the country in the hope that it influences resultant policy. That is what she is doing in my view to people who have got away with it thus far. People whose own Boards haver failed to manage them properly. People whose compass of morality has been thrown out of whack by the magnetic forces of greed.
Speaking as someone from a working class background, Hodge speaks for us all in my opinion – even if her conduct is not as ‘middle class’ as some of us would like.
I was asked to post to post this by David Murphy who could not makle the system work for some reason:
——–
I agree with Diana wholeheartedly on this point. I only caught the last hour of the PAC session yesterday but it was farcical and cringeworthy to see public figures asking questions and then shouting over the top of the answers given. Worse than PMQs.
If Mrs Hodge is frustrated with evasive answering then she should keep questioning. The shouting down and apparent gleeful cackling did not give the impression of someone who was frustrated in the goal of getting to the bottom of something; it gave the impression of someone who didn’t want to listen regardless of the answers given.
I think your response to Diana’s post implies a similarly dismissive tone – not addressing any of her comments, instead implying a line that St Margaret can do no wrong. What do Mrs Hodge’s previous achievements have to do with Diana’s points?
I think it is fair to say that many of the things that were seemingly commonplace in business in the past (including aggressive tax avoidance, and at the very least turning a blind eye to to tax evasion) would have continued without the intervention of activists such as yourself and Margaret Hodge.
I do not think it is fair to conclude from this that anything and everything that Margaret Hodge now says or does constitutes acceptable behaviour, and I think there are many precedents that show this is a dangerous mindset for people to get into.
Yesterday was an embarrassment. I resent not being able to hear the responses that the HSBC team were trying to give, listening then to considered further questions from our elected representatives, and being afforded the opportunity to make my own mind up.
David
I think you should have watched from the beginning when a pattern of deeply evaisve answers after repeated reasonable questioning frustrated the committee
Margaret is ‘over the top’
But she landed blows as a result whyereb the Treasury Select Committee failed
And you have to remember the peoiple she challenges arebwholly unsiued to being questioned. They think they nhold power by right
Richard
Surely it’s not for Hodge to ‘land blows’ but to question people who are after all witnesses and not the accused however much people think they should be.
You misunderstand the purpose of the PAC and politics
Richard, I agree entirely with you on Hodge’s effectiveness, especially as compared to the supine Tyrie of the Treasury Committee. A watchdog needs teeth; it’s that simple. I was deeply disappointed when Tyrie started the TSC session by asking HMRC’s Homer to confirm that there were ‘serious restrictions’ put on the use of the Falciana data by the French that purportedly stopped the prosecution of HSBC staff for tax evasion and the sharing of the date with the FCA and other authorities. The relevant treaties show there were no such restrictions and the French authorities have confirmed that there were no restrictions. Yet Tyrie offered the cover and when John Mann requested written evidence of the negotiations with the French over the purported restrictions that miraculously succeeded the very week the Guardian published the massive frauds Tyrie stepped in again and suggested there would be difficulty in sharing such evidence with his committee.
In contrast, we learned two important facts yesterday thanks for Hodge’s and the PAC’s approach. First, Fairhead revealed that they learnt about the full nature of the leaks when HMRC approached them to tell them that they had received concerning materials from the French! Remember that Hartnett has so far refused to disclose what he discussed with HSBC when (according to records) he visited their offices at about the same time. Secondly, Fairhead disclosed (contradicting HMRC’s and Treasury’s statements) that the FCA knew about the leaks at the relevant time but were only concerned with safety of customer (tax cheats’) information and bank liquidity (i.e. whether the cheats that should be facing prosecution would take their money elsewhere!).
I have read people (Establishment apologists) praising Tyrie’s approach rather than call him out for it. He seems to consider it his duty to cover up and maintain an unwarranted public confidence in the system. That is not the job of a watchdog and that was the attitude that gave us Saville, Hillsborough and all sorts of Establishment cover-ups. Hodge is entirely different and the powerful vested interests she’s taken on and their apologists are all too keen to give her a bad name in order to hang her. She’s not perfect (who is?) but she’s one of the best things that have happened in this Parliament.
I know Margaret
She knows she is not perfect
But she’s incredibly effective
Exactly. With regard to Fiona Fairhead, I thought that Margaret Hodge was being far too harsh when I saw the clips on TV yesterday. But after hearing about the whole session I can well understand why she said what she did.
The end would not have been justified without the beginning
I agree
I thought they were really fair to start
But the trained muppet responses really wound MPs up
Sorry, Diana, but you don’t talk pretty to the Mob, which is how FAR too many top operators in the City and beyond behave.
Agreed
I don’t think ‘talking pretty to the Mob’ (assume you mean the Mafia) is what’s being suggested here. The PAC is ‘enquiring into tax avoidance & evasion’ not a court, not even a witch finder court. Hodge should resign over Stemcor and Islington, and her grandstanding on C4 was a disgrace.
So being a shareholder in a company you do nbot control is a resigning issue, is it?
Don’t be crass
Good post. Interesting to compare Rona Fairhead’s view that as a non-exec she should be able to rely on information provided by their executive to earn her £0.5m a year with the guidance from government (https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/395789/Governors_Handbook.pdf) on how as school governors we must operate if we are not be judged inadequate:
“The headteacher and school should not be the only source of information for the governing body.”
I entirely agree
I was a governor for about 14 years
From what I’ve read about non-exec directors over the years, Richard, I’d always assumed that you didn’t get to be appointed as one if the organisation appointing you thought you’d do anything other than toe the line.
Like limited liability, LLPs, audit and pretty much anything else to do with big business, they are a good idea that’s been warped and twisted to serve another purpose – or no purpose at all. Just another example of capitalism out of control.
Unfortunately I haven’t had time to watch the PAC exchange. But from what I know of the limitations of parliamentary committees (eg. they are political and what they conclude has very limited formal standing), and of the criticisms and counter criticisms of Hodge, plus what we now know to be the unwillingness of said committees to call Lord Green – for obvious political reasons – I’d say the case for an Office for Tax Responsibility is now beyond question.
Excellent point, Ivan. If the erstwhile consensus of the very successful PAC could be broken so easily over Lord Green, then the select committee system is not fit for purpose, particularly in tax given that HMRC is a non-ministerial department.
There is some helpful guidance on the role of non-executive directors here: http://www.iod.com/guidance/briefings/cgbis-role-of-nxds
Like a school governor, they should be a “critical friend”. A non-executive director should monitor how the existing systems and controls are performing, and demand assurance that they are achieving their aims. It is certainly not enough to rely on the existing systems and controls, or representations by the executives, or review by external auditors.
That said, should a non-executive director at main board level be expect to know the details of what individuals might be doing operationally in a subsidiary? If the NEDs are given evidence that the systems put in place are doing the job, how far should they go do look for contrary evidence? NEDs are not investigative reporters.
Margaret Hodge is good at grandstanding, and achieves the political aim of throwing so much muck that some inevitably sticks. But I think she achieves more in turns of turning up the political heat, than she does in terms of throwing light on situations. If she thinks people are lying to her committee (as she has said, more than once) perhaps she should think about sanctions for contempt of Parliament.
Good theatre, no more.
Ultimately the stakeholders in HSBC will need to take action – expect nothing to come from the PAC. But I guess it is unlikely the shareholders will take any action.
Margaret was working for the stakeholders
I was asked to be the examiner for a PTA recently. The treasurer was a friend of mine. I still did my job and looked at the figures with a sceptical eye and advised on what changes should be made to procedures to ensure they could not be questioned. How is it that these people auditing banks don’t know to do this? Obviousy they do and they are deliberately turning a blind eye.
I am quite sure Mrs Hodge was not harsh enough.
Do you think it is a case of the Three Wise Monkeys:
‘See no evil, hear no evil, speak no evil”
🙂
Having worked in and for a major international bank, which had its problems, I’m well aware of the internal audit, reporting and risk management structures and processes that should be in place and which should provide the directors and board with an independent view of what business is being conducted and how. It is wholly unbelievable that the HSBC team were not aware of the sort of business practices that were going in, if not the detail.
More believable is that those control and reporting mechanisms were ignored/suppressed/distorted to reflect what senior management and directors wanted to hear
Not dissimilar to Barings all those years ago… or Halifax
Where do you stand on Mrs Hodge’s fitness to be on the PAC given her record on child protection issues when she led Islington?
Maybe she is fit to hold the post, maybe she isn’t. But if she is, it does require some ‘turning of the blind eye’, which I suppose we all must do from time to time.
Life is messy.
I have never investigated her record at Islington
Maybe she made errors; I do not know
What I do know is that she is doing a good job now and that is what I have passed judgement on