Summary Directors’ Report
Results for 2010
HSBC reported profit before tax of US$19,037 million. Profit attributable to shareholders of HSBC Holdings transferred to retained earnings was US$13,159 million, a 9.5 per cent return on average total shareholders’ equity.
Principal activities and business review
HSBC is one of the largest banking and financial services organisations in the world, with a market capitalisation of US$180 billion at 31 December 2010. We are headquartered in London.
As ‘The world’s local bank’, we combine the largest global emerging markets banking business and a uniquely cosmopolitan customer base with an extensive international network and substantial financial strength.
HSBC operates through long-established businesses and has an international network of some 7,500 offices in 87 countries and territories in six geographical regions: Europe, Hong Kong, Rest of Asia-Pacific, the Middle East, North America and Latin America.
Our products and services are delivered through two customer groups, Personal Financial Services and Commercial Banking, and two global businesses, Global Banking and Markets, and Global Private Banking. Personal Financial Services incorporates the Group’s consumer finance businesses, the largest of which is HSBC Finance Corporation.
Taken together, our five largest customers do not account for more than 1 per cent of our income.
We have contractual and other arrangements with numerous third parties in support of our business activities. None of the arrangements is individually considered to be essential to the business of the Group.
There were no significant acquisitions during the year.
Corporate Governance Report
The information set out in Our Board, Summary Directors’ Report, Summary Directors’ Remuneration Report and information incorporated by reference, is a summary of the Corporate Governance Report of HSBC Holdings contained on pages 183 to 234 of the Annual Report and Accounts 2010.
Board of Directors
The purpose of HSBC’s management structures, headed by the Board of Directors of HSBC Holdings (the ‘Board’) and led by the Group Chairman, is to deliver sustainable value to our shareholders. The Board sets the strategy for the Group and approves the risk appetite and capital and operating plans presented by management for the achievement of the strategic objectives it has set. This ensures the efficient application of our resources for the achievement of these objectives. Implementation of the strategy set by the Board is delegated to the Group Management Board (‘GMB’) led by the Group Chief Executive.
|Number of meetings held||Board
|Group Risk Committee1
|S A Catz||8||–||–||–||–||–|
|V H C Cheng||7||–||–||–||–||12|
|M K T Cheung||8||43||–||–||–||–|
|J D Coombe||9||6||4||–||9||–|
|J L Durán4||2||–||–||–||–||–|
|R A Fairhead||8||5||3||2||–||–|
|D J Flint||9||–||–||–5||–||–|
|A A Flockhart||9||–||–||–||–||–|
|W K L Fung6||4||–||–||–||–||3|
|M F Geoghegan||8||–||–||–||–||–|
|S T Gulliver||9||–||–||–||–||–|
|J W J Hughes-Hallett||8||28||2||3||–||–|
|W S H Laidlaw||9||–||–||–||9||–|
|J R Lomax||8||6||4||–||–||–|
|I J Mackay9||–||–||–||–||–||–|
|Sir Mark Moody-Stuart10||4||–||–||–||4||2|
|N R N Murthy||7||–||–||–||–||5|
|Sir Simon Robertson||9||–||–||3||–||–|
|J L Thornton||8||–||–||–||9||–|
|Sir Brian Williamson||8||–||–||3||–||–|
- 1 All members appointed on 26 February 2010 when the Committee was established. All members eligible to attend four Committee Meetings.
- 2 Appointed a member on 28 May 2010 – eligible to attend two Committee Meetings.
- 3 Appointed a member on 1 March 2010 – eligible to attend four Committee Meetings.
- 4 Retired as a Director on 28 May 2010 – eligible to attend four Board Meetings.
- 5 Appointed a member on 3 December 2010 – not eligible to attend any Committee Meetings.
- 6 Retired as a Director on 28 May 2010 – eligible to attend four Board Meetings and three Committee Meetings.
- 7 Appointed a member of the Nomination Committee on 26 February 2010 and retired as a Director on 3 December 2010 – eligible to attend eight Board Meetings and two Committee Meetings.
- 8 Ceased to be a member on 1 March 2010 – eligible to attend two Committee Meetings.
- 9 Appointed a Director on 3 December 2010 – eligible to attend one Board Meeting.
- 10Retired as a Director on 28 May 2010 – eligible to attend four Board Meetings, four Remuneration Committee Meetings and three Corporate Sustainability Committee Meetings.
The Board is responsible for managing the business of HSBC Holdings and, in doing so, may exercise its powers, subject to any relevant laws and regulations and to the Articles of Association. 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 may also 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 certain Directors holding executive office any of its powers, authorities and discretions (including the power to sub-delegate) 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 (including the power to sub-delegate) for such time and on such terms as it thinks fit. The Board may also, by power of attorney or otherwise, appoint any person or persons to be the agent of HSBC Holdings and may delegate to any such person or persons any of its powers, authorities and discretions (including the power to sub-delegate) for such time and on such terms as it thinks fit.
The Directors who served during the year were S A Catz, V H C Cheng, M K T Cheung, J D Coombe, J L Durán (retired 28 May 2010), R A Fairhead, D J Flint, A A Flockhart, W K L Fung (retired 28 May 2010), M F Geoghegan (retired 31 December 2010), Lord Green (retired 3 December 2010), S T Gulliver, J W J Hughes-Hallett, W S H Laidlaw, J R Lomax, I J Mackay (appointed 3 December 2010), Sir Mark Moody-Stuart (retired 28 May 2010), G Morgan, N R N Murthy, Sir Simon Robertson, J L Thornton and Sir Brian Williamson.
Nine Board meetings were held during 2010. The table above gives details of each Director’s attendance at meetings of the Board, Group Audit Committee, Group Risk Committee, Nomination Committee, Remuneration Committee and Corporate Sustainability Committee held whilst he or she was a Director or member during 2010. Two meetings of the Board and of the Remuneration Committee were held at short notice. Not all Directors who were entitled to attend were able to attend these meetings.
Eight meetings of other committees of the Board appointed to discharge specific business were held during 2010. These meetings are not shown in the table above.
Group Chairman and Group Chief Executive
The roles of Group Chairman and Group Chief
Executive are separate and held by experienced
full-time Directors. Details of the roles and
responsibilities of the Group Chairman and the
Group Chief Executive are found at:
D J Flint succeeded S K Green (who on 22 November 2010 became Lord Green of Hurstpierpoint and is referred to in this document as Lord Green) as Group Chairman on 3 December 2010. S T Gulliver succeeded M F Geoghegan as Group Chief Executive on 1 January 2011.
The appointment of D J Flint, made by a unanimous decision of the Board, was the culmination of a comprehensive succession process begun in the first half of the year under the leadership of the senior independent non-executive Director. When considering the choice of Group Chairman, the Nomination Committee, assisted by an external consultant, took a number of factors into account, including the need to contribute to the unprecedented regulatory and public policy debate on the future shape of the banking industry and, in particular, systemically important financial institutions operating globally with a universal banking model; the full-time demands of this engagement; the personal standing to represent HSBC at the highest levels; a deep understanding and experience of international financial services; and extensive experience of Board governance and stakeholder engagement. The Nomination Committee came to the unanimous conclusion that D J Flint was the best person for the position, meeting all the core criteria and having led our regulatory engagement at Board level through 2010.
S T Gulliver has worked for us throughout his career serving across Asia, in Europe and in the Middle East. The Board considers S T Gulliver ideally qualified for the role of Group Chief Executive. He has built and managed a global business in over 65 countries and has a deep knowledge of, and strong reputation in, Asia where he worked for over 20 years. S T Gulliver has been responsible for managing complex risks for many years and shepherded and enhanced the Group’s liquidity through the economic crisis. He also has had responsibility for all of HSBC’s operations in the UK, Europe and the Middle East. As Group Chief Executive, S T Gulliver’s principal office is located in Hong Kong.
Sir Simon Robertson became Deputy Chairman with effect from 1 December 2010. As Deputy Chairman his role is to deputise for the Group Chairman at meetings of the Board or shareholders and to support the Group Chairman in his role.
The Board believes strongly that these appointments, which were made by unanimous decision, are in HSBC’s best interests. There is a clear division of responsibilities at the head of the Company between the running of the Board and the executive responsibility for running HSBC’s business. The Group Chairman’s responsibilities include, in addition to the leadership of the Board and ensuring its effectiveness, the development of relationships with governments, regulators and investors; leading the Group’s interactions on matters of public policy and regulatory reform with regard to the banking and financial services industry; maintaining corporate reputation and character; and performance management of the Group Chief Executive.
The Group Chief Executive has responsibility for developing, and delivering performance against, business plans. He is responsible for developing Group strategy in agreement with the Group Chairman and for recommendation to the Board. As chairman of the Group Management Board, the Group Chief Executive is responsible for driving performance within strategic goals and commercial objectives agreed by the Board.
Board balance and independence of Directors
The Board includes a strong presence of both executive and non-executive Directors and no individual or small group can dominate its decision making. The size of the Board is appropriate given the complexity and geographical spread of our business and the significant time demands placed on the non-executive Directors, particularly those who serve as members of Board committees.
The Nomination Committee regularly reviews the
structure, size and composition necessary
(including the skills, knowledge and experience
required of Directors) to address and challenge
adequately key risks and decisions that
confront, or may confront, the Board and makes
recommendations to the Board with regard to any
changes. The Nomination Committee maintains a
forward-looking schedule of potential candidates as Directors that takes into account the needs and developments of the Group’s businesses and the anticipated retirement dates of existing Directors.
Sir Simon Robertson’s role as the senior independent non-executive Director is to act as an intermediary for other non-executive Directors when necessary, to lead the non-executive Directors in the oversight of the Group Chairman and to ensure there is a clear division of responsibility between the Group Chairman and Group Chief Executive.
The Board considers all of the non-executive Directors to be independent in character and judgement. The Board has determined S A Catz, L M L Cha, M K T Cheung, J D Coombe, R A Fairhead, J W J Hughes-Hallett, W S H Laidlaw, J R Lomax, G Morgan, N R N Murthy, Sir Simon Robertson, J L Thornton and Sir Brian Williamson 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 first election by shareholders as a Director of HSBC Holdings. Given the complexity and geographical spread of our business, the experience of previous service on a subsidiary company board can be a considerable benefit and does not detract from a Director’s independence. In reaching its determination of each non-executive Director’s independence the Board has concluded that there are no relationships or circumstances which are likely to affect a Director’s judgement and any relationships or circumstances which could appear to do so were considered not to be material.
Information, induction and ongoing development
Full, formal and tailored induction programmes, with particular emphasis on the systems of risk management and internal controls, are arranged by the Group Company Secretary for newly appointed Directors. The programmes consist of a series of meetings with other Directors and senior executives to enable new Directors to receive information and familiarise themselves with our strategy, risk appetite, operations and internal controls. As part of the induction process the Group Company Secretary will coordinate the production of a development programme based on the individual Director’s needs. Directors receive comprehensive guidance on the duties and liabilities of a Director of HSBC Holdings before appointment and opportunities to update and develop their skills and knowledge, through externally run seminars and briefings by senior executives, throughout their directorship.
Induction programmes are also arranged for newly appointed members of committees and appropriate training is provided on an ongoing basis.
A personalised approach to training and development of Directors is applied. Development plans and records of development activities are maintained by the Group Company Secretary for annual review by the Group Chairman with the Director concerned. The Group Company Secretary coordinates the delivery of any training required. Focused in-house development programmes to enhance business awareness are arranged in conjunction with scheduled Board Meetings. Directors have access online to internal training and development resources.
Appointment, retirement and re-election of Directors
On the recommendation of the Nomination
Committee and in compliance with provision B.7.1
of the UK Corporate Governance Code, which
replaces the Combined Code on Corporate
Governance for financial years beginning on or
after 29 June 2010, the Board has decided that
all of the Directors should be subject to annual
re-election by shareholders. Accordingly, all of
the Directors will retire at the
forthcoming Annual General Meeting and with the
exception of V H C Cheng, who is to retire,
offer themselves for
Brief biographical particulars of all Directors are given in Our Board section.
Corporate governance codes
We are committed to high standards of corporate governance. We have complied throughout the year with the applicable code provisions of the Combined Code on Corporate Governance issued by the Financial Reporting Council, save for code provision A.2.2 as D J Flint, who had previously served as Chief Financial Officer, Executive Director, Risk and Regulation, did not meet the independence criteria of the Combined Code on Corporate Governance when he was appointed Group Chairman on 3 December 2010. The Board’s explanation of its decision to appoint D J Flint is set out above. We have complied throughout the year with all applicable code provisions of the Code on Corporate Governance Practices in Appendix 14 to the Rules Governing the Listing of Securities on The Stock Exchange of Hong Kong Limited. The Combined Code on Corporate Governance is available at www.frc.org.uk and the Code on Corporate Governance Practices is available at www.hkex.com.hk.
The Board has adopted a code of conduct for transactions in HSBC Group securities by Directors. The code of conduct complies with The Model Code in the Listing Rules of the FSA and with The Model Code for Securities Transactions by Directors of Listed Issuers (‘Hong Kong Model Code’) set out in 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 certain waivers from strict compliance with the Hong Kong Model Code. The waivers granted by The Stock Exchange of Hong Kong Limited primarily take into account accepted practices in the UK, particularly in respect of employee share plans. Following a specific enquiry, each Director has confirmed he or she has complied with the code of conduct for transactions in HSBC Group securities throughout the year.
The Board has appointed a number of committees.
The Group Management Board (‘GMB’), an executive management committee, meets frequently and operates as a general management committee under the direct authority of the Board. The objective of the GMB is to maintain a reporting and control structure whereby all of our line operations are accountable to individual members of the GMB who report to the Group Chief Executive who in turn reports to the Group Chairman. The Board has set objectives and measures for the GMB. These align senior executives’ objectives and measures with the strategy and operating plans throughout HSBC.
The members of the GMB are S T Gulliver (Chairman), A A Flockhart and I J Mackay, who are executive Directors, and A Almeida, E Alonso, S Assaf, N S K Booker, A M Keir, M M Moses, B Robertson, P A Thurston and P T S Wong, all of whom are Group Managing Directors.
The GMB exercises the powers, authorities and discretions of the Board in so far as they concern the management and day-to-day running of HSBC Holdings.
The Group Audit Committee (‘GAC’), whose members are all independent non-executive Directors, is responsible for advising the Board on the effectiveness of our systems of internal controls and compliance in relation to financial matters and on meeting financial reporting obligations. The GAC also has responsibilities in relation to risk governance and oversight and internal controls.
The members of the Committee throughout 2010 were J D Coombe (Chairman), R A Fairhead and J R Lomax. On 1 March 2010, M K T Cheung was appointed a member of the Committee in succession to J W J Hughes-Hallett. On 30 July 2010, J D Coombe was appointed chairman of the Committee in succession to R A Fairhead who remains a member of the Committee.
The Board has determined that M K T Cheung, J D Coombe, R A Fairhead and J R Lomax are independent according to SEC criteria and may be regarded as audit committee financial experts for the purposes of section 407 of the Sarbanes-Oxley Act and have recent and relevant financial experience.
Historically the GAC has provided non-executive oversight of risk as well as financial reporting. The Group Risk Committee (‘GRC’) was established in February 2010 to focus on risk governance and to provide an increasingly forward-looking view of risks and their mitigation. The GAC currently has certain responsibilities in relation to risk governance and oversight of internal controls in order to comply with the Hong Kong and UK Corporate Governance Codes.
There is therefore currently a degree of overlap between the responsibilities of the GAC and the GRC in relation to risk matters. For example, a review of the effectiveness of our systems of risk management and internal controls was undertaken by the GAC and by the GRC. Each of the committees is reviewing its terms of reference with the aim of minimising the overlap.
The Committee held six meetings in 2010 – see above for details of Directors’ attendance at these meetings. Following each meeting the Committee reports to the Board on its activities.
The Committee has recommended to the Board that KPMG Audit Plc be reappointed auditor at the forthcoming Annual General Meeting.
An analysis of the remuneration paid in respect of audit and non-audit services provided by KPMG Audit Plc and its affiliates (‘KPMG’) for each of the past three years is disclosed in Note 8 on page 285 of the Notes on the Financial Statements in the Annual Report and Accounts 2010.
Further information about the Group Audit Committee is given on pages 195 to 197 of the Annual Report and Accounts 2010.
The Group Risk Committee (‘GRC’), whose members are all independent non-executive Directors, is responsible for advising the Board on material risk matters and providing non-executive oversight of risk. The Committee was established in February 2010 following publication of the final recommendations of Sir David Walker’s Review of Corporate Governance in UK Banks and other Financial Industry Entities, to focus on risk governance and to provide an increasingly forward-looking view of risks and their mitigation.
Historically the GAC has provided non-executive oversight of risk as well as financial reporting. There is currently a degree of overlap between responsibilities of the GAC and the GRC in relation to risk governance and oversight matters and internal controls. Each committee is reviewing its terms of reference with the aim of minimising the overlap.
The members of the GRC are R A Fairhead (Chairman), J D Coombe, J W J Hughes-Hallett and J R Lomax.
All of HSBC’s activities involve, to varying degrees, the measurement, evaluation, acceptance and management of risk or combinations of risks. The Board, advised by the Committee, ensures that the Group has a strong risk governance culture which shapes the Group’s risk strategy. The Board and the Committee ensure that a strong risk management framework is maintained, via the continuous monitoring of the risk environment and an integrated evaluation of risks and their interactions.
The Committee held four meetings in 2010 – see the table above for details of Directors’ attendance. Following each meeting the Committee reports to the Board on its activities.
Further information about the Group Risk Committee is given on pages 197 to 201 of the Annual Report and Accounts 2010.
The role of the Remuneration Committee and its membership are set out in the Summary Directors’ Remuneration Report.
The Nomination Committee is responsible for leading the process for Board appointments and for identifying and nominating, for approval by the Board, candidates for appointment to the Board. Before recommending an appointment to the Board, the Committee evaluates the balance of skills, knowledge and experience on the Board and, in the light of this, and taking into account the needs of the Group’s businesses, identifies the role and capabilities required for a particular appointment. Candidates are considered on merit against these criteria. Care is taken to ensure that appointees have enough time to devote to us. Prospective Directors are asked to identify any significant other commitments and confirm they have sufficient time to discharge what is expected of them.
The members of the Nomination Committee throughout 2010 were Sir Brian Williamson, R A Fairhead, Sir Simon Robertson and J W J Hughes-Hallett, all independent non-executive Directors. Lord Green succeeded Sir Brian Williamson as chairman of the Nomination Committee on 26 February 2010 and served until his retirement on 3 December 2010 when he was succeeded by D J Flint, upon his appointment as Group Chairman. Lord Green did not chair any meeting of the Nomination Committee when it was dealing with the appointment of the successor to the chairmanship. The selection process for Lord Green’s successor as Group Chairman, was led by the senior independent non-executive Director.
The appointments of D J Flint as Group Chairman, S T Gulliver as Group Chief Executive and I J Mackay as an executive Director were made on the advice and recommendation of the Nomination Committee. An external consultancy was used in connection with the appointments.
The Committee held three meetings in 2010 – see above for details of Directors’ attendance at these meetings. Following each meeting the Committee reports to the Board on its activities.
Further information about the Nomination Committee is given on pages 201 to 202 of the Annual Report and Accounts 2010.
The Corporate Sustainability Committee is responsible for advising the Board, committees of the Board and executive management on corporate sustainability policies, including environmental, social and ethical issues.
The members of the Committee during 2010 were N R N Murthy, a non-executive Director (appointed Chairman on 28 May 2010), V H C Cheng, an executive Director (appointed 28 May 2010), W K L Fung (retired 28 May 2010), Sir Mark Moody-Stuart (retired 28 May 2010) and G V I Davis, Lord May and Dame Mary Marsh, who are non-director members of the Committee. The Corporate Sustainability Committee held five meetings in 2010. The table above gives details of Directors’ attendance at these meetings. Following each meeting, the Committee reports to the Board on its activities.
Further information about Corporate Sustainability is given on pages 212 to 213 of the Annual Report and Accounts 2010.
We have a long-standing commitment to the communities in which we operate. Many of our key markets are emerging economies. Our operations bring benefits to our host countries through tax contributions, and to local people and businesses through employment, training, purchasing and investment. Beyond our core business, we aim to encourage social and economic opportunity through community investment activities.
Our focus is on education and the environment because we believe they are essential building blocks for the development of communities and are prerequisites for economic growth. Global education programmes such as Future First, JA More Than Money™ and Eco-Schools focus on helping disadvantaged children, promoting financial literacy and environmental education and understanding. Our flagship environmental programme is the HSBC Climate Partnership, a US$100 million commitment to working with The Climate Group, Earthwatch, Smithsonian Tropical Research Institute and WWF on tackling climate change.
In 2010, we donated a total of US$108 million to community investment projects (2009: US$100 million).
Dividends for 2010
First, second and third interim dividends for 2010, each of US$0.08 per ordinary share, were paid on 7 July 2010, 6 October 2010 and 12 January 2011 respectively. On 28 February 2011, the Directors declared a fourth interim dividend for 2010 of US$0.12 per ordinary share in lieu of a final dividend, which will be payable on 5 May 2011 in cash in US dollars, or in sterling or Hong Kong dollars at exchange rates to be determined on 27 April 2011, with a scrip dividend alternative. As the fourth interim dividend for 2010 was declared after 31 December 2010 it has not been included in the balance sheet of HSBC as a debt. The reserves available for distribution at 31 December 2010 were US$36,013 million.
A quarterly dividend of US$15.50 per 6.20% non-cumulative US Dollar Preference Share, Series A (‘Series A Dollar Preference Share’), (equivalent to a dividend of US$0.3875 per Series A American Depositary Share, each of which represents one-fortieth of a Series A Dollar Preference Share), was paid on 15 March, 15 June, 15 September and 15 December 2010.
Dealings in HSBC Holdings shares
Except for dealings as intermediaries by HSBC Bank, HSBC Financial Products (France) and The Hongkong and Shanghai Banking Corporation, which are members of a European Economic Area exchange, neither we nor any of our subsidiaries has purchased, sold or redeemed any of our listed securities during the year ended 31 December 2010.
The auditor’s report on the full accounts for the year ended 31 December 2010 was unqualified and did not include a statement under section 498(2) (inadequate accounting records or returns or accounts not agreeing with records or returns) or section 498(3) (failure to obtain necessary information and explanations) of the Companies Act 2006. The statement under section 496 (whether directors’ report is consistent with the accounts) was unqualified.