Corporate Governance Comparison: Barclays and HSBC Project

This project provides a detailed analysis of corporate governance, focusing on two leading UK banking institutions: HSBC and Barclays. The report begins by critically evaluating corporate governance theories, including agency theory, transaction cost theory, and enlightened stakeholder theory, and presents the mechanisms employed by the selected companies. It then compares and contrasts the corporate governance structures of Barclays and HSBC, examining the roles of the board, chairman, and CEO, as well as the composition of the board of directors. The project further discusses the companies' compliance with legal requirements, assessing their risk management and internal control systems, and the inclusions in their annual reports. Finally, it evaluates the director's remuneration strategies followed by both banks, including remuneration policies for non-executive directors and remuneration structures for executive directors. The report concludes with a summary of the key findings and a comparison of the corporate governance practices of the two banks.

Project on Corporate Governance
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TABLE OF CONTENTS
MAIN BODY..................................................................................................................................1
1. Critically evaluating theories related to corporate governance and presenting mechanism
that is employed by such two selected companies.......................................................................1
2. Comparing andcontrasting the corporate governance structure of Barclays and HSBC.........3
3. Discussing whether both the companies have complied with the legal requirements or not. .6
4. Evaluating director’s remuneration strategies that are followed by HSBC and Barclays bank
.....................................................................................................................................................7
CONCLUSION................................................................................................................................9
REFERENCES..............................................................................................................................10
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NTRODUCTION
Corporate governance implies for the system of rules, practices on and processes the
basis of which business unit is directed as well as controlled. In the modern era, practices of
corporate governance are highly significant which in turn assists in ensuring proper balance in
the interest of company’s stakeholders such as management, suppliers, employees, community
etc. Hence, corporate governance may be served as an explicit and implicit contract that takes
place between company and its stakeholders for the distribution rights, responsibilities as well as
reward. For this report, leading banking institutions of UK namely,HSBC and Barclays has been
selected. In this, report will shed light on corporate governance theories and structure undertaken
by HSBC and Barclays bank. Further, report will present the extent to which both the selected
companies have complied with the legal requirements. It also depicts remuneration strategy (for
non-executive directors) and structure (pertaining to non-executive directors) that is followed by
such two concerned units.
MAIN BODY
1. Critically evaluating theories related to corporate governance and presenting mechanism that
is employed by such two selected companies
Agency theory
According to the views of Shi, Connelly and Hoskisson (2017) agency theory describes
relationship that takes place between shareholders (principals) and company’s managers (agent).
On the basis of such relationship, principals / managers are appointed or hired for acting and
taking decisions on the behalf of shareholders or investors. This theoretical framework focuses
on dealing with two specific problems. One refers to alignment or integration of the goals of
principal and agents so there is no conflicting situation. Further, managers and shareholders
reconcile different tolerances for risk. In accordance with Aguilera, Judge and Terjesen (2018),
as per agency theory, principal or investors select directors or managers for taking decisions for
them. In this, cost is incurred by the investors for monitoring the agency behaviour due to the
lack of trust. Agency theory of corporate governance has following strengths and weaknesses:
Strengths Weaknesses
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 Facilitates effective decision making
 Contributes in meeting the goals of
shareholders to a great extent
 Creates ethical issues and concerns
 Imposes anti-social implications
Transaction theory
Lee, Park and Folta (2017) defined transaction cost theory as an alternative variant of
agency framework. Hence, such theory exhibits corporate governance aspects considering the
effects of both internal and external transactions. On the other side, Williamson (2017) claimed
that transaction cost theory of corporate governance lays focus on cost enforcement and balance
mechanismsuch as audit, information disclosure etc.
Strengths Weaknesses
 Develops faith among the stakeholders
 Strengthen relationship between
company and its stakeholders
 High cost associated with the
controlling and monitoring aspects
 It reflects risk averse nature of
managers
 Opportunist behaviour of
directorsdiscourage potential investors
Enlightened stakeholder theory
Andriof and et.al., (2017) stated that as per stakeholder’s theory, shareholders appoint
directors as steward for their interest.Such theoretical framework presents that business unit
owes accountabilities towards the wide group of stakeholders. It presents that rather than placing
emphasis on shareholders motives, company should develop strategies that place positive impact
on all the stakeholders such as employees, customers, supplies, community etc. Further, Pigé,
(2017)depicted in their study that stakeholder theory implies for the aspects of organisational
management and business that helps in addressing morals and values. Hence, such theoretical
framework emphasises on meeting the goals of both internal and external stakeholders.
Strengths Weaknesses
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 Helps in enhancing brand image by
developing integration between the
goals of both internal and external
stakeholders
 Assists in understandingthe needs and
expectation of stakeholders in the best
possible way (Advantages and
disadvantages of stakeholder’s theory,
2018).
 Ensures better relationship management
‘
 Gives input for the development of
competent strategic and policy
framework.
 In this, assessment orevaluation is
subjective in nature
 In the modern era, it is not possible for the
firm to meet the expectation level of
stakeholders at one time.
In the context of both the selected banking units,stakeholder theory is highly suitable. Moreover,
along with the investors,other stakeholders are also the main part of business unit without which
success cannot be attained. Hence, by preparing strategies that contributes in the goal attainment
of all the stakeholders Barclays and HSBC plc can enhance its brand image.
2. Comparing and contrasting the corporate governance structure of Barclays and HSBC
Basis of difference Barclays bank HSBC bank
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Role of the Board Corporate governance report
of Barclays Plc shows that
duty of Board’s principal is to
create as well as deliver
sustainable value to the
shareholders through the
means of competent strategic
framework. Hence, board of
Barclays plc plays a vital role
in taking decisions thatplaces
positive impact on
stakeholders such as
employees, communities and
suppliers. Further, board team
also ensures as well as
promotes balance between
long term growth and delivery
of short term objectives.
BOD of HSBC plays a
significant role in delivering
sustainable valueto the
shareholders and both internal
as well as external
stakeholders.
Role of the Chairman Barclay’s chairman is
involved inactivities such
asstrategy development and
implementation. Hence,
chairman’s role within
Barclays is highly significant.
Chairman of HSBC, plays a
vitalrole in managing overall
stewardship of the business.
Hence, focus is placed on
giving report to the investors
and other stakeholders. He
also develops strategy for
facilitating integration
between non-executive
directors and members of
senior management. Further, it
is the accountability of
chairman to select suitable
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accounting policies and follow
IFRS where suitable.
Role of CEO CEO of Barclays, Jes Staley,
has extensive experience in
the field of banking and
financial services. Hence, his
role within Barclays is to
develop strategies and
framework regarding equities,
private banking and assets
management.
In HSBC, CEO, Mark E
Tucker, is assigned with the
accountabilities in relation to
monitoring performance and
develop strategies that make
contribution inthe attainment
oforganizational goals as well
as objectives.
Structure of the Board Barclays bank HSBC bank
Directors profile  Chairman: John
McFarlane
 Group CEO: Jes Staley
 Mike Ashley: Non-
executive director
(NED)
 Tim Breedon CBE:
NED
 Sir Lan Cheshire: NED
 Mary Francis CBE:
NED
 Crawford Gillies: NED
 Sir Gerry Grimstone:
NED
 Reuben JefferyIII:
Jonathan Symonds, CBE:
Chairman and independent
non-executive Director
Mark E Tucker-Group
Chairman
John Flint: Group CEO
Lain Mackay: Group Finance
Director
Phillip Ameen: Independent
NED
Kathleen Casey: Independent
NED
Laura Cha: Independent NED
Henri de Castries:
Independent NED
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NED\
 Matthew Lester: NED
 Tushar
Morzaria:Group
Finance Director
 Dambisa Moyo: NED
 Diane Schueneman:
NED
 Mike turner CBE:
NED
(Barclays Directors Team,
2018)
Lord Evans of Weardale:
Independent NED
Joachim Faber: Independent
NED
Irene lee: Independent NED
etc (Senior Management team
of HSBC, 2018)
Conclusion By taking into account the
structure of board, on the
critical note,it can be depicted
that gender gap exists in this.
Moreover, out of the team of
14 members only 3 are
females and rest of male
members included in the team.
However, in terms of skills, all
the board members are
experienced and able to handle
banking activities
prominently.
In the team of 18 board
members, 4 are females and
rest 14comes under the
category of male.
Comparison Comparatively lower In HSBC, gender gap is much
higher. Thus, action needs to
be undertaken for
resolvingsuch gender gap
takes placewithin theboard
team of HSBC.
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Hence, referring the above mentioned aspects, it can be stated that governance structure
of both the concerned banking institutions are sound. However, comparatively structure of
Barclays is considered as good or balanced over HSBC.
3. Discussing whether both the companies have complied with the legal requirements or not
Risk management and internal control
HSBC has effective risk management control as performance is evaluated against
objectives made and as such, metrics are being judged to assess risk in attaining strategic goals in
effectual way. Performance scorecards are prepared for analysing risks by Board of organisation.
Risk objectives are classified in these scorecards and compulsory global risk objective is
effectively prepared. On the contrary, Barclays Bank has more effective risk management and
internal control (Annual report of Barclay Plc, n.d). This is clarified by the fact that reputation
risk is evaluated by it. Thus, it has effective framework for risk assessing.
Internal control systems
Internal control system of Barclays Bank is effective as it maintains efficient internal
financial controls and complies with laws in this aspect. Board is responsible for ensuring
compliance with risk related to reputation. Moreover, risk inherent to costs and benefits of
business is evaluated for initiating effective internal control. HSBC has adopted principle of
Group's Global Standards Manual (GSM) which initiates overall control over group's business
irrespective of location (Annual report of HSBC, n.d.). Moreover, Board delegates control over
personnel’s to implement effective powers.
Monitoring of internal control systems
There is effective monitoring of risks by Barclays Bank so that it may be able to initiate
control over it. For accomplishing this, annual reports are prepared regarding risk and as such,
Board reviews the same. Moreover, long-term strategic plans are reviewed which includes
maintaining liquidity and strategic risk in effective way It has determined risk appetite and
formulated risk strategy. On the other hand, HSBC has monitoring on annual basis with basic
hierarchical structure. Disclosure Committee headed by Company Secretary complies with group
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obligations. Furthermore, half-yearly confirmations are provided in order to lower down
financial crime risk as well.
Inclusions in annual report
Business risk is effectively extracted by Barclays Bank. The Board is entrusted to assess
liquidity position and capital structure of company so that operational tasks can be performed
well. HSBC has quite good structure of liquid assets available to make payments to creditors.
Sales per unit volume are good as well. Liquidity aspect of Barclays Bank is required to be
effective to achieve high liquid assets. The reports are timely prepared by the bank in order to get
clarity regarding payment to creditors. Effective monitoring is required to have so that risk can
be mitigated.
4. Evaluating director’s remuneration strategies that are followed by HSBC and Barclays bank
Remuneration policy for non-executive directors:
HSBC bank Barclays bank
 Fees level in the context of HSBC bank
presents the time commitment and
accountabilities of such directors.
 Policies pertaining to non-executive
director’sremuneration includebase
fees. In addition to this, further fees is
also offered to the Board for additional
duties such as chairmanship, committee
membership,
 Further, policy of such banking
institution entails that certain non-
executive directors are entitled to
getfees when they perform activities as
the director of HSBC subsidiaries.
Hence, such additional remuneration is
determined by the BOD of each
In this banking institution, remuneration paid
tonon-executive directors considering their
skills, experience and professional
backgrounds. Changes are made in the
remuneration policy according to the
consensus of BOD.
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subsidiary.
 Remuneration report of HSBC exhibits
that fees will not be inclined by more
than 20% over than in exceptional
cases.
Remuneration structure for executive directors:
HSBC bank Barclays bank
 Base salary: It highlights the role,
responsibility and experience of
executive directors. Basic salary is
not increased by moiré than 15%
over the exceptional circumstances.
 Fixed pay allowances: This comes
under the category of non-
pensionable schemes which will be
offered in terms of shares. On the
basis of such allowance, shares will
be offered to executive directors in
a pro-rata basis over the five years
time period (Directors’
Remuneration Policy Supplement
2017 of HSBC bank, n.d).
 Cash in lieu of pension: Cash
allowances are offered to HSBC
bank in against to the aspects of
pension entitlement.
 Remuneration structure of Barclays Plc
includes basic pay, shares and bonuses.
 In 2017, committee approved a bonus
of£1065000 which accounts for 48.5%
maximum of which 62.4% will be
transferred in shares for the period of 7
years (Remuneration report, 2018).
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CONCLUSION
By summing up this report, it has been concluded that both Barclays and HSBC lays
emphasis on undertaking stakeholder theory of corporate governance.This in turn helps
inimproving both brand image and market share. Further, ithas been articulated that board
structure of Barclays plc is recognised as good over HSBC. It can be seen in the report that
remuneration structure of both the companies, pertaining to executive directors, includesshare,
bonuses and fees. It can be summarised from the evaluation that remuneration policies
undertaken by HSBC are highly structured. Besides this, it can be inferred that both the
companies have taken significant actions for complying with the legal aspects.
REFERENCES
Books and Journals:
Aguilera, R. V., Judge, W. Q. and Terjesen, S. A., 2018. Corporate governance
deviance. Academy of Management Review. 43(1). pp.87-109.
Andriof, J. and et.al., 2017. Unfolding stakeholder thinking: theory, responsibility and
engagement. Routledge.
Lee, J. M., Park, J. C. and Folta, T., 2017. CEO Career Horizon, Corporate Governance, and
Real Options: The Role of Economic Short-Termism. In Academy of Management
Proceedings (Vol. 2017, No. 1, p. 14788). Academy of Management.
Pigé, B., 2017. Stakeholder theory and corporate governance: the nature of the board
information. Management: journal of contemporary management issues. 7(1). pp.1-17.
Shi, W., Connelly, B. L. and Hoskisson, R. E., 2017. External corporate governance and
financial fraud: cognitive evaluation theory insights on agency theory prescriptions. Strategic
Management Journal. 38(6). pp.1268-1286.
Williamson, O. E., 2017. Contract, Governance and Transaction Cost Economics. World
Scientific.
Online:
Annual report of Barclay Plc.n.d. [Online]. Available through:
<https://www.home.barclays/content/dam/barclayspublic/docs/InvestorRelations/
AnnualReports/AR2017/Barclays%20PLC%20Annual%20Report%202017.pdf>.
Annual report of HSBC.n.d. [pdf]. Available through:
<file:///C:/Users/karen/Downloads/180220-annual-report-and-accounts-2017.pdf>.
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