Case Study: Corporate Governance and Ethical Aspects of HSBC

This case study examines the corporate governance and ethical aspects of HSBC, a multinational banking and financial services company. The study focuses on the ethical issues and corporate governance failures within HSBC, particularly concerning tax avoidance and related scandals. The introduction highlights the importance of corporate governance in the banking sector, emphasizing transparency and stakeholder satisfaction. The case study delves into the background of the issues, key events, and provides an analysis of the ethical problems and the role of internal and external audits in addressing them. The discussion explores methods to address ethical issues, such as internal and external audits, and highlights the importance and role of independent internal audit functions within a banking firm. The study provides recommendations for improving corporate governance and ethical practices within HSBC and the broader banking industry, emphasizing the need for transparency, accountability, and robust internal controls to mitigate risks and maintain stakeholder trust. The conclusion summarizes the key findings, emphasizing the implications of corporate governance failures on competitive edge and customer base, offering alternative solutions and recommendations for improvement.

Corporate Governance and Ethical
Aspect of HSBC

TABLE OF CONTENTS
INTRODUCTION...........................................................................................................................3
Purpose of the study.....................................................................................................................3
Importance of case.......................................................................................................................3
Structure of case study.................................................................................................................4
Background of the case ...............................................................................................................4
Key events of Case.......................................................................................................................6
CASE STUDY ANALYSIS............................................................................................................7
DISCUSSION ON QUESTIONS....................................................................................................7
CONCLUSION .............................................................................................................................14
Summary of case study..............................................................................................................14
Summary of key findings and its implication on corporate governance...................................14
REFERENCES..............................................................................................................................17
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INTRODUCTION
The corporate governance is the key aspect of any organization by which need of
different stakeholders is satisfied and they are motivated to take quick investment decision in an
organization. It is the old age concept by which an organization set boundaries of transparent
relationships between an institutions management, board and shareholders as well as other
stakeholders. It supports corporation to build the competitive edge in the marketplace and thus
give rich experience to investors. However, in recent era failure of corporation is the reason
behind high level of dissatisfaction among number of customers (Agrawal and Chadha, 2005).
Owing to this, corporate governance is gaining popularity now a days. The banking sector of
nation is the most important aspect for the economic sector of any country. Also, the operation
and work of banks is slightly different from others sector and thus corporate governance is also
crucial task for the same. In case of failure of corporate governance of bank, overall stakeholders
of corporation get affected.
Purpose of the study
The main motivate behind the study is to analyze the corporate governance and ethical
aspect of HSBC. Here, emphasis is laid on ethical issues and corporate governance of the
corporation which as potential impact on the performance. Further, current study will be helpful
to address issues of the banking sector of UK. It leads to develop different alternative solutions
for the organization under study (Kolk, 2008). Similarly, current study conduct detail analysis on
ethical issues of HSBC thereby other corporations operation in banking industry of UK can
resolve the same in order to create competitive edge of the firm. Furthermore, present study
disclose several facts through which unethical practices take place. Apart from this, the main
purpose of the study is to understand the corporate governance and ethical aspect of banking
sector of UK.
Importance of case
The current study is based on corporate governance and ethical aspect of banking sector
of UK. The study is based of case study of HSBC which reflect unethical practices of
corporation. All these factors help management to resolve the same by making use of proper
standards and code of practices (Erkens, Hung and Matos, 2012). Furthermore, the present case
is very important for overall banking sector of UK. The reason behind the same is occurrence of
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such kind of practices in any corporation. Thus, current study lays emphasis on potential impact
of failure of corporate governance on competitive edge an customer base of the corporation. It
facilitates to recommendations different alternative solutions. In addition to this, study will be
helpful for those who are doing study in the same field. Also, it proves to be effective for
banking sector to remove the barriers and create competitive edge of company (HSBC tax
avoidance scandal: Timeline of Britain's biggest banking leak, 2015). Apart from this, present
dissertation is also helpful for different other sectors like hospitality and service sector.
Structure of case study
The case study is related to HSBC which is having issue related to misrepresentation of
Tax. This structure is mainly divided into two part such as case study and case study analysis.
Here first chapter of case start with introduction about the topic under investigation. Further,
purpose of the study has also been described with its importance for several parties. It facilitates
to assess the purpose of study and its implication on overall banking industry of UK
(Kirkpatrick, 2009). Furthermore, background of the study is also prepared by addressing the key
issues faced by HSBC. In addition to this, overviews about the corporate governance and ethical
aspect of banking sector has been explained in context of UK. It also includes detail discussion
of the selected organization. On the other hand, brief introduction about the case has already
been given. The second part of study deals with discussion questions. It aids to provide detail
analysis of the collected data in the light of aim of the report. Further, summary of case study has
been given along with implications for corporate governance (Gospel and Pendleton, 2005). It
depicts that second part of the study majority focuses on deriving valid conclusion from the
collected data.
Background of the case
Bank and financial institutions play vital role in giving upward direction to economy of a
nation. This is because good or healthy economic condition arise just because of appropriate
operation of banking sector of country. Furthermore, concept of corporate governance took place
for effective operation of banks and effective management of its all operation in the direction of
growth and success (Grais and Pellegrini, 2006). Without compliance of corporate governance
banks cannot maintain transparency in their operation. This is because lack of accountability and
transparency increases level of dissatisfaction among stakeholders. Furthermore, for the service
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sector like banking, corporate governance play leading role in management of business activities.
This is the one of the foremost aspect thereby success of firm is determined with ethical
practices. However, the failure of governance creates materiality issues or risk for the
corporations.
The banking industry of UK is operating with high profitability and contributing towards
fast development of economic growth of nation. Also, the governing body set standards and
norms for the effective management of banking affairs. It facilitates to maintain transparency in
the accounting and other related aspect of banks (Wieland, 2005). Furthermore, banking industry
of UK is required to adopt extensive governance policies for the improvement in the present
work scenario. Furthermore, balance between regulatory policies and constraints as well as
ability of management to consider the personal interest of the company is the also the imperative
way. It must be ensured that balance must be there in two factors such as regulatory policies and
decisions taken at board level (McDonald and Rundle-Thiele, 2008). It enables corporation to
work with integrity and focus on corporate governance and ethical aspect of the business. With
the help of good governance banking sector of UK can enhances itself at international level and
accordingly attract number of investors.
Present report is based on HSBC which the multinational banking and financial service
company of London. This corporation is world's fourth largest bank by total with total assets of
US$2.67 trillion. Furthermore, it was established in 1991. Furthermore, banking industry of UK
is outperforming in the marketplace and contributing towards economic growth of UK (Smith,b
2015). However, ethical issues and corporate governance related issues are frequently taking
places in the number of corporation. The selected company is listed on Hong Kong Exchange
and London Stock Exchange (Brenes, Madrigal and Requena, 2011). Currently the corporation is
in headline just because of its support to clients in order to save tax. It was actively supporting
clients for hiding their deposits in order to save overall tax amount. This corporate failure or
unethical practices affected business performance in negative manner. And it is the major reason
behind by which company was charged.
Key events of Case
The key events included several others issues which are associated with HSBC for 2006.
For example, in December 2008 IT expert of HSBC was arrested by Swiss in Geneva. The
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reason behind the same was hacking files from bank. In December 2012 HSBC was fine almost
$2bn. On the other hand, in November 2014 HSBC was charged with aiding tax evasion through
Swiss business. Similarly, it has already been fined $637m for the part of in the foreign
exchange rigging scandal (Money laundering: HSBC fears significant fines, 2015). It depicts that
several kind of fines have been imposed on the corporation which affected its performance in
negative manner. Furthermore, it affect overall business performance to a great extent. However,
corporation perform good in term of different financial products and increases the intent of
different clients towards several schemes. On the contrary, technological aspect of company
creates issue where customer data were leaked and reputation of the corporation hampered in the
negative manner.
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CASE STUDY ANALYSIS
DISCUSSION ON QUESTIONS
Theme 1: Methods to address the ethical issues of corporation
As per the case of HSBC, several ethical issues are addressed in business management
associated with improper business practices. Therefore, different tactics can be applied to assess
different ethical issues. In this context, internal and external audit plays important to assess the
causes of different ethical issues or problems associated with corporate governance (Scholtens,
2009). In this context, internal audit provides an opportunities to managerial staff of business
entity for identification of various work related problems. The study of Coupland (2006) has
found that internal audit provides significant assistance in order to resolve small work related and
employee's management related issues. It includes conflicts between employees and managers on
wide range of personal and professional issues. In addition to that internal business audit has
found very effective for evaluation of operational efficiency of organization in the from of
handling of wide range of banking transaction to influence satisfaction of consumers
(Etherington and Lee, 2007). This approach supports management in identification of
identification of different ethical issues associated with employ management, customer service
delivery process, handling of banking transaction etc. Furthermore, this assessment provides an
opportunity to management to identify affected parties due to unethical practices such as
stakeholders.
On the other hand, external audit which is carried out by external individual associated
with government officials, auditors agencies etc. is identified as most important tool to assess
various serious ethical issues. In the context of HSBC, these ethical issues can be incorporated in
the from of tax avoidance, lack of transparency in business transaction as per the government
legislations etc (San-Jose, Retolaza and Gutierrez-Goiria, 2011). These serious ethical issues are
addressed by external audit. In the case of HSBC, it has been addressed that external audit is
identified as a most effective tool for assessment of wide range of unethical practices within in
business entity. Furthermore, Gitman, Juchau and Flanagan (2010) have determined that every
banking organization manages its business operations as per the guidance of central banking
authority of particular country. This authority also publishes an annual report on work and
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management practices of different banking organizations. In this context of present case,
different external individuals can use different reports published by Bank of London on
operations and business transaction of different banks to assess unethical practices performed by
different banks. These reports provide basic ideas of different policies and procedures followed
by several banking institutions to increase profitability of company (Watchman, Partner and
Deringer, 2006). These report also highlights the fair and unfair business practices of banking
firms to generate more profit and to attract more consumers.
Theme 2: Importance and role of independent internal audit function in the context of
banking of firm
The management of HSBC has managed an independent internal audit function to
provide independent assurance that an organisation's risk management, governance and internal
control processes are operating effectively. This team plays important role for compliance of
various policies and rules within various business operations. The research of Agrawal and
Chadha (2005) has determined that it is a professional duty of internal auditor's team to provide
an unbiased and objective view by evaluating wide range of data and report to the highest level
in an organisation: senior managers and governors. Therefore, the administration of HSBC have
managed an efficient internal audit team that contains highly qualified, skilled and experienced
people who can work in accordance with the Code of Ethics along with International Standards
(Kolk, 2008). The primary objective of internal audit team is to assess wide range of work
related issues and effectiveness of distinct business strategies that have significant impact on
quality of services, operational efficiency of business, etc. It also preforms the active role for
assessment of internal frauds and misconducts within business entity. This system uses different
tools to assess wide range of errors and problems associated with organizational operations that
could be occurred by operational deficiencies and human mistakes (Kirkpatrick, 2009). In this
regard, internal audit is being identified as very useful for resolving different business problems
because this team suggests solutions associated different work related problems. Internal
auditors within HSBC are mainly selected by top managers and board of director therefore it is
not disclosing any kind of serious issues that affect the profitability of bank.
Theme 3: Responsibilities of management staff and corporate governance within organization
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As per the above theme, it can be stated that every business entity associated with the
banking sector follows a certain system of rules, practices and processes that plays important role
in order to direct and controll different business operations. In this context, the study of Gospel
and Pendleton (2005) has stated that corporate governance plays important in the balancing of
the interests of the many stakeholders in a company such as management, customers, suppliers,
financiers, government and the community. In the context of contemporary business
environment, determination of role and responsibilities of managerial staff is one of the most
curcial aspects for managing different business operations and handling of corporate governance
within business entity. In this context, it is analyzed that management staff have appropriate
knowledge about their roles and responsibilities then they are able to manage wide range of job
related roles and operations with an appropriate manner (Wieland, 2005) This element supports
top authorities of HSBC for managing proper relationship between staff responsibilities along
with handling of different business practices as per the different aspect of corporate governance.
McDonald and Rundle-Thiele (2008) has evaluated that managerial staff who are having proper
understanding of different job roles and responsibilities are able to handle various issues and
problems identified in different operations. It supports management staff for balancing of various
business operations as per the distinct needs of stakeholders. Author further argued that
managing of different business operations as per the different aspects of corporate governance
provides an opportunities to management in order to enhance goodwill and market share of
company. In this process, fair business practices identify as most important aspect of business
management through which business entity is able to manage fair business practices.
According to Stakeholder theory organization is directly interacted with number of
stakeholders such as employees, government, customers and shareholders. This aspect is used as
one of the frameworks in corporate social responsibly method which leads to determine long run
success of the firm. Under this, management of HSBC need to consider need of all stated
stakeholders and meet their expectations effectively. For example, customer of HSBC want to
access good quality of services and they consider only their own benefit. At this juncture, HSBC
was supporting clients to a great extent but this was the illegal process to provide them support.
On the other hand, government set several rules and regulation which need to be followed by
management of company. However, the case reflect that HSBC did not follow the ethical aspect
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and hence it was alleged. In addition to this, employees should be provided proper training and
expertise to render good quality of services by working on ethical aspect of firm. Thus,
stakeholder theory shed light on different stakeholders who are directly or indirectly associated
with corporation.
Theme 4: Importance of facilitation of internal audit report to external auditors in ethical
business practices
The above theme determines an appropriate approach through an individual is able to
examine ethical business operations of HSBC. In the context of above theme, the study of
Brenes, Madrigal and Requena (2011) has found that if an organization provides a report of
internal audit to external auditors than different facts and information about different business
operations of business are evaluated without any biasses along with transparency. This approach
has found very effective to assess any unethical business practices and frauds which are not
represented in the the report of internal auditors. Apart from that it is analysed that this tactic
supports business entity in order to address accuracy of rewards presented by internal auditors
(Watchman, Partner and Deringer, 2006). By assessing the views of external auditors such as
government official, private agencies etc. on the findings of internal auditors, different external
stakeholders such as public authorities, consumers, shareholders etc. are able to take appropriate
decision about investment, relationship with bank etc. as per the ethical and unethical business
practices. In addition to that Coupland (2006) has evaluated that evaluation of internal audit
report through external auditors provides an opportunity to management and external
stakeholders for identification of appropriateness of finding. The external auditors play
significance role for assessment of unethical business practices which are carried out by business
entity and not disclosed. In the context of banking sector, companies try to attract different
individuals and business clients through their tax saving policies and schemes (Scholtens, 2009).
Sometimes, these schemes provide an opportunity to external client to hide taxable amount. This
thing influences black money which is identified as unethical business operations of banks.
Furthermore, ethical business practices has relevance to shareholders theory because
management need to focus on wealth maximization of shareholders. Here, the prime motive of
HSBC is to focus on financial interest of shareholders against the interest of other stakeholders.
In order to enhance the wealth of shareholders, it is very important for company to engage with
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profit enhancing activities and invest the fund shareholders in profitable project. This in turn
company need to follow the ethical practices so as to achieve long as well as short term
objectives of firm. Apart from this, shareholders must be informed for each and every business
activities to determine their own growth with high rate of return. Thus, management of HSBC
need to focus interest of shareholders as well as other related parties who are directly or
indirectly associated with business.
Theme 5: HSBC supports their clients in tax evasion practices
As per the above theme, there are several business operations of HSBC evaluated that
indicate that bank has provided significant support to their clients in tax evasion practices. In this
context, it has been analysed that Swiss bank has allowed its clients to withdraw huge amount of
money in currencies other than Swiss francs. With the help of this approach, the money was not
appear in exchequers radar. In addition to that HSBC bank was also accused of providing help to
other clients to hide their accounts which were opened at Swiss bank that played important role
in order to reduce tax liabilities (HSBC PAYS SWISS AUTHORITIES RECORD-BREAKING
FINE, 2015). This approach plays important role in generation of black money. It has done due
to save the additional expenses and hide accounts from tax authorities. In the context of ethical
norm, these kinds of business practices are considered as unethical business operation. In this
context, Gitman, Juchau and Flanagan (2010) have evaluated that every banking organization
offers such products that reduces the tax liabilities of bank clients. Author further evaluated two
terms such Tax Avoidance and Tax Evasion which are used by many people to reduce their tax
liability by taking expert advice. Tax Avoidance is completely lawful. On the other hand, Tax
Evasionis is considered as a crime in the whole world. In this regard, it is analyzed that the
primary objective of tax avoidence is minimization of tax liability, by using such practices which
are not violating the tax rules. It is also carried out by taking unfair advantage of the
shortcomings in the tax laws. In the contary, the reserch of Etherington and Lee (2007) has found
that some banks also support to their business clients for reducing tax liability by using illegal
ways that is known as Tax Evasion. This process is carried out through significant manipulation
of accounts which is considered asa fraud.
In this context, the management of HSBC has argued that it was not its fault because
payment of tax is the responsibility of individual client not of private banks. At this juncture,
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corporation has been accused of allowing clients to evade millions in tax. It serve as the
misconduct for the corporation which affected performance of the firm in negative manner. For
supporting unfair banking practices of clients, business entity was fined $1.9bn in 2012.
Furthermore, it was also found that company helped more than 200 countries including Britain
for avoiding tax (.HSBC to pay $43 mn in probe over Swiss subsidiary’s tax evasion, 2015).
Furthermore, it depicts that organization is not following the ethical practices and company is not
working well in order to meet expectations of stakeholders. It consists of money laundering, tax
evasion and violating international sanctions against Iran. In addition to that different researches
have addressed that aggressively mass marketing of tax avoidance schemes have played
important role for promotion of unethical practices within banking organization. In addition to
that it is analysed that HSBC’s Swiss banking arm has supported several wealthy customers
dodge taxes and conceal millions of dollars of assets, doling out bundles of untraceable cash etc.
In addition to that organization also assists to its clients on how to circumvent domestic tax
authorities (HSBC tax avoidance scandal: Timeline of Britain's biggest banking leak, 2015).
Furthermore, it also routinely allowed to its clients to withdraw bricks of cash, often in foreign
currencies which is not used in Switzerland. Apart from that aggressively marketed schemes
likely have provided an opportuity to wealthy clients to avoid European taxes. Company also
provided different accounts to international criminals, corrupt businessmen and other high-risk
individuals. All these practices are considered as unethical business practices.
Theme 6: HSBC comply business operation with core ethical values
The core value of HSBC is comply with the spirit and letter of all applicable laws, codes,
rules, regulations and standard in order to create efficient business principles. In this context,
business entity is tried to develop a strong culture of compliance which is essential to our
reputation, sustainability and success. This culture plays important role for success and growth of
business entity. In this regard, detail evaluation of different managment practices has found that
HSBC has attained all basic core value assocaited witht satisfaction of consumers, managing
relationship with different stakeholders etc (San-Jose, Retolaza and Gutierrez-Goiria, 2011). In
this context, HSBC makes efforts to act in a lawful manner and demonstrates the highest
standards of business and personal conduct for carrying out different business operations wiht
honesty and integrity towards different customers, suppliers and regulators. As per the reports of
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