Corporate Governance and Ethical Issues: HSBC Holdings Report

This report provides an analysis of corporate governance and ethical issues at HSBC Holdings, utilizing Carroll's Pyramid model to examine the company's responsibilities across economic, legal, and ethical tiers. The report explores HSBC's economic performance, legal compliance with regulations such as the Equality Act and anti-money laundering laws, and ethical considerations related to stakeholder interests, including issues of money laundering and tax avoidance. The analysis highlights the importance of ethical conduct, corporate social responsibility, and the impact of ethical failures on the company's reputation, financial performance, and stakeholder relationships. The report concludes by emphasizing the crucial role of Carroll's model in guiding HSBC's operations and ensuring sustainable growth by balancing economic, legal, and ethical responsibilities to maintain stakeholder trust and a strong market position.

Corporate
Governance and
Ethics

Table of Contents
INTRODUCTION...........................................................................................................................1
MAIN BODY ..................................................................................................................................1
Economic Tier: ............................................................................................................................2
Legal and regulatory tier: ............................................................................................................3
Ethical tier:...................................................................................................................................3
DISCUSSION AND FINDINGS.....................................................................................................4
CONCLUSION................................................................................................................................5
REFERENCES................................................................................................................................6

INTRODUCTION
Corporate governance is the set of different regulations, rules, practices & procedures
which are needed to be followed by the company. (Corporate governance. 2019). Ethics are the
system of moral principles which concerned that what is right and what is wrong. The main aim
of this report is to analyse the ethical issues by using Carroll's Pyramid (Biesta, 2015). To better
this concept, HSBC Holdings has been chosen which is a British multinational banking and
financial services holding corporation. In this report, there are following topics are covered such
as: economic tier, legal and regulatory tier and ethical tier.
Illustration 1: (Source: HSBC Holdings, 2018)
MAIN BODY
Carroll's Pyramid model is based on corporate social responsibility which is needed to be
follow by the organisation. In this pyramid there are four responsibility has been considered such
as: philanthropic, ethical, legal and economic. (Boatright,2017).
Economic Tier:
As it suggests to be profitable. As the economic responsibility is important part of the
business and it emphasis to generate higher profits for their various stakeholders and this
pyramid denotes that business is an economic unit for the people who lives in the society. There
are various factors which create handles for the company which involves: market conditions,
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environmental factors, advertisement and marketing techniques but the management of
corporation is responsible to earn higher revenue by taking effective decisions which contribute
in the growth of business (Coates, 2016). As the business of HSBE Holdings is generating
sufficient profits but if stakeholders and shareholders are not getting dividends, bonus and the
investors who invest in the business they are not getting the returns which is an issue. This
ethical issue can affect the performance of organisation because investors and shareholders will
not invest their funds in the corporation.
As the market is growing as well as industry is also growing and earning higher profits
and HSBC has emphasis to fulfil the duty to create wealth for shareholders and the main
shareholders of HSBC are Fisher Asset Management LLC which held 0.40% shares, bank of
American corporation held 0.13% of shares and Royal Bank of Canada held 0.11% of shares.
And the one year return is -4.11%. (One year returns. 2019). The policies which are frame by
the organisation are always for the benefit of society and its people and it does not want to harm
because HSBC operate its business in society and it is important for the company to make the
policies for the benefit of society so that market image and profits can maximize (One year
returns. 2019).
As the issue is that HSBC involves in money laundering activities and for that purpose it
have to pay $1.92 billion and it expected to pay $1.5 billion for tax evasion. It can adversely
effect the image and business of company. Due to this share price will be negatively impact and
the value of share will reduce and shareholders will not prefer to purchase the shares and it affect
the performance of business.
As a result, growth of business of can be influence because these individual does not
invest in future in the business of corporation. From this specific issue wealth of these persons
and shareholders can be affected. As the share price of HSBC holdings are 649.70 GBX as on 8th
April 2019 (Share price of HSBC Holdings. 2019). From this issue the share prices can also be
influenced and it can be reduced which is not good for the growth of firm. It can affect the profits
also and it can be reducing the market capitalisation. It is the responsibility of management of
company to follow the ethics which are essential so that work can be done effectively and targets
can be achieve as per the requirement. As per Carroll's Pyramid it is responsibility of firm to
fulfil the economic responsibility so that business of organisation can perform well by satisfying
the desires of persons and stakeholders. As a sub conclusion it can be said that it is required for
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the organisation to create the wealth for the shareholders so that ethical issue can be resolve and
it help the company to achieve the goals and objectives (Crane,2016).
Illustration 2: (Source: Assets of HSBC Holdings, 2019)
Legal and regulatory tier:
It is important for an organisation to follow the legal norms and regulations which are
made by the government authorities and various departments of law. There are various laws and
regulations which are needed to be follow by the organisation in order to survive in the market.
For HSBC Holdings it is important to follow the CSR activities and its policies. The
management of company is responsible to contribute in corporate social responsibility for the
welfare of society as well as stakeholders. If the corporation does not follow this than issue can
be created and fines and penalties can be imposing by the government which can affect the
performance of firm (Crane,2016). The manager of corporation has to ensure that they have to
contribute some percentage of its profit as a CSR activity for the welfare of people and it also
helpful in development of country. Apart from this it is required for the corporations to follow
different laws and regulations which are as:
Equality act, 2010: This act states that it is required for the organisation to follow the
regulations and rules of this act. As HSBE Holdings can emphasis to follow the laws as per this
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act and provide same opportunities to the employees and do not make discrimination on the basis
of gender and also on the basis of pay scale.
As HSBC has faced the issue regarding money laundering and tax avoidance because it
has been analysed that in the year 2018 it expected to pay $1.5 billion in tax evasions and for the
money laundering company has penalised $1.92 billion. For the money laundering there is a law
which is known as Anti- Money Laundering and fraud Act and it is helpful to regime to deduct &
deter money laundering.
Banking law: As per this law HSBC Holdings have to follow the regulations and laws
which are related to the banking sector. This law contains that how much capital is required to be
maintain for the banking sector and what will the interest rate while granting the loans to the
consumers. How much funds are required to be maintain by the corporation in order to follow
the banking laws. It is helpful for the corporation to expand its business and get growth and
success (Tricker, 2015).
Laws and regulations related to HSBC: As HSBC has emphasis towards Global Anti-
Money Laundering Programme and the main objective of this programme is to minimize the
money laundering risk identified by HSBC are appropriately mitigated. As AML programme is
based upon different laws, regulations & regulatory guidance from the UK and European Union.
HSBC has emphasis to follow anti-bribery & corruption laws which includes UK bribery act
(Laws and regulations of HSBC. 2019). In this regard the role of corporation is to follow the
laws and regulations which are made by the legal authorities and it is helpful for the smooth flow
of business operations.
Ethical tier:
Apart from legal and economic tiers it is very necessary for every organisation to fulfil
their responsibilities in ethical and moral manner. The business concerns should conduct its
functions according to values of society and ethical norms (Davies, 2016). HSBC holdings must
comply with corporate social responsibility norms as it accompanies towards society's welfare
and stakeholders’ interest. Stakeholders of HSBC holdings face many issues related to ethical
norms and corporate governance. The manager of HSBC should control the whistle-blowing
activity as it decreases interest of consumers because this activity leaks lot of confidential data
and information of its stakeholders. Recent unethical issue in HSBC holdings occurred when
there were thousands of files were snatched which was unethical because it was against security
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concerns safety of their investments (Jain, 2016). The Company can deal with stakeholders
issues by taking proper care of their holdings and adopt ethical practices to maintain interest in
the organisation. The positive impact on HSBC holdings through ethical responsibility that
society always expects that its operations are conducted in ethical manner adhering to norms,
values, cultures, beliefs and tradition of society.
At last from the above explanation it can be concluded that company can protect the
interest of its stakeholders in very effective and efficacious manner. Also, if the HSBC
Corporation will act ethically and fulfil corporate social responsibilities will help to attract more
investors and consumers. If the company will fulfil required necessities and objectives of
corporate governance will help in sustainable growth and strong market base.
As HSCB has emphasis to takes into considerations the views of all stakeholders and it
involves: investors, shareholders, consumers, government etc. In this regard HSBC is focuses
ethics and the ethics of companies says that to provide better quality of products and services by
satisfying the needs of consumers and protect the interest of all stakeholders which are related to
the business of company.
For the money laundering HSBC has paid $1.92 billion which is an issue for the company
and it can affect the business of company.
Illustration 3: (Source: Benchmark index, 2019)
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DISCUSSION AND FINDINGS
From above it has been found that Carroll’s Pyramid model possess with many critiques
and limitations. The above report explained about the various levels of corporate responsibility
model at HSBC Holdings (Peters,2015). This model provides insufficient information about the
understanding of proposed model. While discussing about the economic tier the most important
limitation was that the investors are not getting their dividends and returns on time so this is
creating dissonance between its shareholders but to maintain wealth of its shareholders HSBC is
fulfilling economic responsibility towards its shareholders. But economic responsibility is very
important for every business and profit maximisation. Talking about the legal and responsibility
tier the HSBC Corporation should adhere to legal laws and regulations so, that no fines and
penalties are charged on the company. Also, HSBC comply with equality act which put both
negative and positive impact on the company’s reputation and image. If company gives equal
treatment to its employees and customers this assist company in increasing morale and
commitment of them whereas, this will also help company to build effective position in the
community by fulfilling corporate social responsibility. As per ethical tier of Carroll's pyramid
model HSBC fulfils all the ethical norms and values in the organisation considering between
right and wrong, fair and unfair practices while conducting business operations (Strike, 2015).
HSBC must adhere to ethical laws prevailing in the country so that stakeholders comprising of
suppliers, customers, employees and many more are treated fairly and no discrimination is
performed against. Also, ethical tier explains about giving proper dividends and share in profits
without any manipulation as this will aid in attracting more and more investors as per the
reputation in the global marketplace.
Carroll's Pyramid model has emphasis towards corporate social responsibility which is
required to be follow by HSBC. As company follows the regulations which are associated with
it then its goodwill can increase and it can protect the interest of different stakeholders.
As from the viewpoints of stakeholders it has been analysed that there are various issues
can be seen in HSBC which are money laundering and tax avoidance and it is against the social
norms. Due to this sales of firm will reduce and creditors will not lend the money to the company
so overall it influence the business of corporation
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CONCLUSION
As per the above report it can be analysed that Carroll’s model of corporate social
responsibility plays crucial role in success and growth of business concern. This model helps
HSBC in conducting its operations by complying to economic, legal and ethical responsibilities.
Carroll’s pyramid of corporate social responsibility analyses that economic values comes before
both ethical and legal values. The Carroll's model is easy to understand and simple to implement.
Further its limitations are that it is costly, and takes time for completion of work. It is important
for corporation to follow this model so that it can fulfil its corporate social responsibilities
effectively and it is beneficial for the organisation.
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REFERENCES
Books and Journals
Biesta, G. J., (2015). Good education in an age of measurement: Ethics, politics, democracy.
Routledge.
Boatright, J. R., (2017). Ethics and corporate governance: Justifying the role of shareholder. The
Blackwell Guide to Business Ethics.pp.38-60.
Coates, A. J., (2016). The ethics of war.
Crane, A. & Matten, D., (2016). Business ethics: Managing corporate citizenship and
sustainability in the age of globalization. Oxford University Press.
Davies, A., (2016). Best practice in corporate governance: Building reputation and sustainable
success. Routledge.
Jain, T. & Jamali, D., (2016). Looking inside the black box: The effect of corporate governance
on corporate social responsibility. Corporate Governance: An International
Review.24(3). pp.253-273.
Peters, R. S., (2015). Ethics and Education (Routledge Revivals). Routledge.
Strike, K. & Soltis, J. F., (2015). The ethics of teaching. Teachers College Press.
Tricker, B., (2015). Corporate governance: Principles, policies, and practices. Oxford University
Press, USA.
Online
Corporate governance. 2019. [Online]. Available Through:
<https://www.investopedia.com/terms/c/corporategovernance.asp>
Share price. 2019. [Online]. Available Through:
<https://www.google.com/search?
q=hsbc+holdings+plc+share+price&oq=HSBC+holdings&aqs=chrome.1.0j69i59l2j0l3.3279j0j7
&sourceid=chrome&ie=UTF-8>
HSBC Holdings. 2018. [Online]. Available Through:
<https://www.timesofmalta.com/articles/view/20190307/business-news/hsbcs-final-
dividend-hit-by-new-ecb-rules.703796>
Assets of HSBC Holdings. 2019. [Online]. Available Through:
<https://www.statista.com/statistics/224808/total-assets-of-the-hsbc/>
Benchmark index. 2019. [Online]. Available Through:
<https://www.ft.com/content/b3c2e912-33e2-11e9-bd3a-8b2a211d90d5>
One year returns. 2019. [Online]. Available Through:
<https://www.bloomberg.com/quote/HSBA:LN>
Laws and regulations of HSBC. 2019. [Online]. Available Through:
<https://www.hsbc.com/our-approach/risk-and-responsibility/financial-crime-risk/
financial-crime-risk-policies>
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