Contrasting the evolution of corporate governance models: A study of banking in Hong Kong

Abstract

The sub-prime mortgage crisis, the bankruptcies of important US banks, and many originally family controlled enterprises coming under non-family, CEO-type leadership during the 2008 global credit crunch led many people to rethink the relationship between risk management and family businesses. One of the foci was on the doctrine of separation of ownership. This paper attempts to compare and examine the evolution of corporate governance in the banking business in Hong Kong by using two key financial institutions based there. By contrasting the evolution of corporate governance, management style and pattern of succession, we can see that although they developed under the same business environment and legal framework, the East-West business culture and ideology led them to choose different ownership structures and ways of succession, which ultimately determined their different developmental trajectories.

Keywords:

• banking management
• China
• Chinese family business
• corporate governance
• culture
• Hong Kong
• ownership and control
• succession

Acknowledgement

This paper is part of the ‘Hong Kong as Financial Gateway for Taiwanese Enterprises’ project and the ‘Chinese Family Business and Stock Market’ project. The former is supported by the University Grants Council in Hong Kong (Project Ref. HKU 7549-08), whilst the latter is funded by the Chiang Ching-kuo Foundation in Taiwan (Project Ref. No. RG012-P-10). Thanks to Mr Roger Luk, former executive director of Hang Seng Bank, for his valuable comments.

Notes

1. The definition of ‘family business’ is still ambiguous. Although controlling share is always seen as a key yardstick, not all businesses require 50% stake for exercising control. In a globalized modern economy, especially for the dispersed shareholding of publicly listed companies, individual shareholders may not need to have more than 50% shares. Noting this, Claessens et al. (2000) suggested a cut-off level of 20%. We adopt this benchmark in discriminating the ownership of a business. No individual shareholder holds more than 20% of HSBC shares. At BEA, the declared shareholding by the Li Kwok-po family in 2009 was 14.12%, but it is reported that ‘adding the undeclared shareholders together, the Li family holds 30% at the least’ (The East Weekly 14 November 2009).

2. Please refer to Rowley and Warner (2010) and Warner and Rowley (2010) for a comparison of Southeast Asian management and Chinese management.

3. These founding Western elite members were: Francis Chomley of Dent & Co., Albert Heard of Augustine Heard & Co., Thomas Sutherland of P&O SN Co., Woldemar Nissen of Siemssen & Co., Henry Lemann of Gilman & Co., Arthur Sassoon of D. Sassoon, Sons & Co., and Douglas Lapraik as an independent director. Clearly, although nearly all of them were businessmen, they belonged to different nationalities (King 1987–91).

4. These founding Chinese business elite members were: Pong Wai-ting, Shou-son Chow, Kan Tong-po, Kan Ying-po, Li Tse-fong, Li Koon-chun, Mok Ching-kong, Wong Yun-tong, Chen Ching-shek and Fung Ping-shan (Sinn 1994).

5. For instance, after the first HSBC chairman, F. Chomley, stepped down, T. Sutherland was selected to fill his shoes. Then, in 1867, J. Dent was appointed to succeed Sutherland, but he only served two months. After Dent, there were E. Cunningham (serving from March to May 1867), W. Nissen (June to November 1867), G.J. Helland (December 1867 to 1868), H.B. Lemann (1869–70), R. Rowett (1871–72), T. Pyke (1872–73), S.D. Sassoon (1873–74) and W.H. Forbes (1874–75). At BEA, the first chairman served from 1919 to 1925. Then, the position was filled by Shou-son Chow, who held the post for 34 years.

6. For example, Victor Kresser, before being handpicked as the first chief manager, was from the Comptoir d'Escompte de Paris. After Kresser, James Greig came from the Asiatic Bank, Thomas Jackson came from the Agra and Masterman's Bank, and George Noble came from the Commercial Bank Corporation of India and the East. However, at BEA, all the chief managers were from the major shareholding families. Some allegedly had no relevant training before joining the bank as board directors.

7. Kresser served for five years, while Greig served for six years. Jackson, who was regarded as the most outstanding and influential chief manager in HSBC's history, served on four occasions from 1876 to 1902 with the interregnum filled by John Walter, George Noble and Louis Bovis. After Jackson, it was rare for a chief manager to stay in the post for more than 12 years. Compared to HSBC, BEA's chief managers served for a much longer time. For example, Kan Tong-po held the post of chief manager for 44 years. Then, the helm passed to Fung Ping-fan, Kan Yuet-hing, Li Fook-wo and Kan Yuet-loong for relatively shorter terms. Li Kwok-po took the post in 1981 and still holds it today.