Drama and Scandal Are Totally Normal at Europe's Banks

(Bloomberg Opinion) -- European banks have a problem with their boardrooms.

From the Anglo-Asian giant HSBC Holdings Plc to Spain’s Banco Santander SA and Switzerland’s Credit Suisse Group AG, a troubling phenomenon has become apparent at many of the region’s lenders: the weakness of the body tasked with ensuring the company’s success.

Bankers are already under pressure because of rock-bottom interest rates and digital disruption, so it’s far from ideal that their boards appear slow, clumsy and overly beholden to their chief executives. Proper corporate governance matters as much now as it did during the financial crisis. While lenders may be simpler and safer by some measures, they’re still impenetrable to the outside world, and new risks are always emerging. Their CEOs need to be chosen, managed and held in check more effectively.

An endless series of boardroom dramas has beset Europe’s banks in the past year. Consider HSBC. the continent’s biggest lender has just embarked on its biggest overhaul in decades (its third attempt to adapt to the post-crisis era), a plan that involves tens of thousands of job cuts, scrapping buybacks and reallocating capital to more profitable businesses. It’s hardly the time to be leaderless.

Yet six months after ousting CEO John Flint, who only held the job for a year and a half, HSBC’s board hasn’t made up its mind whether it wants to give his interim replacement Noel Quinn the job, or to hire externally.

In fairness, finding the right boss for a sprawling bank with a $2.7 trillion balance sheet is the most important task of the board and Chairman Mark Tucker — alongside setting the strategy. It mustn’t be rushed. But a strategic overhaul of this magnitude needs a leader who owns the new plan. The longer the appointment drags out, the tougher it will be for Quinn to execute; and the harder it would be for a credible external candidate to implement someone else’s turnaround story. The board has given itself until as late as August, but time isn’t on its side after the favorite outside candidate, UniCredit SpA’s Jean Pierre Mustier, committed himself to his current employer.

HSBC’s board is in fine company when it comes to messy situations. At Barclays Plc, another regulatory probe into CEO Jes Staley — this time looking at his relationship with the disgraced financier Jeffrey Epstein — raises questions about oversight at the top of the firm. Staley was fined previously for attempting to unmask a Barclays whistleblower. The London-based bank took two months to go public on the latest inquiry, and it hasn’t shared details of its own review into the CEO’s relationship with Epstein. While one shouldn’t jump to conclusions, more transparency from the board would have been invaluable to investors.

Elsewhere, the Credit Suisse board hardly covered itself in glory during a months-long spying scandal that cost CEO Tidjane Thiam his job. While Thiam was cleared of knowing about the surveillance operations against employees, past and present, it’s pretty damning that neither he nor the board were aware of those activities being carried out by key personnel. The Swiss giant’s directors must share responsibility for an episode that damaged the bank’s reputation and upset employees.

In April, Santander faces its own embarrassing showdown in a Spanish court. After withdrawing its offer of the CEO post to Andrea Orcel — the former head of investment banking at UBS Group AG — over a disagreement on pay, Santander is being sued by Orcel for more than 100 million euros ($108 million). Why Santander would have agreed to honor UBS’s generous financial obligations to Orcel, and then withdrew the proposal, is unclear. A detailed account of alleged text messages between Santander Chairman Ana Botin and Orcel and his wife, published by Reuters, points to personal relationships possibly playing a bigger role than they should have in a CEO appointment.

For its part, UBS botched its own internal CEO succession plan, and eventually hired Ralph Hamers from ING Groep NV — despite the Dutch bank’s failings over money-laundering and Hamers’s lack of experience in UBS’s core businesses. That was a controversial move by the directors of the world’s biggest wealth manager.

In the age of the “purposeful company,” bank boards should be leading the way on properly representing their shareholders, as well as employees and society. It isn’t obvious whose interest they’ll serve by remaining so ineffective.

To contact the author of this story: Elisa Martinuzzi at emartinuzzi@bloomberg.net

To contact the editor responsible for this story: James Boxell at jboxell@bloomberg.net

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

Elisa Martinuzzi is a Bloomberg Opinion columnist covering finance. She is a former managing editor for European finance at Bloomberg News.

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