Corporate Governance - HSBC

Corporate Governance EssentialsHigh level of integrityTimely and accurate disclosure of informationEstablishing high standards of accountabilityManagement effectively monitored by the BoardHigh regard for shareholder value and equitable treatment ofshareholdersKey Business Values3HSBC

HSBC’s Key Business ValuesThe highest personal standards of integrity at all levelsCommitment to truth and fair dealingHands-on management at all levelsA minimum of bureaucracyFast decisions and implementationPutting the team’s interests ahead of the individual’sThe appropriate delegation of authority with accountabilityContained in Instruction Manuals. CommunicatedIntegrityMinimal use of Committees to approve matters4HSBC

HSBC’s Key Business Values (cont’d)A Commitment to Complying With the Spirit and Letter of All Laws andRegulations Wherever We Conduct Our BusinessReputation Is EssentialIntegrity, leads to reputationYears to build. Easy to lose. Reputation risk5HSBC

HSBC’s Business principlesOutstanding customer serviceEffective and efficient operationsStrong capital and liquidityA prudent lending policyStrict expense discipline6HSBC

HSBC - some key factsListed on London, Hong Kong, New York, Paris and Bermuda stockexchanges. Dual Primary listings in Hong Kong and London.Committed to comply with whichever is the more onerous provisionSubject to the Combined Code on Corporate Governance (UK) and theCode on Corporate Governance Practice (HK)Owned by more than 200,000 shareholders in some 100 countries andterritoriesUS$128 billion of shareholders’ fundsMarket capitalisation of over US$177.6 billionTotal assets of US$2,354 billionMore than 128 million customersOver 10.000 offices in 84 countries and territories510 regulators around the world7HSBC

Structure of HSBC Holdings plcHSBC Holdings plc is a public company incorporated under UKcompany legislationOperations are carried out by different operating subsidiaries,including HSBC Bank plc, HSBC Bank USA, HSBC LatinAmerica, HSBC Mexico and The Hongkong and ShanghaiBanking Corporation8HSBC

Structure of the Board (from 1 June 2006)Balance of executive and nonexecutiveDirectors• HSBC Holdings has 19 DirectorsIndependence of Directors• 12 non-executive Directors areindependent• 6 executive Directors, 13 Non-ExecutiveDirectors• The majority are independent nonexecutiveDirectors• Not employed within the Group• No material business relationship• no close family ties with Directors,employees or advisers• no remuneration from the Company otherthan board and committee fees• not representing a significant shareholder• not having served on the Board for morethan 9 years9HSBC

Role and powers of the BoardThe Board is responsible toshareholders for themanagement of the Company’sbusiness and the stewardshipof its assets• All Directors are subject to electionby shareholders at the AnnualGeneral Meeting following theirappointment and to re-election atleast every three years• Board acts collectively as a singleunit• The Board cannot itself implementthe policy it has set or the decisionsit has made. It must execute itspolicy and decisions throughindividuals (ie executives)• Annual evaluation of Board andindividual Director’s performance• The Board can delegate toCommittees10HSBC

Committees of the BoardCommittees derive their authority from and are answerable tothe Board which retains responsibility for matters delegated tothe CommitteesHSBC’s Board Committees are:• Group Management Board• Group Audit Committee• Remuneration Committee• Nomination Committee• Corporate Sustainability Committee11HSBC

Reports to the BoardReports to each Meeting Chairman of the Group Audit Committee Chairman of the Remuneration Committee Chairman of the CSR Committee Share Performance Business Developments and Acquisitions Chief Executive’s Business Minutes of all Committee Meetings Senior AppointmentsEXAMPLES OFREGULAR REPORTSTO THE BOARDQuarterly Consolidated ResultsHalf-yearly Substantial Litigation Large Exposures Peer Group Comparison Auditor’s Letter and Management ResponseSpecial Reports to the Board IT Report Credit & Risk Report Large Exposure Policy Investment Banking & Treasury Report Internet Banking Report12HSBC

Reports to the Board - contEXAMPLES OFREGULAR REPORTSTO THE BOARD5 year Strategic PlanAnnual Operating PlanCapital Financing PlanAnnual and Interim AccountsFinancial Results AnnouncementsNotices of Shareholders’ MeetingsMajor Policy DecisionsCustomer Group ReportsGeographic Regional Reports13HSBC

Directors’ rolesNon-executive directors and directors as executivesAll DirectorsNon-Executive DirectorsExecutive DirectorsAuthority of a director to act is confined toBoard meetings, where the Board ofdirectors acts as a single unitNon-executive directors do not participatein daily business management but dohave the power to seek information fromoperational managers outside the BoardmeetingsExecutive directors act, outside Boardmeetings, as the senior businessmanagers, not as Board membersSenior business managers act under thedelegated authority of the Board14HSBC

Directors’ duties (based on HK requirements)Duty of good faithDuty of diligenceDuty of honestyPrimary duty of a director - to act in good faith in theinterests of the companyDuty owed to all shareholders, both present and future,but not owed to individual shareholdersA director is required to exercise the degree of skill andcare to be reasonably expected from a person with thatdirector’s knowledge and experienceHighest standard of honesty is expected. Directors mustexercise the company’s powers in the company’sinterest and not for personal gain or any other purposeA director must not place himself in a position where hisability to discharge his duty of honesty is restricted orwhere a conflict arises/may arise between his duty andhis personal interestA director must not take advantage of his position forpersonal financial gain or in any other way which couldbe detrimental to the company’s interests15HSBC

Directors’ duties - contDuty to employeesThe Directors have a duty to take account of theinterests of employees in generalDuty to disclosepersonal particulars Directors are required to notify the company -and the company is required to notify therelevant authorities - of the followingparticulars:• basic personal particulars (name, address, otherdirectorships etc)• details of any holdings of, or dealings in thesecurities of the Company or its subsidiaries• Directors must obtain prior approval beforedealing in the Company’s or its subsidiaries’securities• details of any material benefits the Director mayreceive from any significant contracts theCompany and its subsidiaries undertake16HSBC

Regulation of HSBCHSBC Group has some 490 different regulators globallyThe UK Financial Services Authority (FSA) acts as the Group’slead regulator but defers to local regulatory authority in respectof offices outside UKFSA acts as a single regulator for UK financial services industryHSBC Group has a strong control culture. The key controlfunctions being Finance, Credit and Risk, Compliance and Audit17HSBC