FINANCE & ACCOUNTING

Should HSBC Stay or Should It
Go?
by David Champion
MARCH 17, 2011

London-based HSBC, arguably the world’s most global bank, recently described speculation that it was planning to shift its headquarters from London to Hong Kong as “presumptuous.”
Well, maybe, but whenever you hear a politician denying that he will resign, you nearly always end up seeing him resign a week later.

But the kerfuffle raises a more interesting question: Does it really matter if HSBC moves its
HQ from London? After all, HSBC is not proposing to close its British operations. What is so special about where a global organization headquarters itself?

Well, obviously it can affect a business’s tax bill. That, though, is a largely technical issue, because your nominal headquarters need not be your operational one. What we are really talking about is whether it matters where your key decisions are made or where your CEO makes spends most time.

It probably wouldn’t matter much if your operations were really evenly distributed across the world. If that were the case, you could pick and choose from the various reasons a taxefficient locality that was an attractive place for senior executives to move their families to.

But as Pankaj Ghemawat points out in his forthcoming World 3.0 (HBR Press, April 2011), very few firms are truly global in the sense that their business isn’t concentrated in any one spot. He notes that as recently as 2004, less than one percent of all U.S. companies had foreign operations, and of these, the largest fraction operated in just one foreign country
(most often Canada. It would hardly make sense, therefore, for a US firm to go and locate its headquarters in China or Brazil, even though these are large, fast-growing markets.

On that basis, you could argue that HSBC’s move to London 19 years ago was in fact more counterintuitive than would be a move back today. HSBC has always been anchored in the Far
East. Its full name is, after all, The Hong Kong and Shanghai Banking Corporation. It was headquartered in Hong Kong for most of its existence. The bulk of its business — certainly the most valuable and fastest growing part — and investors remain rooted in the Far East.

There were, of course, special considerations. In the 1990s, with the handover of Hong Kong to China looming, rebalancing of the bank’s portfolio made sense. Still, why rebalance to the
UK rather than, say, the US, where many UK banks were themselves expanding at the time?
The UK hardly seemed like an alternative high-growth market.

If you recognize the importance of roots, the decision makes a lot of sense. For a Hong Kongbased bank that was a symbol of imperial British commerce, London is a much more familiar place than New York, and a British bank much less alien to manage than an American one would be, let alone a European one. British clearers were also a license to print money back then, so although growth prospects were limited, they made a good, cash-generating strategic hedge. Besides moving the headquarters to London probably helped to seal the deal for
Midland shareholders.

Today Hong Kong and China look a lot safer than they would have done in the 1990s. And anchoring your decision-making in a market that is increasingly irrelevant to your value surely makes less and less sense. In fact, for HSBC, the only reason not to move from London

would be either if London mattered a lot or if nowhere in particular mattered more than anywhere else. But Hong Kong matters a lot to HSBC and increasingly more than Britain or
Europe, so the real question around HSBC’s leaving London is surely not if — but when.

David Champion is a senior editor at HBR.

Based in France, he is also a member of the Academic

Committee of the European Center for Executive Development (CEDEP) in Fontainebleau.

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