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You need to be good to be profitable

by
13 December 2006

by Stephen Green

HSBC Values matter to value: Stephen Green, Group Chairman of HSBC

HSBC Values matter to value: Stephen Green, Group Chairman of HSBC

Companies need to nurture their ethics to flourish commercially

For companies to achieve sustainable profit growth, they need to underpin their business model with a set of values which is embraced in every aspect of their business, and that will gain public respect. Business strategy needs to be based on clear competitive advantage, obviously; it needs to be executed energetically and efficiently, obviously. But a culture of values is essential to long-term success, too; or, to put it simply, values matter to value.

But this begs the question: how does a company — indeed, how does its board — ensure that the company really aspires to the values it espouses? This is in some ways a very difficult question to answer, and in others an easy one.

If you take HSBC, for example, we are a company with more than 9500 offices around the world, in 76 countries and territories, and we employ 284,000 people. HSBC feels like a meeting-place of the world, a crossroads of different cultures, of people from different ethnic backgrounds, and religious and other persuasions. The diversity of my colleagues — collectively we speak more than 130 languages — reflects the diversity of customers we serve around the world, and of people on the planet.

In some respects, this might seem to make it difficult for a company to adhere to a single set of principles. Yet, for all the obvious cultural diversity, one thing that constantly strikes and impresses me is the extent to which my colleagues share the same desire to work for a responsible and respected company.

HSBC is a company made up of people of many different faiths, and people of no faith, but there is an enormous amount of common ground in terms of their value-set and their aspirations for the way the company they are a part of behaves.

I believe this is true of most organisations, large and small. Corporations are a human endeavour, and the majority of the people who work for any given institution want to work in an honest environment, and for a company in which they take pride. As the economist John Kay has observed: “Companies have no immortal soul, but, like human beings, they live and die. While they live, they prosper by the attributes of their personality.”

A COMPANY’S personality, its culture, if you like, is a central component of its ability to be successful over a sustained period of time. One of the most important tasks for any board or management must be to nurture and strengthen the corporate culture.

It should be the subject of explicit discussion at board level: how the corporate culture has evolved; how it is contributing to sustainable shareholder value; how it can be nurtured for the good of future generations. And not in self-congratulatory mode, but with an uncomfortable-at-times spirit of self-analysis.

Nurturing a company’s personality, its values and ethics, is not an exact science; it can’t be represented in figures on the profit-and-loss account. But it is no less important for that. It is nothing less than an essential leadership task.

Values are not something that can be prescribed smugly by edict from the centre; they run much deeper than that. Every individual has the power to live by — or to abuse — those values, and to influence his or her colleagues to do likewise, however many or few people they have reporting to them on any organisation chart.

So I consider that every one of my colleagues has a leadership role in this respect. Companies will be seen as responsible and a force for good only to the extent that each and every employee lives the company’s values.

‘A culture of values is essential to long-term success’

So I consider that every one of my colleagues has a leadership role in this respect. Companies will be seen as responsible and a force for good only to the extent that each and every employee lives the company’s values.

‘A culture of values is essential to long-term success’

A company’s brand is an important standard-bearer for those values, internally as well as externally. Companies that seek to position themselves as committed to treating their customers fairly — and which companies do not at least say that they strive to do this? — create brands that resonate with colleagues, as well as with the wider world; a company’s aspirations are understood internally as well as externally. So it is a real challenge truly to “live the brand”.

THIS IS easy to say, but so much harder to deliver — mainly because it cannot be easily pinned down to a single action. It is a multitude of smaller things that add up to a bigger whole: how people are recruited; how training programmes reinforce the values; how a strategy articulates a company’s aspirations to be a responsible, sustainable business; how these values are buttressed by guidelines that spell out the way business should be conducted, and processes such as objective-setting and compensation.

Indeed, we consider our values to be of such critical importance to our long-term success that, if we are considering an acquisition that makes sense on the numbers, but that is not compatible culturally, then we will walk away from it.

It will never be perfect. Corporations are a human endeavour, with all the possibilities and frailties that are intrinsic to human beings. Maintaining values and culture is a task that needs perpetual renewal.

In 2004, the former chairman of the Federal Reserve, Alan Greenspan, forecast that business would see a “re-emergence of the value placed by the market on trust and personal reputation in business practice”.

How a company makes money, as well as how much money it makes, is becoming an increasingly important part of its investment proposition. In this environment, there is no conflict between sustainable growth, value, and values. To repeat: values are essential to value.

The Revd Stephen Green is Group Chairman of HSBC, and NSM at St Barnabas’s, Kensington.

This is an edited extract from the Hugh Kay Memorial Lecture given in St Paul’s Cathedral last month.

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