The Sunday Times April 24, 2022 V2 3
BUSINESS
When HSBC commissioned a
new Hong Kong HQ, the brief
was to create the best bank
building in the world. The
Norman Foster-designed
skyscraper was completed in
1985 and served as a symbol
of capitalism in the decade
before Britain handed back
Hong Kong to China in 1997.
Legend has it that the
building, with its distinctive
outline on the Hong Kong
skyline, was designed so it
could be easily dismantled
and relocated elsewhere.
In a way, that came to pass.
In 1992, HSBC sealed the
takeover of Midland Bank — a
move that forced it to
relocate its HQ to London.
But, 30 years on, almost to
the day, questions are being
asked about how quickly the
bank can return to its Asian
roots. Although it is still
based in London, Asia
generated two-thirds of last
year’s $19 billion of profits.
While questions about
HSBC’s structure have raged
for those three decades, the
tensions created by war in
Ukraine, Covid and China’s
security law for Hong Kong
have reignited the debate.
The war has raised the
prospect of a reversal of the
trend for global trade that has
helped HSBC thrive.
Meanwhile, the zero-
tolerance approach to Covid
adopted by China — and its
brutal crackdown on political
dissent in Hong Kong — have
made it a less attractive place
for international financiers to
be based, and risk slowing
economic growth.
One shareholder wants the
board to take the political risk
out of the shares by, in effect,
splitting the bank in two.
Under this plan, HSBC would
have an Asian business listed
and based in Hong Kong, and
another in London to hold
the rest of the operations.
Dividing HSBC into two
smaller banks would also
mean they need to hold less
capital to protect savers —Is it time to break up
the HSBC behemoth?
The bank bought
Midland 30 yearsago. Now some are
demanding a split
quarter-point rise in rates
adds $500 million to income.
Ian Gordon, banks analyst
at Investec, said HSBC
management had won
investor support by pledging
not to use any windfall from
interest rates to boost
spending on its operations.
“Without doing much other
than taking out some costs
and reducing the property
footprint, HSBC should
return to double digits
[return on equity] over the
next couple of years,” he said.
The bank is long used to
being caught up in the
tensions between East and
West. Even its shareholder
register tells a story: the
largest investors are Chinese
insurer Ping An and US
investment giants BlackRock
and Vanguard — not London-
based fund managers.
Manus Costello of the
specialist research firm
Autonomous argued in
September 2020 that HSBC
should focus on Asia; his note
has proved prescient. The
bank has since sold off its
operations in France and
large parts of its US business.
“You can see... that the shift
is moving inexorably towards
Asia,” said Costello.
Yet redomiciling HSBC in
Hong Kong is not
straightforward, not least
because it has issued debt
that requires the Bank of
England’s Prudential
Regulation Authority to be
the main regulator, he said.
Insiders at HSBC are used
to the arguments about a
break-up; their view is that
the current structure makes it
stronger and able to play a
part in Britain’s attempt to
stay on the global stage after
Brexit. One insider argued
that a standalone Asian bank
would easily be consumed by
a rival and that, crucially, it
would force HSBC to choose
sides between West and East
— when it would be better to
have a foothold in both.
HSBC seems determined
not to reopen a review from
2015, when it concluded that
London should remain its
base. While insiders listen to
the arguments, they are not
ready to be swayed. Even so,
the Hong Kong towers are set
to play an important role for
the bank for a good while yet.and could potentially make
bigger profits. This week
provides an opportunity for
the debate again as HSBC
becomes the first of the UK’s
big banks to report first-
quarter results and hold its
annual meeting.
While there will be
questions about its continued
role in Russia — for which it is
expected to take a writedown
— and the dent to profits from
Covid curbs in China and
Hong Kong, there will be
something for chief executive,
Noel Quinn, to celebrate. Its
shares are up 12 per cent so far
this year, while the FTSE 100
is largely unchanged.
However, some investors
say the share price rise —
fuelled by a prospect of
higher interest rates, which
typically boost bank profits —
hides a story of missed targets
and under-delivering on
promises, albeit against the
backdrop of Covid.
Return on equity, a key
measure of bank
performance, is 8.3 per cent
— below HSBC’s already
scaled-back target of 10 per
cent. Meanwhile, the target
for operating expenses has
risen from $31 billion
(£24 billion) to $32 billion.
And staff numbers remain
high: when he took the helm
in February 2020, Quinn
talked about cutting the
workforce to about 200,000
by 2022. It stood at 220,000
at the end of 2021.
Nonetheless, a gradual rise
in interest rates in the UK has
helped to boost sentiment for
the stock. The bank has told
analysts it lost $7 billion in
revenue in the first two years
of the pandemic because of
ultra-low interest rates; it
hopes to claw back much of
that in the next two or three
years. In the UK alone, aA Midland branch in 1988.
Soon after, HSBC pouncedJill TreanorClimate activists target Deloitte
A coalition of investors will be
training its guns on Deloitte
this week by seeking to bar
the auditor’s reappointment
at FTSE 100 building supplier
CRH.
Climate Action 100+, a
group of some 700 investors
with $68 trillion in assets
under management, has
vowed to vote against Deloitte
at CRH’s annual meeting on
Thursday.
The move is thought to be
the first time the auditors of a
big FTSE company have been
targeted over climate change
accounting. Climate Action
100+ argues that CRH’s
accounts fail to show how its
assets, liabilities and
profitability would be
affected by potential changes
to climate policy such as the
introduction of carbon taxes
or more stringentrequirements to curb
emissions.
Dublin-based CRH is a
large supplier of cement and
other materials in the US and
Europe, with a market value
of £25 billion. Last week it
reported a 13 per cent jump in
like-for-like sales on strong
demand from builders.
The company, led by
Albert Manifold, has a “path
to net zero” strategy that it
says is aligned with the 2015
Paris Agreement to lower
global carbon emissions.
However, Climate Action
argued that its financial
statements still do not take
into account “material risks”
from climate change. This
could result in “a
misallocation of capital into
excessively carbon-intensive
activities, thereby potentially
destroying shareholder
value”, it said.
The investor group, whichJon Yeomans includes Aviva, Legal &
General and Man Group,
recommended voting against
the reappointment of Deloitte
Ireland and of the audit
committee chairman, former
KPMG partner Shaun Kelly,
and to reject the company’s
annual accounts.
Stephanie Pfeifer, vice-
chairwoman of the global
Climate Action 100+ steering
committee, said the vote
“could be a watershed
moment in the campaign to
hold audit committee chairs
and auditors to account”.
It comes as the audit
industry faces up to the need
to recognise climate risks in
company accounts. Industry
watchdog the Financial
Reporting Council (FRC)
labelled climate change risk a
key priority for auditors to
tackle over the coming year.
CRH and Deloitte declined
to comment.Bulb had saved him 25 per cent on his
energy bills.
Other investors include US hedge fund
Magnetar, which had a 3.8 per cent stake,
and JamJar Investments, the fund set up
by the founders of Innocent Drinks,
which put £3.9 million into Bulb. There
was also a long list of smaller investors.
Simon Morrish, founder of renewable
energy firm Xlinks, put £100,000 into
Bulb five years ago. Morrish, 47, said that
while it and its rivals had brought a “huge
amount of life and innovation” into the
market, they had made a “strategic error
in not hedging their position”.
The real problems for Bulb began early
in 2021 as the wholesale price of gas
began to soar. Whereas the larger provid-
ers, which typically hedge by buying
energy for new customers at least eight
months in advance, were insulated, Bulb
claimed it had a rolling six-month hedg-
ing policy.
The government’s energy price cap,
introduced by Theresa May in 2019, lim-
ited prices for 11 million households on
standard variable tariffs; it meant Bulb
had to charge customers less than 70p a
therm. But wholesale gas prices reached
as high as £4 a therm — forcing it to pro-
vide energy at a loss. High demand for gas
globally, coupled with depleted gas stor-
age in Europe and lower supply from Rus-
sia, sent the market into a spin — even
before the war in Ukraine.
By last autumn, Bulb was becoming
desperate for more funds. Financiers
from the advisory firm Lazard had been
trying to help it raise money, but inves-
tors were feeling less generous this time.
Bulb had no option but to go through spe-
cial administration — meaning it would
be run by consultants from Teneo while
Lazard switched to hunting for a buyer.
Hopes for a white knight bidder are
fading. The first round of bids closed ear-
lier this month. There were six interested
parties, but just two submitted non-bind-
ing bids - British Gas owner Centrica and
Masdar, Abu Dhabi’s clean energy com-
pany. Centrica, though, wants Bulb’s cus-
tomers only and has asked for taxpayer
support to buy the power needed to heat
those customers’ homes. France’s EDF
Energy was initially interested and also
wanted government support, but with-
drew once the war in Ukraine ignited and
wholesale gas prices rocketed.A
n outcome is not expected until
June, but failure to secure a deal for
Bulb raises the prospect of further
taxpayer funding being pumped in
to keep it going. A remaining
option would be for the government to
step in and break up the company, hand-
ing portions of its customers to the UK’s
biggest energy suppliers. If that happens
and the government forces suppliers to
take on hundreds of thousands of cus-
tomers each, they will most likely pass
the costs onto bill payers. The poorest in
society will suffer most.
Now, the power is back with the big
energy companies, which have been
quick to point the finger. “The volatility
of the wholesale market is not a sur-
prise,” said a senior source at one of those
giants. “The risk is very well known and
has been badly managed by Bulb.” But
Bulb said it had “always” put customers
first. “We consistently provided excellent
customer service, built top-rated tech-
nology for our members and prioritised
vulnerable customers,” it said.
The bosses of the big providers are
calling for “fit and proper person” tests
for directors, and for customer funds to
be ring-fenced in the same way as they
are at banks. At last week’s select commit-
tee, Centrica boss Chris O’Shea said the
Insolvency Service should pursue the
“managers, the directors, the executives
of every failed company”.
The collapse of Bulb and its rivals has
also led to questions about the role of
Ofgem, which has been accused of failing
to do proper checks on the founders of
these companies, or to ensure they had
the financial resources to weather a
sharp rise in wholesale prices.
As for the founders, Gudka left the
business last year to start an energy stor-
age business, while Wood is still being
paid to advise Teneo through the adminis-
tration process; the size of his pay drew
scathing headlines last week.
Former investors are also unforgiving,
with some accusing the company of
“over-reaching” by expanding overseas
and splashing out on expensive offices
and bumper salaries. “Hubris is when
things are going very well,” said Morrish.
“It’s way too easy to think you’ve got some
magic sauce and you’re special.”The difficult bit, of course, is the earning
of that respect.
3) By earning respect, I mean being
honest about having to make tough
decisions, having the guts to make those
decisions, and dealing with them in a
decent, generous and humane way.
Ideally, we should pay the real living
wage and not use zero-hours contracts
without a very good reason. We should
listen to, and do our best to sort out, our
people’s grievances — and promptly. And
we must respect diversity and inclusion
in spirit as well as the law.
4) Bosses should do what they say they
will do. This quality is sometimes sadly
lacking, but nothing beats it for
credibility. Try being respected when
you have forgotten someone’s promised
pay review.
5) Bosses should make minor decisions
quickly. I am generally fast to decide —
admittedly, sometimes too fast, but I
maintain that some people are too slow.W
e would all like to be
“good” bosses, I’m sure.
But what does that mean,
and is it even possible?
The idea of someone
being in charge of another
person is as old as time.
Some say employment of
any kind is a form of exploitation —
although that depends, I guess, on your
definition of it. Typically, it would
involve a component of unfairness.
An estimated 900,000 workers now
have zero-hours contracts imposed on
them, including 300,000 care workers. I
fully accept that some people might be
happy with that, but those depending on
this work find it very difficult to rent a
home without being able to demonstrate
regular income. As a result, some of
those care workers can end up sleeping
in their cars — or struggling single
parents might be sent home early
without being paid because “business isquiet” — even if they have arranged and
paid for childcare.
Few would disagree that we are
talking about gross unfairness here.
Bosses have a big part to play in people’s
happiness, and nearly all us have one —
even MDs and chief executives have
shareholders.
Today, I would like to have a stab at
what makes a good boss, having tried
being one for more than 40 years:
1) Bosses should not attempt to be liked.
This is vanity. It just looks disingenuous
when they have to make tough decisions
such as cutting costs in a crisis or making
someone redundant. Machiavelli
suggested that bosses should farm out
the bad stuff via their lieutenants to
make themselves look kind — but most
people would see through this in a flash.
If you want to be liked, you’re in the
wrong job.
2) Bosses should aim to be respected for
doing their job well and for being fair.about getting permission for breaks,
holidays and shift changes. Then there is
the inability to make their own decisions
at work, as well as financial fears and job
insecurity. Remembering this matters.
8) Bosses shouldn’t pay themselves too
much and their people too little — the
size of the differential should ideally
seem fair to the woman or man on the
Clapham omnibus (admittedly, there is
fierce debate over this). In my opinion,
the pay should be the real living wage or
more for the lowest earners — and big
rewards only if they are linked to
performance.
9) Have time for a colleague with a
problem, whether it is an out-of-work
one, or in. Both will affect their work,
and we are all measured by how we
behave in difficult situations. Helping an
employee in their hour of need is, of
course, the right thing to do and will be
long remembered.
10) Bosses should pay their taxes.In the business world, we want to stay
ahead, so speed is of the essence.
6) Bosses should respond to employees’
e-communications as soon as possible;
first, staff won’t get on with the job until
they get your decision, and second, if it
is a gripe, their heart won’t be in the job
until it is sorted. A resentful colleague is
rarely a productive one.
7) Workers experience much more stress
than their bosses. They have worries
about finding work in the first place, andHow to be a good boss (disclaimer: I’m still learning!)
If you want to be
liked, you’re in
the wrong job
Julian Richer Sound Advice
GERARDO JACONELLI11) Good bosses admit their mistakes and
even say sorry. It’s sometimes difficult to
do, but I feel I get far more credibility
from this than being a macho, “perfect”
boss who never gets things wrong.
12) Don’t take yourself too seriously —
better to keep your feet on the ground
and remember your humble beginnings.
13) Be as open and honest as possible. If
you want your staff ’s support, you
should tell them if the business has
problems; they will want to help and
they will appreciate your trust in them.
14) Lead from the front. I don’t think we
remember many good military leaders
who led from the back.
Finally, if bosses want to retain their
dignity, they should avoid attending
“lively” social events with their
colleagues. Being drunk in charge of a
workforce is not a good look.Julian Richer is founder and managing
director of Richer SoundsBulb failed to turn a pro it-50-100-£150m
Bulb's 2018 inancial reults were restated
Source: Annual ilingsLIGHTS OUT
2016 2017 2018 2019 2020 2021-£0.8m
-£2m-£28m-£129.2m-£63m
-£64min a glitzy new development next door to
London’s Liverpool Street station, fitted
out with thousands of pounds’ worth of
plants in a nod to its green ambitions.
Bulb’s employees were known as “Bul-
berinos”, with many hired straight from
university as “energy specialists’’ — call
centre operatives, on salaries of £27,000,
who were often granted share options and
bonuses. Their job was to answer queries
from customers.
The staff were set daily and weekly tar-
gets for the number of “resolves” — cus-
tomers who rang up with a problem that
was considered remedied. But there have
been complaints about the workplace cul-
ture, and long hours. “The biggest con is
that they impose stupidly high weekly tar-
gets on you that are a nightmare to reach
unless you work out of hours,” said one
employee on review site Glassdoor.
Wood addressed some of these com-
plaints about the company’s culture in an
interview with the Mail on Sunday last
year. “We did grow very quickly and we
did have some people who were unhappy
with working at Bulb. We can’t deny that.
But we have learnt a lot in the past two
years... It means a lot to me that people
join Bulb and have a good experience
working here.”
Over time, Bulb’s eco credentials also
came under scrutiny. “They get you in
with ‘we’re working towards a greener
planet,’ ” said an ex-worker, “but in real-
ity, no energy company can be com-
pletely green.”
Rivals were also starting to question
Bulb’s green claims. Last year, Good
Energy, which sources all its power from
renewable sources, estimated that only
4 per cent of Bulb’s energy was in fact from
renewables. Most of the energy is supplied
through certificates known as Renewable
Energy Guarantees of Origin (Regos),
which cost about £1.50 per customer.
Renewable-energy producers sell these
certificates, which suppliers can buy to
match the energy used by their customers.
By using Regos, a supplier could be provid-
ing power directly from fossil fuels, and
still claim to be a green energy supplier.
“It’s just an opportunity to greenwash
your supply,” said Nigel Pocklington,
boss of Good Energy. “Quite a lot of sup-
pliers that have gone under — not just
Bulb — were running this twin track of
cheap and unsustainable prices and
green positioning.”
Despite reaching 1.7 million customers
and sales of £1.5 billion, according to
its latest accounts, Bulb never
made a profit. Losses grew from
£28 million in 2018 to £129 mil-
lion in 2019. By March 2020,
they had narrowed to
£63 million.
Like many “tech” start-
ups, Bulb’s plan was to grow
quickly. Its investors would
swallow the heavy losses by
repeatedly putting more
money in when funds were
running low. As Bulb’s valua-
tion grew to £350 million, so
did the personal fortunes of
the founders:
Wood and Gudka’s stakes
were both valued at more than
£100 million at the last funding
round. The collapse has wiped
out much of their fortunes, and
also saw backers’ money vanish.
DST Global, a US tech investment
firm founded by Russian-Israeli
entrepreneur Yuri Milner, was one
of Bulb’s biggest cheerleaders and
had a 16 per cent stake.
Tom Stafford, managing partner
at DST, appeared in videos with
Wood where he spoke about howILLUSTRATION: JAMES COWEN