Interesting times at HSBC on the governance front with the proposed elevation of the current Finance Director and Fellow of CIMA, Douglas Flint to the job of Chairman.  The importance of the role in shaping the future direction of the banking industry cannot be underestimated and it is a testament to Mr Flint's personal standing combined with his knowledge and experience of the industry that the Board of HSBC unanimously considered him the best person for the job.  I'm sure that all CIMA members, students and staff would want to join me in wishing him well. 

It is virtually unheard of for an FD to move up to the chairman's role.  It's actually not that common for a chief executive to do so either - although it had become something of a tradition at HSBC -  and explains the degree of press comment about the fact that the current chief executive, Michael Geoghegan did not get the nod and will leave HSBC at the end of the year.

So HSBC will enter 2011 with both a new chairman and a new chief executive, Stuart Gulliver, currently chief of HSBC's investment bank.  That triggered even more press comment about the fact that yet another 'casino' banker was taking charge following Bob Diamond's appointment as Barclays' CEO.

Let's take a look at this from a governance perspective.  Good governance practice frowns on executives moving up to be chairmen of companies.  You can see why.  Imagine you've just been appointed chief executive - the job you've always dreamed about.  But then, you realise there is a catch.  In the office next door is your predecessor who has been appointed chairman.  That could really cramp your style. 

But good governance practice also recognises that one size doesn't fit all and allows for tailoring governance arrangements to meet individual needs through the 'comply or explain' principle.  So provided you explain why you are doing governance differently and your investors are happy with the explanation, then you have fulfilled your governance obligations.

It appears that the banking sector is one of those where it seems to work better for executives to become chairmen.  As the UK Walker Review of governance in the banking sector observed, banks where the previous CEO became chairman appear to have performed relatively well both over a longer period and during the financial crisis.  The issue seems to be one of maintaining continuity and preserving specialist expertise.  But as ever, it's a case of balance between continuity and benefiting from fresh perspectives.  And that balance will be different in different companies at different times.  That's why you should never reduce governance to a box-ticking exercise.  It needs ongoing thought and judgement. 

Just because HSBC's governance arrangements don't fit 'the norm' doesn't mean to say they won't work!

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[UPDATE: 29/9/10: Douglas Flint has now been confirmed as HSBC Chairman]