HSBC 2003 Annual Report Download - page 208

HSBC HOLDINGS PLC
Report of the Directors (continued)
206
Governance’ , then ‘Obligations of Senior Financial
Officers’ . The Group Business Principles and Values
is available on www.hsbc.com by selecting ‘About
HSBC’ , then ‘HSBC in Society’ , then ‘Living Our
Values’, then ‘Our People’ .
Under NYSE listing rules applicable to US
companies, independent directors must comprise a
majority of the board of directors. Currently, half of
HSBC Holdings’ Directors are independent. The
NYSE rules include detailed tests for determining
director independence while the Combined Code,
which is followed by HSBC Holdings, prescribes a
more general standard for determining director
independence. The Combined Code requires a
company’s board to assess director independence by
affirmatively concluding that the director is
independent of management and free from any
business or other relationship that could materially
interfere with the exercise of independent judgement.
Lastly, a chief executive officer of a US
company listed on the NYSE must annually certify
that he or she is not aware of any violation by the
company of NYSE corporate governance standards.
In accordance with NYSE listing rules applicable to
foreign private issuers, HSBC Holdings’ Group
Chairman is not required to provide the NYSE with
this annual compliance certification. However, in
accordance with rules applicable to both US
companies and foreign private issuers, the Group
Chairman is required to promptly notify the NYSE in
writing after any executive officer becomes aware of
any material non-compliance with the NYSE
corporate governance standards applicable to HSBC
Holdings.
Internal control
The Directors are responsible for internal control in
HSBC and for reviewing its effectiveness.
Procedures have been designed for safeguarding
assets against unauthorised use or disposition; for
maintaining proper accounting records; and for the
reliability of financial information used within the
business or for publication. Such procedures are
designed to manage rather than eliminate the risk of
failure to achieve business objectives and can only
provide reasonable and not absolute assurance
against material errors, losses or fraud. The
procedures also enable HSBC Holdings to discharge
its obligations under the Handbook of Rules and
Guidance issued by the Financial Services Authority,
HSBC’ s lead regulator.
The key procedures that the Directors have
established are designed to provide effective internal
control within HSBC and accord with the Internal
Control Guidance for Directors on the Combined
Code issued by the Institute of Chartered
Accountants in England and Wales. Such procedures
have been in place throughout the year and up to
1 March 2004, the date of approval of the Annual
Report and Accounts. In the case of companies
acquired during the year, including Household, the
internal controls in place are being reviewed against
HSBC’s benchmarks and integrated into HSBC’s
systems. HSBC’s key internal control procedures
include the following:
• Authority to operate the various subsidiaries is
delegated to their respective chief executive
officers within limits set by the Board of
Directors of HSBC Holdings or by the Group
Management Board under powers delegated by
the Board. Sub-delegation of authority from the
Group Management Board to individuals
requires these individuals, within their
respective delegation, to maintain a clear and
appropriate apportionment of significant
responsibilities and to oversee the establishment
and maintenance of systems of controls
appropriate to the business. The appointment of
executives to the most senior positions within
HSBC requires the approval of the Board of
Directors of HSBC Holdings.
• Functional, operating, financial reporting and
certain management reporting standards are
established by Group Head Office management
for application across the whole of HSBC. These
are supplemented by operating standards set by
functional and local management as required for
the type of business and geographical location of
each subsidiary.
• Systems and procedures are in place in HSBC to
identify, control and report on the major risks
including credit, changes in the market prices of
financial instruments, liquidity, operational error,
breaches of law or regulations, unauthorised
activities and fraud. Exposure to these risks is
monitored by asset and liability committees and
executive committees in subsidiaries and by the
Group Management Board for HSBC as a
whole.
• Comprehensive annual financial plans are