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HSBC Bank

Kirsty Wigglesworth, Associated Press

Schafer: The reason companies never tell us they're sorry

  • Article by: LEE SCHAFER
  • Star Tribune
  • December 15, 2012 - 8:52 PM

The British bank HSBC last week resolved a sweeping investigation into activities that included allowing drug cartels to launder at least $881 million, agreeing to a record $1.92 billion in fines and forfeitures with government authorities.

"HSBC is being held accountable for stunning failures of oversight -- and worse," U.S. Assistant Attorney General Lanny Breuer said.

And this is how HSBC CEO Stuart Gulliver began his statement: "We accept responsibility for our past mistakes."

Mistakes? So many that it took $1.92 billion to resolve them?

"It's a commonly used word," said Hank Shea, a distinguished senior fellow at the University of St. Thomas School of Law and a former federal prosecutor. "You can't be prosecuted for an accident, for making a mistake in the sense of the wrongheaded moves all of us make all the time."

The approach reflected in HSBC's statement is all too common. For those who long to see an abject corporate apology for behavior that leads to whopping fines, you will rarely be satisfied.

There are other examples, like the Barclays Bank then-CEO commenting in June, after settling with regulators over the alleged rigging of Libor rates. The issues, he said, "relate to past actions which fell well short of the standards to which Barclays aspires in the conduct of its business."

Shea said it's pretty simple: A public statement that is something less than an admission reduces the odds of future liability in the courts, either with private litigants or other regulators.

If there's a subsequent case over the same general set of circumstances, the folks bringing it will have to go into court and argue the facts. If a company has already admitted to wrongdoing, any subsequent case begins with that statement.

No admission of guilt

It's one reason why saying "we neither confirm nor deny" as allegations are settled is so popular.

To some observers, a global bank like HSBC moving money on behalf of banks in Iran and Sudan and working with drug cartels has to be something more serious than a mistake. HSBC actually did admit to violations in court documents, and news accounts noted that federal officials last week faced tough questions about why they would not go forward on a criminal case.

Paul Maccabee of Maccabee Public Relations in Minneapolis consults with companies that face crises, and he said he assumes that HSBC's choice of the word "mistakes" had been negotiated with federal authorities, along with everything else in their agreement.

Conversations in the CEO's office over what to say when responding to a regulatory settlement lead to what Maccabee called a "tension" between the cautious legal team and management's communications advisers. The PR people "want to preserve reputation and respond authentically and honestly" to the issues that led the company to have to settle a regulatory or legal problem.

Crisis communications consultant Jon Austin of Minneapolis noted that HSBC did a good job describing all that is now different about its operations. That even included quoting the Department of Justice directly from the settlement document, praising management's more recent efforts that have "dramatically improved" compliance programs.

Not an everyday occurrence

"That's a boon for companies in trouble," Austin said. "You don't see that all the time."

What you do see all the time are companies settling allegations that they did something wrong. HSBC's $1.92 billion settlement happened to be just the biggest of several won recently by U.S. authorities from global banks that were alleged to have behaved in similar ways.

Of course, settlements happen close to home, too. The day after the federal officials' news conference on HSBC last week, Minnesota Attorney General Lori Swanson held her own to discuss a $500,000 settlement reached with an affiliate of Encore Capital Group, a consumer debt recovery firm based in San Diego.

Encore's Midland Funding unit, in settling with Swanson, agreed to make changes in its operations in addition to paying $500,000. But, of course, it admitted to no wrongdoing.

Shea is a longtime prosecutor who more recently began teaching law, and he said companies that have been found to have engaged in wrongdoing should consider going ahead and freely owning up to it.

How will change ever happen?

That may be an important step in changing the way the organization thinks and acts about all aspects of its work, Shea said, adding that he tells executives that "it's not enough to create an effective compliance program."

For any company that finds itself in that situation, he said, "if they continue to try to minimize it or explain it away, one has to question whether the culture that led to this conduct is ever going to change."

lee.schafer@startribune.com • 612-673-4302

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