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QUEST MEANS BUSINESS
HSBC Money Laundering Probe; Bank of England Governor Mervyn King Says Barclays Bosses Lost Trust of Regulators; Fed Chairman Quizzed on Capitol Hill; US Market Reaction to Bernanke's Testimony; Goldman Sachs Revenue and Profit Slip But Top Forecasts; Singapore Banking Chief Doubts Libor Scandal Will Hit His Region; Outlook Singapore; Yen Down, Euro Up Against Dollar; The Millennials: New Expansion for Intern Latin America
Aired July 17, 2012 - 14:00 ET
THIS IS A RUSH TRANSCRIPT. THIS COPY MAY NOT BE IN ITS FINAL FORM AND MAY BE UPDATED.
MAX FOSTER, HOST: The bank of drug kingpins and rogue nations. HSBC is accused of being pervasively polluted.
Slow going. Bernanke bemoans the lack of growth. And --
(BEGIN VIDEO CLIP)
DAVID WINNICK, BRITISH MEMBER OF PARLIAMENT: Mr. Buckles, it's a humiliating shambles, isn't it?
NICK BUCKLES CEO, G4S: It's not where we'd want to be, that is for certain.
(END VIDEO CLIP)
FOSTER: The company in charge of Olympic security says it regrets taking on the contract.
I'm Max Foster. This is QUEST MEANS BUSINESS.
Hello to you. Today, we find out just how accountable chief executives are. The Senate hearing on HSBC is now getting back underway after a break, and from alleged money-laundering to libor, we look at how banks are answering the questions, the charges against the. The events aren't just causing concerns in New York and London.
RICHARD QUEST, HOST: And yes, Max, I'm Richard Quest in Singapore. In just a moment or three, we will hear from a top banker in Southeast Asia about how the libor scandal couldn't have happened here and how he's sure there isn't a scandal waiting to be discovered. That's from Singapore in a moment.
FOSTER: Now, HSBC's head of compliance is stepping down from his post after a report said the bank was used -- it was used to launder Mexican drug money.
David Bagley told the Senate Permanent Subcommittee on Investigations that HSBC had fallen short of expectations. Senators say HSBC allowed billions of dollars worth of cash transfers believed to be linked to drug cartels and terrorist groups.
The hearings have just resumed in Washington, and CNN's Maggie Lake joins us from New York. Maggie?
MAGGIE LAKE, CNN INTERNATIONAL CORRESPONDENT: You know, Max, unfortunately, we're getting pretty used to covering financial scandals these days, but even by our standards, some of the allegations being discusses at this day-long hearing, this Senate hearing, are shocking.
We are talking about billions of dollars of money laundered by Mexican drug cartels, shadowy accounts in the Cayman Islands, Saudi banks with links to terrorists. This the laundry list, if you will, of topics being discussed today that HSBC officials have been trying to explain, not with much success, I might add.
Irene Dorner is the CEO of America, the top HSBC official on this side of the Atlantic, who is scheduled to testify. She's in the panel that's underway now, as you see those live pictures we're looking at.
We have her release testimony already, what she's scheduled to say, not the Q&A part, but the release testimony, and she is also expected to apologize and express regret for falling short of regulator expectations as well as customer expectations.
They're sorry, but they're not admitting any wrongdoing. That's sort of been the theme today. You mentioned David Bagley, he was the top compliance officer. He announced that he would be stepping aside from that post.
Interestingly, though, Max, we put a call into HSBC. It seems not stepping down, not resigning from the bank altogether, which I'm sure will raise eyebrows for those who have been asking all day how could all of this have gone on without you knowing about it? So, a lot of damage control to do still.
And let's remember, in addition to this hearing, there is a Department of Justice criminal investigation going on. Max?
FOSTER: Yes, what sort of fines or what kind of penalties could the Department of Justice impose on HSBC?
LAKE: Well, people looking at this say we might be talking about, if these allegations prove true, we might be talking about something in the area of $1 billion. That sounds like a lot. It is a lot when you're talking about fines of this nature.
But remember, this is a global banking giant, so in terms of the kind of profits and revenues they pull in, pretty much a drop in the bucket.
And we spoke to a lawyer earlier today who specializes in money laundering, he's worked for the Senate on investigations before, and he says that the abuses documented are outrageous, that they are criminal, a billion-dollar fine would be something akin to a parking ticket for HSBC. He says people need to go to jail for what was done.
FOSTER: Maggie, again, it seems to be a case of the regulations are there, in place, the law seems to be strong enough, but there doesn't seem to be the oversight. How does this go on for so many years without regulators picking up on it?
LAKE: It's incredible, Max. And it's the question that keeps coming up every time you have one of these incidents. In addition to the people testifying, we're also expected to hear from the regulator that was supposed to be watching HSBC.
Lawmakers are going to be asking what happened, why didn't you see this? Why didn't you register the sort of alarm bells and obvious signals that something was going on? So, they're going to have to answer to it, as well.
Listen, the regulators say, "We're outgunned. We don't have the resources, we don't have the manpower to do our job adequately." A lot of people just frankly don't accept that. They say that they lack the political will to really take on these global banking giants, who have become too powerful, and a phrase you and I hear all the time, "too big to fail," too big to crack down on.
FOSTER: Maggie, thank you very much, indeed, for that. Well, the Bank of England governor, Mervyn King, says Barclays' executives didn't realize just how poorly they were thought of after the libor-fixing scandal. King said he'd been forced to tell managers they'd lost the confidence of regulators.
The governor was responding to questions from British lawmakers on how much he knew about the rate-rigging. He said the Barclays bosses made too many mistakes to escape the regulators' attentions.
(BEGIN VIDEO CLIP)
TEXT: KING ON BARCLAYS
MERVYN KING, GOVERNOR, BANK OF ENGLAND: And it is possible to sail close to the wind once. You can sail close to the wind twice, maybe even three times. But when it gets to four or five times, it becomes a regular pattern of behavior, you do have to ask questions about the navigational skills of the captain on the bridge.
TEXT: KING ON LIBOR FIXING
KING: The first I knew of any alleged wrongdoing was when the reports came out two weeks ago. Perhaps I could take you back to the document that Mr. Geithner said.
MICHAEL FALLON, BRITISH MEMBER OF PARLIAMENT: Well do, but I just want to be clear --
FALLON: You had no suspicion until two weeks ago?
KING: No. We had been through --
FALLON: Anything had been going wrong in the libor?
KING: We'd been through all our records. There is no evidence of wrongdoing or reporting of wrongdoing to the bank.
TEXT: KING ON GEITHNER
KING: His deputy, Bill Dudley, telephoned Paul Tucker and said that Tim Geithner wanted some advice on how he could feed in views to BBA, who are responsible for libor. Should he write to BBA, copy to me? Should he write to me, copy to BBA? Whatever.
And I sent a message back through Paul saying write to me. We'll look at your letter. If we agree with it, we'll endorse it and send it on to the BBA.
TEXT: KING ON DIAMOND
ANDREW TYRIE, CHAIRMAN, UK TREASURY SELECT COMMITTEE: It was not just a conversation. "Hi." You know, "What's the weather like? Did you get to Wimbledon?" This is about handing someone a revolver and --
KING: No, it's not --
TYRIE: -- intending it to go off and shoot. And he's chief executive.
KING: There was no suggestion -- I don't like these firearms analogies, and they're false. The question, it was left absolutely with them.
I made it very clear and I finished the meeting by saying, "I would like you to make clear to the board that the regulators have expressed these concerns, and the board as a whole needs to know that they are very concerned and have lost confidence in the executive management." I did not know what the outcome of that meeting would be.
(END VIDEO CLIP)
FOSTER: The libor scandal was also a hot topic at the US Senate Banking Committee hearing today. The first question from senators to Fed Chairman Ben Bernanke was what he knew about it and what action he took.
(BEGIN VIDEO CLIP)
BEN BERNANKE, CHAIRMAN, US FEDERAL RESERVE: So, there was a substantial response by the Federal Reserve Bank of New York, both in terms of informing all the appropriate authorities that information led to investigations.
The Federal Reserve Bank of New York also contributed substantially to think about how to better structure the libor panel and the libor information collection to avoid some of the weaknesses in the system that became evident during the crisis.
(END VIDEO CLIP)
FOSTER: Bernanke said it was ultimately up to the UK banking officials to oversee the libor rate. He also told senators that the biggest risk to the US recovery would be to allow automatic spending cuts and tax rises to suddenly kick in, a so-called fiscal cliff.
(BEGIN VIDEO CLIP)
BERNANKE: The position I -- we've taken is, I would say, at a first cut is do no harm. What we need is a strategy which addresses the long-run sustainability issues, we can't forget about that. At the same time, if the fiscal cliff is allowed to happen, it will certainly have major negative effects on the recovery.
(END VIDEO CLIP)
FOSTER: A big concern, the fiscal cliff, amongst investors. Let's join Alison Kosik at the New York Stock Exchange. Hi, Alison.
ALISON KOSIK, CNN CORRESPONDENT: Hi, Max. Stocks had been higher at the open and then tumbled during Bernanke's testimony before picking up steam again. As you see, the Dow is up 89 points.
And part of that is on earnings optimism, but some analysts say the bounce-back may also be because of Fed chief Ben Bernanke's push for Congress to do something to keep the so-called fiscal cliff from happening.
And those, as you said, are a variety of spending cuts and tax increases here in the US that go into effect at the beginning of next year unless Congress does something. And the hope is that pressure from someone at Bernanke's level will get lawmakers to do something.
Now, many investors had hoped there would also be a more concrete pledge from Bernanke for aggressive stimulus, particularly for another round of quantitative easing. Instead, Bernanke reiterated that the central bank is simply ready to take further action as appropriate.
One thing certainly stands out from the testimony, though, Max. He painted a pretty grim picture of the state of the US economy, noting that risks to economic growth here have increased because of Europe's financial markets that are under significant stress. Max?
FOSTER: One thing we were expecting today was those Goldman Sachs results. What did they turn out in the end?
KOSIK: With the -- you know what? Expectations for these earnings were low for Goldman Sachs, but Goldman wound up blowing through the expectations. Goldman said it earned $962 million in the second quarter. That's down from last year. Revenue also slipped, but it beat estimates.
Now, the big concern for Goldman was about the effects of the European debt crisis. Also the concern about falling demand from Goldman's investment banking services. Investment banking net revenue actually fell 17 percent from the same period last year.
And if you look at shares over the past year from Goldman, they've fallen 25 percent, but at the same time, they've also gained almost 2 percent as others in this sector have fallen much more, around 7.5 percent. Right now, shares of Goldman are up about a half a percent on the better- than-expected earnings news. Max?
FOSTER: OK. Some good news. Thank you very much, Alison.
Now, the libor scandal has hit British banks, it may soon hit American banks. But one CEO says there's no trouble on the horizon in Singapore. We'll be live there with Richard in just a moment.
QUEST: Singapore built its economy on exports and foreign investment. Now, as the economy's matured, this city-state in Southeast Asia have had to rethink and work hard to diversify.
It wants to encourage the growth of new industry, those like biotechnology, tourism, high-tech, value-added.
And now, the efforts of government with industry, a part of a proactive policy that defines the place.
TAI HUI, STANDARD CHARTERED: The forward thinking is critical. If you look at the ways government drives policy, you'd be thinking a lot of the Singaporean, how they talk about their own personal career or their lives. There's a certain survivor mentality.
FOSTER: Singapore will never have a rate-rigging scandal like libor in the UK. That's according to the chairman of the Association of Banks in Singapore. He's also the chief executive of one of the region's biggest banks, which is DBS, and he's been talking to Richard, who joins us now from Singapore. Richard?
QUEST: Max, I'd originally intended to talk to Piyush Gupta, the chief executive, on the knotty question of the economy in Singapore and Southeast Asia, but of course as the libor scandal continues to reverberate around the global market, and he is the chairman of the Singapore Bankers' Association and the CEO of Southeast Asia's largest bank, well, Piyush Gupta clearly had some answers to give on the question of whether libor scandals could happen here.
PIYUSH GUPTA, CEO, DBS: Well, let's say it was unexpected and surprising that people were deliberately looking at influencing libor rates. The fact that the process of setting an interbank offered rate is a subjective process has been well-known.
It's a voluntary club mechanism that's true in Tokyo, London, New York, Hong Kong, Singapore. People profess and put up a rate which they think they can borrow at. That's a flawed concept.
QUEST: Right. But it's also done here. The voluntary reporting.
QUEST: Have you looked -- has there been the same -- we'd better have a look under the covers and see --
GUPTA: You can bet we have looked. I'm the chairman of the Association of Banks, and we've had several reviews in the last couple of years through the 07-09 period to make sure that our sibor setting has been reasonably circumspect and robust.
We have one other thing going for us. The Singapore interbank offered rate is not used as a benchmark rate for trading. And therefore, the incentives to adjust the rate don't exist.
QUEST: So, can you say categorically that there isn't a similar sibor scandal waiting to erupt?
GUPTA: I can say that pretty categorically, yes.
QUEST: And do you now believe that as a result of libor, whether you like it or not, there's going to be more regulation?
GUPTA: I think there's certainly going to be a rethink around how do you set up benchmark rates, and in some way, that's merited. The current system is 100 years old. And thinking, therefore, about how you can get actual empirical data, as opposed to judgmental data, is probably the way of the future.
QUEST: Away from the libor scandal, one of the biggest problems that both policymakers, bankers, and business face here in Singapore is how to balance out the peaks and troughs of the economic cycle.
I'll give you an example. In Q1, Singapore grew by 9 percent. By Q2, the numbers just out show that the economy shrank, contracted by 1.1 percent. So, I asked Piyush Gupta whether or not the core goal now for an economy that is so -- so easily moved around in the economic winds was to try and find some stability.
GUPTA: I think each share has got a degree of resiliency because of China, Indonesia, India, strong domestic consumption. But Singapore, Hong Kong, Malaysia, our economies in Asia, which are very, very correlated to the US, to Europe, and even to China. Singapore gets buffeted quite widely.
QUEST: So, with Outlook Singapore, how do you prevent that?
GUPTA: You don't prevent that. But you try to build resiliency so the ups and downs, while they're sharp, on an average through cycle, keep Singapore progressing well. Singapore was minus 1 percent GDP in 09, plus 14 percent in 010, plus five percent in 011, and perhaps a couple of percentage points this year.
QUEST: Which makes it just about unmanageable and just about impossible to forecast and plan.
GUPTA: It makes it difficult to forecast. But what the Singapore government has done is built a robustness into the old rot economic system. So, a budgetary surplus, strong fiscal condition, extremely strong FS reserves, and therefore the capacity to be able to manage the economic system for the volatility that the micro forces bring about.
QUEST: Until now, Singapore has done a very strong job of government and industry perhaps speaking with one voice, or at least one common goal. Would you agree?
GUPTA: Yes. And --
QUEST: Would that continue?
GUPTA: It does continue. And if you think about the way the Singapore government does it, this is not by fear, it's not the Soviet- style model of telling -- command control. The Singapore model is to use market forces and what they call macro-protection policy.
So, price indicators, incentives, and disincentives to encourage industry to march to a particular rhythm. And I would say that the last five years have taught us that every economy in the world needs to use some degree of market levers and not leave everything to market forces.
So, the question is really not whether you do it or not. The question is, do you do it in a way that allows supply and demand to have a role to play within a macro construct? That's what Singapore does so effectively.
QUEST: Piyush Gupta, the chief executive of DBS Bank, the largest in Singapore and in the region.
Tomorrow night on QUEST MEANS BUSINESS at this time, if I ask you to think about the Singaporean economy, you'll talk about trade and tourism, perhaps. Well, I'm going to show you a very different side of what happens in this small, tiny, city-state. That's tomorrow night on the program from Singapore.
Max, it is coming up to 20 past 2:00, and I can tell you, it is boiling and delightfully warm here in Singapore.
FOSTER: Thank you for rubbing that one in. Richard, thank you very much, indeed, and hello from a rainy London, of course.
Another question for you, a Currency Conundrum, in fact: where does the term "check" come from? The game of Chess? The logo of the bank where the first check was issued? Or C, after the man who wrote the first check? We'll have the answer for you later in the program.
The dollar is up against the yen after the US Fed chairman Ben Bernanke refused to give any hints on the central bank's next move, and the euro is on the up against the dollar, despite circulation that Sicily's governor may soon resign over the growing financial crisis there. The pound heading higher.
FOSTER: He's the British Millennial who found his fortune on the other side of the world. Tonight, David Lloyd has a crucial --
FOSTER: -- media attention ever since he won funding for his start-up company, an internship program called Intern Latin America.
And as it got off the ground, the accolades just kept on coming in. Earlier this year, he was crowned Young Entrepreneur of the Year in Colombia. And now, the business is growing and looking to expand even further into Latin America. The big question is: where? It's too big a decision for David to make on his own. Now it's time for The Millennials.
UNIDENTIFIED CORRESPONDENT (voice-over): They are young and confident, educated and ambitious. Born in the 1980s, they're a new generation entering the workforce, and their thirst for success knows no bounds. They are The Millennials.
Previously on The Millennials, we followed David Lloyd to Colombia as he took home the prize for Young Talent and Innovation of the Americas.
UNIDENTIFIED MALE (through translator): Let's find out who is the winner of the first national prize for Talent and Innovation. The prize goes to Intern Latin America.
UNIDENTIFIED CORRESPONDENT: It's summer in Santiago, but there's no time to rest for Intern Latin America's managing director, David Lloyd.
DAVID LLOYD, MANAGING DIRECTOR, INTERN LATIN AMERICA: Thank you for coming to the meeting. We're joining here to talk about the expansion strategies and what we think would be the geographies to expand into. And into the niche market --
UNIDENTIFIED CORRESPONDENT: This year is a key moment for his young company. With established bases in Argentina, Chile, Colombia, and the UK, it's time for the next step.
UNIDENTIFIED MALE: Not only where our market is flexible, but where can we provide the best product?
UNIDENTIFIED CORRESPONDENT: Today, David has brought together key members of his team to come up with a game plan.
LLOYD: My idea would be after a successful summer this year to look to open a new country around October, November time. We've got our country head from Argentina over for a couple of weeks, Luciano, and with Jeff and Andrew, our new team members in combination with Pablo, Chilean head, we've got a group of five of our seven total people, so we can really talk about this all in person.
UNIDENTIFIED CORRESPONDENT: There's no shortage of options for this start-up.
LLOYD: Right now, we're debating between various countries: Brazil, Mexico, and the United States.
UNIDENTIFIED CORRESPONDENT: The challenge now is picking the right one at the right time.
LLOYD: I think with this year, potentially, we were slightly behind the curve, because it's just really now we're getting really strong demand for this summer, and we could've had that four months ago. So, I think if we get in earlier, we will line ourselves up for a really successful summer in 2013.
And what's also crucial when we chose a location is how attractive it is.
UNIDENTIFIED CORRESPONDENT: Expansion will have to be a team effort, so David wants to make sure the whole team is involved in the decision.
LLOYD (through translator): We have to chose one country, like a straw poll.
LLOYD (in English): OK.
UNIDENTIFIED MALE: These five have the security. What country?
UNIDENTIFIED MALE: That's it. US.
UNIDENTIFIED MALE: US.
UNIDENTIFIED MALE: US.
UNIDENTIFIED MALE: US.
UNIDENTIFIED CORRESPONDENT: He may have been outvoted, but as the managing director, David knows he has the final say. A heavy responsibility for an Millennial to carry.
LLOYD: I tend to worry quite a lot, so yes, often I am not sleeping very well. But I just want to go through this, learn from it, and learn how to deal with this, because I think it's important to learn how to deal with uncertainty, stress, and things such as -- such as that.
UNIDENTIFIED CORRESPONDENT: Next week, on The Millennials --
UNIDENTIFIED FEMALE: I think as a toddler, David -- David kind of always wanted to be first. The first out of the bath, the first into the car.
UNIDENTIFIED CORRESPONDENT: David's mother opens up her photo albums as we look back at her son's younger self.
FOSTER: And amid all those negotiations, David has still found time to blog for us on cnn.com. You can hear his views on youth unemployment in Europe by going to cnn.com/business360.
And if you're doing what David's doing now, why don't you tell us about it? We're looking for more Millennials to feature on the show, whether it's Hong Kong, Joburg, or Berlin or London, do get in touch with us on The Millennials at cnn.com.
Now, next, the embattled boss of G4S gets a marathon grilling from British MPs.
(BEGIN VIDEO CLIP)
WINNICK: Mr. Buckles, it's a humiliating shambles, isn't it?
BUCKLES: It's not where we'd want to be, that is for certain.
WINNICK: It's a humiliating shambles for the company, yes or no?
BUCKLES: I cannot disagree with you.
(END VIDEO CLIP)
FOSTER: Welcome back. I'm Max Foster. These are the main news headlines this hour.
Syrian opposition activists say regime and rebel fighters are clashing in the capital for a third straight day. Video posted online appears to show government tanks rolling through the Midan district near the center of Damascus. An opposition group says at least 45 people have been killed today.
Russia's president says he'll do his best to back international envoy Kofi Annan's peace plan for Syria. The two have been holding talks at the Kremlin. Russia's foreign minister says his country is prepared to reach a consensus at the U.N. Security Council. Moscow has so far blocked any attempt to impose sanctions on Syria.
U.S. senators are interrogating executives of HSBC about accusations the company failed to stop international money laundering. Investigators accuse HSBC's U.S. branch of lax enforcement that may have enabled drug cartels, terrorists and rogue nations to launder billions of dollars. The bank is apologizing for what it describes as its failures.
Israel's Kadima Party has quit the country's unity government. The center right party, which holds the largest number of seats in parliament, made the decision after it failed to reach an agreement with the Likud party on a new universal draft law. The law would require ultraorthodox Jews and Israeli Arabs to serve in the military.
The FBI is investigating the discovery of sewing needles in six turkey sandwiches on four separate Delta flights from Amsterdam to the U.S. At least one passenger was injured, but declined medical treatment. A spokesperson for Gate Gourmet, who supplies prepared food to Delta called it "a terrible, terribly upsetting situation."
FOSTER: Now embattled head of G4S admits the company's handling of its Olympic security contract has been a humiliating shambles.
Nick Buckles told British MPs he was deeply sorry for his company's failure to provide enough guards for the event, but he's still planning on picking up an $89 million management fee. Senior international correspondent Dan Rivers has been following the story today.
(BEGIN VIDEO CLIP)
DAN RIVERS, CNN CORRESPONDENT: "A humiliating shambles" was how one member of this committee described the situation involving the private security firm G4S, which is supposed to be providing guards for various Olympic sides around Britain.
Its CEO had a very tough grilling for some two hours today, Nick Buckles trying his best to explain what has gone wrong. Basically he said there were some 100,000 people that applied for jobs with them connected to the Olympics. That was narrowed down to 20,000 people, who were put in a pipeline, as he described it, of accreditation and training.
But at some point during that complex process, the management of those people had broken down so that today only 5,500 were actually deployable, in his words, and of course, they're contracted to supply 10,400 people. So just about half the people that they should have ready to guard Olympic sites are actually available.
It's a situation which means, for example, today, Tuesday in London, to the south of London at Box Hill, only 17 people turned up at one Olympic venue when 38 were needed at that cycling venue. And that situation is being replicated across the whole of the country. Now Nick Buckles did his best to reassure the politicians that this situation was now in hand, but he did admit severe failings on the part of his company.
UNIDENTIFIED MALE: Mr. Buckles, it's a humiliating shambles, isn't it?
NICK BUCKLES, CEO, G4S: It's not where we'd want to be, that is certain.
UNIDENTIFIED MALE: It's a humiliating shambles for the company, yes or no?
BUCKLES: I cannot disagree with you.
RIVERS: The most withering words, though, were reserved for the committee chairman, Keith Vaz.
KEITH VAZ, CHAIR, HOME AFFAIRS SELECT COMMITTEE: I have to say I asked the members of the committee to sum up your performance and the performance of the company so far, and they've used these terms: "unacceptable," "incompetent" and "amateurish."
Though the committee is most grateful to you for coming in, we feel that those words best express our deep concern about the way in which this matter has been handled.
RIVERS: Nick Buckles insisted that his company would cover any costs incurred by the army, the police or the government for filling the gap that his company has failed to cover. He said that some police may be in line for an additional bonus of some $770 by way of thanks. But G4S will still take its management fee for this contract, which is $88 million -- Dan Rivers, CNN, London.
(END VIDEO CLIP)
FOSTER: Well, the speed at which Nick Buckles found himself before a committee seems to be part of a trend from Murdoch to Dimon.
More and more CEOs whose companies slip up are being held accountable. But how much power do these committees of inquiry actually have? (Inaudible) that question to barrister Amy Street. She's one of the authors of a report into the coercive powers of select committees here in the U.K.
(BEGIN VIDEO CLIP)
AMY STREET, RESEARCH DIRECTOR, CONSTITUTION SOCIETY: This is a question that I've been looking to recently in a report that I've (inaudible) for the Constitution Society with Richard Gordon QC. And what we concluded there was that they don't actually have any coercive powers when it comes to it. They say that witnesses must attend when asked and witnesses must answer questions that they are asked.
But if -- and I should say that they can achieve a lot by where corporation and that's how they do much of their work. But if the witness refuses to attend, as we saw with the example of the Murdoch's last year at first, they said they wouldn't attend, it's -- it was very uncertain at the time whether Parliament could do anything about it.
And our conclusion is that they couldn't. They did attend in the end, so that question wasn't tested out.
FOSTER: But if there aren't any sanctions then you do get a more free-speaking witness, don't you, a more honest witness?
STREET: Well ,that's what has been said by MPs, for example. And I'm sure that that is true to some extent. But there is a lot to be gained from select committees working informally and getting people to cooperate with them.
But ultimately, there will be occasions when Parliament wants to get after some people who aren't willing to get them, and ultimately Parliament might want to be able to require people to be forced to come and give evidence by imposing a sanction if they don't.
FOSTER: Some of the politicians seem to use it as an opportunity to show their bravado, they're very attackable and they're sort of working against each other, actually, on party political lines, even though they're not meant to be doing that. And that's another problem with them, isn't it?
STREET: The important issue there that we've been considering is that there are no rules about how far a select committee can go in its questioning, and this is important because the reputation of people could be seriously damaged if a select committee report says something against them, where they have no right of reply and haven't been represented in those proceedings.
And that's another area of where there's no rules on that point, and an area where Parliament risks the legitimacy of select committee proceedings being called into question if that position is maintained. But it is all a matter for Parliament to consider, because as I said, there are pros and cons to all these different approaches.
(END VIDEO CLIP)
FOSTER: G4S CEO Nick Buckles is not resigning over the Olympics fiasco though the same can't be said for David Bagley at HSBC or the bosses at Barclays. So when should the person at the top take the fall and step down over a controversy?
Well, Bob Bontempo is an adjunct professor at Columbia University. He joins us from New York.
Thank you very much indeed for joining us. In (inaudible) here today from the head of this security firm, saying that despite all the problems which he accepts and it's a complete shambles, he's the best person to sort it all out. And in a way, he's right, isn't he, because he knows what went wrong?
ROBERT BONTEMPO, ADJUNCT PROFESSOR, COLUMBIA UNIVERSITY: Well, in a way he's right, and at this stage, without all the facts clear, it's going to be very tempting to keep riding this horse.
There's obviously a severe performance failure and a disappointment but at this juncture, I think you could make the argument that he's the right person to continue to muddle through with. But I think that's a judgment best made by insiders close to the situation.
FOSTER: But when a company's in big trouble, change at the top is a problem, isn't it, for people within the company who feel unsettled. Also shareholders don't particularly like the change on top of all the problems they've had already. So where does the decision come in to step down now or later?
BONTEMPO: Oh, well, it's always a very difficult decision. But it's important to have some context. People are surprised to know how frequent it is. Last year about 15 percent of the U.S. Fortune 500 experienced turnover in their CEO position. The average tenure of CEOs in the large U.S. companies is less than five years now, and those are both trends that are increasing in volatility.
So it's a increasingly common phenomenon and it's a painful but necessary decision.
FOSTER: Some of the MPs today were just amazed that he was in the position, despite all of the problems. But is it the CEO's right to resign? Or should the chairman be firing him?
BONTEMPO: Well, you know, in a perfect world, we would have men of -- and women of -- judgment and balance, perspective, who would know when to step down. But in the real world, the type of person that comes to this position is typically ambitious, focused, able to withstand their critics.
And I think it's a little unrealistic to expect them at the same time to have the balanced perspective necessary to know when to step down. That's really the chairman and the board's role.
FOSTER: What's been the most difficult thing for you? Because I know you sat on boards, maybe these sort of questions have come up. And what goes through your mind? What's the priority here? I guess you have leave personalities out of it and media frenzy out of it as well and think what's best for the company.
BONTEMPO: Well, of course, it's very high stakes, very emotional decision. In my tenure as a board member, I've replaced two CEOs. It's never easy. But it's never personal. It's a very straightforward cost- benefit analysis. So the enormous cost to a reputation, relationships of the firm and performance issues going to be outweighed by the benefit?
And again, that's a decision that the boards -- it's really the board's main role, is knowing when to pull the trigger on a CEO. The first criterion you want to look for, of course, is performance. And that's the role they're hired for.
In a case of severe performance failure, I think it's pretty clear you want to look elsewhere. In this existing case with such a short-term phenomenon as the Olympics, I think that's a very separate case.
FOSTER: OK, Professor --
BONTEMPO: But in a --
FOSTER: Carry on; I'll let you finish your thought.
BONTEMPO: Yes. In a CEO role, you look for performance. If that indicator is met, there's also the integrity issue. I mean, as a very wise man once taught me, you never find just one cockroach. And when you see lapses of integrity I think you need to look very carefully at the risk that that person's bringing to the organization.
FOSTER: Thank you, Professor Bontempo, very much appreciate your time. Thank you for joining us.
We'll be back in a moment with your weather forecast.
(BEGIN VIDEO CLIP)
FOSTER (voice-over): The answer to our "Currency Conundrum" now, where does the term "check" come from? The answer is A, it's derived from the Danish "chess," putting the king on check means his choices are limited, just like a modern-day check limits opportunities for forgery. (Inaudible).
I know Jenny will be interested in that. We would like to receive a check, but actually we're looking now to the weather. The Olympics is coming. It's a global story. Will it stop raining?
JENNY HARRISON, CNN METEOROLOGIST: I know, will it? That's the big question. Max, you know what? Next week looks a whole lot better than this week. I think I need to just sort of stop there really. But for now, we've actually even had a pretty good day across the southern half of the U.K. You can see the cloud, it's coming over that area of low pressure.
It's actually been further to the north, and that's because the jet stream just drifted up to where it really should be this time of year. So that has taken the heavy rain across this area of France has been clear and dry. And you can see across the U.K. that across the south, yes, one or two scattered showers, but really nothing more than that.
Unfortunately, the jet stream is on its way back down again. But it has already made for a very, very soggy start to July, the first 15 days already 3 percent above the average amount of rainfall we tend to see sunshine only half the amount through the expect to see by this time of the month.
And then the temperature because of all the cloud and the rain it has indeed been below average, about 1.1 degrees Celsius below the norm.
So it's because of the position of the jet stream it's farthest this south, the systems are coming through. And then what we've seen in the last few days, as I say, is that more of the same. But this isn't going to swing through and then behind it, that is a bit of a break.
But across the southeast, we've certainly got the warm-up continuing, but much of central and western Europe also enjoying some slightly milder air, in fact, temperatures about 3 degrees above average in much of Spain, central and southern areas, and even across much of central Europe out towards southern regions of the (inaudible),temperatures will be a little bit higher than average.
You can see that rain coming in from the west. And as I say, by next week, it looks to be a whole better proposition. So let's just hope that that is the way it's going to continue. But sunny seeming warmer in London this Wednesday, 20 Celsius your high and 25 in Paris. And there's that very warm 38 there across in Madrid. But the Middle East has been particularly hot.
Ramadan beginning. Now it's actually gets earlier and earlier every year because it's based on the lunar calendar. So that also means it's heading closer to the longest day in the summer. That means, of course, more days, more hours of daylight, which is -- means for a start longer to actually fast and also those high temperatures.
And just quickly looking at the temperatures on Tuesday, 50 Celsius. That was the highest temperature we could find there, Max, 122 Fahrenheit.
FOSTER: The temperatures, as you say, Jenny, certainly are rising here in London. Stick around. We just want to get your thoughts on this.
(BEGIN VIDEO CLIP)
UNIDENTIFIED MALE: And here the first lady were booed on the night, although it had nothing to do with politics. The crowd showing its disapproval when the Obamas failed to obey the law of the Kiss Cam, although when the couple appeared on the big screen for a second time late in the game, they did oblige with a bit of a smooch and a cuddle, much to the delight of their daughter.
Pedro's presenting "WORLD SPORT" later. Please.
UNIDENTIFIED MALE: Now earlier in the day, earlier in the -- go on. Come up there. Thanks.
PEDRO PINTO, CNN HOST: Good audio on that.
(END VIDEO CLIP)
FOSTER: Jenny, we wanted to do the story, but I couldn't do it to you. You're on the other side of the Atlantic.
HARRISON: Oh, I'd love a kiss from you. It's been so long since I've seen you. You can still blow me one.
FOSTER: Well, come over soon.
HARRISON: Yes, OK.
FOSTER: And Pedro's on his way over at some point.
HARRISON: Oh, (inaudible).
FOSTER: Keep out the way of Pedro then, yes, don't trust him for a moment.
FOSTER: Jenny, thank you very much indeed.
Now, Yahoo!, big story at the moment, namely its new chief exec, (Inaudible) Mayer announces some big news of her own as well.
FOSTER: Now Yahoo! has chosen a former Google executive as its new chief. Marissa Meyer become Yahoo!'s fourth CEO in less than four years. She replaces Scott Thompson, who resigned in May over his academic credentials.
On the same day, Yahoo! announced she had been hired, Ms. Meyer announced that she is pregnant. She says her appointment is a sign of Yahoo!'s evolved thinking. Let's go to Felicia Taylor, who's in New York.
This is fascinating, isn't it? It's fascinating as a personal story, but also Yahoo!, it's got to make its comeback at some point.
FELICIA TAYLOR, CNN CORRESPONDENT: Yes, they've got a lot riding on this. They spent about two months searching for a new CEO. They've chosen Marissa Meyer, and it came as a lot -- a bit of a surprise of a surprise to many.
Most people didn't think that Marissa was actually interested in moving away from Google. She's been there for 13 years. She was one of -- she was the first female engineer to be hired at age 23. And notably, she had said she was quite comfortable and very happy there.
But again, you know, when Larry Page was, you know, moved into that position of CEO, he did not appoint her as a senior vice president. Some people saw that as a bit of a demotion. But she was focusing on products, primarily on a Google Maps, Google Earth, Zagat, Street View and local search on both desktop and mobile. And that was where her real strengths lay.
She is known for her technology, not necessarily her content. So that's why a lot of people are wondering, you know, is this going to be the right fit for Yahoo!.
I had a chance to sit down with her in February, when she had just learned that she was pregnant at their headquarters in Mountain View, California, when she talked about what it was like at the early days for Google. Take a listen.
(BEGIN VIDEO CLIP)
MARISSA MEYER, CEO, YAHOO!!: Well, in 1999, it was the height of the first -- the first Internet bubble and I wanted to work at Google for a lot of reasons I could express. I felt like the smartest people were there. I felt like it was a risk and I felt like it was something I wasn't really prepared to do.
TAYLOR: What's it been like to watch this company grow into the behemoth that it really is now?
MEYER: Well, it's been a really fun ride over the years. You know, my first five years at Google I pulled an all-nighter in the office at least once a week.
But I think that if we had approached it with any less intensity, who knows what would have happened. I think that that intensity was something that was really important and key overall to the success and growth of Search, and I also think it was important to the growth of the Web.
TAYLOR: What was it like to be a boss for the first time?
MEYER: I think that actually probably one of the most challenging periods of my career was when I first started managing a team. But I found that, for me, I was managing all day long, right?
So all during the workday I was, you know, helping them with their projects, you know, helping to make sure that they could get done what they needed to get done, and then all night doing all the individual contributor (ph) work that I still felt that I had responsibility for.
Later when you're doing this much more pure management, it actually gets easier.
TAYLOR: Is that something that you would say (inaudible) encourage someone or to face fear?
MEYER: Yes. I think that my advice for people, I've got four pieces of advice. And we've talked about two of them. One is work with the smartest people you can find. They really will elevate you. Two is do things you're not ready to do because in the worst case, you'll fail and you'll learn that that was beyond your abilities. In the best case, you'll surprise yourself and actually be able to do it.
Then there's the inverse of that, which is work in an environment where you're extremely comfortable. And my final piece of advice is work for people who believe in you and invest in you.
(END VIDEO CLIP)
TAYLOR: Interesting that she points out that what she likes to do is obviously accept challenges and do things that she's not really prepared to do. There's a lot of questions as to whether or not she's going to be able to lead a company. There's no doubt that she's very strong with the product. And she's now, by the way, the youngest CEO, female CEO on the Fortune 500 list at just the age of 37.
Patty Sellers (ph) of "Fortune" magazine, the editor at large, spoke with her shortly after the announcement was made yesterday, and she said -- Meyer said to her, you know, I wasn't getting as many, you know, recruitment phone calls as I used to because people thought I was so comfortable and happy at Google. And obviously that was true.
This all happened in the last month or so. So it was quite quick. Evidently she made her resignation over the phone. This is her first day on the job. And coincidentally, in about two hours' time, the company is going to be announcing its earnings call. There will be a conference call that she will not be a part of.
Wall Street seems to be accepting it kind of in stride, because there's so many questions moving forward as to how this is going to be handled. The stock is down about a third of 1 percent right now, still trading at 1559. It's a very interesting choice and could very well be the right choice for Yahoo! moving forward if she can turn this company around and, once again, figure out what its core strategy should be, Max.
FOSTER: Felicia, thank you so much, really interesting to see her speaking to you and a big, big challenge for her, as you say.
Now the World Bank says three-quarters of the world's population now has access to a mobile phone. In its maximizing mobile report, the bank says phone subscriptions have grown from fewer than 1 billion in the year 2000 to more than 6 billion today.
Growth is especially strong in the developing world, which accounts for five of those 6 billion phones. And the report says citizens in developing countries are increasingly using mobile to create and enhance their livelihoods while governments are using them to improve their services and get citizen feedback. We'll be back with a recap of the developments at the HSBC hearings after the break.
FOSTER: Now a Senate committee has been hearing from HSBC executives currently still appearing right now, actually, after those allegations of money laundering at the company. And the latest we've heard is from the head of HSBC in the United States.
He's made a comment, "We deeply regret and apologize for the fact that HSBC did not live up to expectations." So a tough grilling there and accepting the responsibility as well.
This inquiry came up with some very specific examples of dirty money, which is said to have been laundered through HSBC. And first into the machine were U.S. traveler's checks from Russia. Now the bank was said to have cleared checks worth $290 million, which were, the report says, obviously suspicious. And the Russians who benefited claimed to be in the used car business.
Next, Mexican drug money: the bank moved billions of dollars in cash from a subsidy in Mexico to the U.S. Law enforcement agencies say such sums could only involve the proceeds from illegal drug deals. Also under suspicion were funds from Syria, the Cayman Islands, Iran and Saudi Arabia. The report actually says that HSBC provided $1 billion to a Saudi bank with suspected links to financing terrorist organizations.
This incredible story will carry on, bringing you the latest from those hearings. But for now, that is QUEST MEANS BUSINESS. I'm Max Foster in London. Thank you for watching.
FOSTER: These are the headlines this hour.
Syrian opposition activists say 45 people have been killed as regime and rebel fighters clash in the capital for a third straight day. Video posted online appears to show government tanks near the center of Damascus.
Meanwhile the (inaudible) news agency's reporting that Syria's highest profile defector, General Manaf Tlass, is in Paris and is called for a constructive transition in his country.
U.S. senators are interrogating executives of HSBC about accusations it failed to stop international money laundering. Investigators say lax enforcement at the bank's U.S. branch may have enabled drug cartels, terrorists and rogue nations to launder billions of dollars.
Israel's Kadima Party has quit the country's unity government. The center right party, which holds the largest number of seats in parliament, made the decision after it failed to reach an agreement with the Likud party on a new universal draft law.
That's a look at some of the stories we're watching for you here on CNN. "AMANPOUR" is next.