I wonder what would happen if Dr Paul Thomas (see previous post) were to suggest to managers at Societe Generale that they should get rid of hierarchy and empower their employees. I think they would probably kick him down the stairs.
The £3.7 billion loss run up by futures trader Jerome Kerviel is an extreme example of what happens when empowerment goes too far.
Inevitably, as soon as the story broke, every journalist was trying to track Nick Leeson down to give a soundbite. As the former Barings trader said, many of the senior managers in banks don’t understand the detail of the trading operations. They may put procedures in place to police the traders but these are poorly enforced and those responsible for monitoring the front office are poorly resourced.
Working in compliance or risk management for an investment bank must be one of the most frustrating jobs in the City. People nod their heads in agreement when you speak in meetings, they fill in all the forms you send round, they dutifully attend your training sessions and watch your videos on money laundering. Then they carry on regardless. And, in comparison to the people you are supposed to be keeping an eye on, you are paid a pittance.
The banks’ bosses want the profits from the star traders and, effectively, trust them to get on with it. For the same reason that most of us have inadequate security on our computers or don’t pay high enough insurance premiums on our houses, the banks don’t police their traders – they hope the worst will never happen. And usually, it doesn’t.
Friends of mine who worked at Barings after Nick Leeson’s fraud told me that a number of people at the bank were “shitting it” in case an inquiry got to the bottom of what went wrong and their negligence was exposed.
There are bankers all over the world waking up in a cold sweat this morning and thinking, “There but for the grace of God…”
Will it happen again? Nick Leeson reckons it will and he is probably right.