Once again, we are being asked to believe the myth of the rogue trader. It’s a convenient way of individualising what is actually a systemic problem. The likes of Nick Leeson,
Jérôme Kerviel and Fabrice Touree, we are told, are bad apples who do things no-one else in the bank would dream of. News International tried the same line over phone hacking until the pretence collapsed under the weight of evidence.
But, as I’ve said before, there is no such thing as a rogue operator. Yes, there are people who steal from their companies and customers but that’s not what we are talking about here. The ‘rogue’ operator is someone who behaves illegally to achieve the goals the employer has set. If the pressure to make the numbers, and the reward for doing so, is high, then it’s not difficult to see how a ‘do whatever it takes’ attitude can encourage people to bend the rules. It’s then a short step from bending them to breaking them.
The suggestion that this behaviour is counter-cultural goes against everything we know about the way organisations work. Organisations influence and contain employee behaviour through a set of cultural norms. These norms are reinforced by the leaders and by various systems of reward and punishment. For this reason, employees rarely operate outside them. Countercultural behaviour is usually spotted quickly and discouraged. If it persists it is usually punished.
We like to talk about employee autonomy but, in practice, there are very few organisations where executives give their staff objectives but have no interest in how they go about achieving them. They might not understand the finer detail but most bosses know more or less how their people do their jobs. The more demanding the environment, the more likely the boss is to be monitoring the team. In such an environment, the suggestion that counter-cultural behaviour can go on for years is fanciful.
Rogue traders are products of their corporate cultures. At some level, the culture tacitly approves of what they do. Those manipulating markets, conspiring against clients or hacking phones might be regarded as slightly dodgy rascals but managers either turn a blind eye or, more astutely, avoid asking the questions that would mean they had to admit to knowing what was going on. The rascals are doing what it takes to make the numbers so say no more.
Former Barclays CEO Martin Taylor told the BBC that the deception was systemic and looks like a deliberate strategy that had been going on for years. This behaviour could not have persisted for so long if the culture had not supported it in some way. It may be that Bob Diamond didn’t know anything about the Libor manipulation but to claim that it ran counter to the bank’s culture and values is naive. Rogue traders don’t come from nowhere; they are moulded by the prevailing norms in their organisations. They just amplify the worst characteristics of the cultures that breed them.
Update: Just seen this quote from a 2011 BBC business lecture:
Culture is difficult to define, I think it’s even more difficult to mandate – but for me the evidence of culture is how people behave when no-one is watching.
It’s from Bob Diamond.
Update 2: A fascinating piece from Frances Coppola on the systemic failure at Barclays and the attempt to blame the whole thing on junior ‘rogue traders’:
This is a major failure of internal control akin to those we see in virtually all “rogue trader” events. And Diamond is in fact treating this as a “rogue trader” event. The junior staff actually involved in the rate fixing are being sacked. But the senior management responsible for the internal control failure that made it possible for these people to influence rates inappropriately, are they being sacked too? Doesn’t look like it.