Is Your Business Harboring Rogues?

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What happens when people in power go off half-cocked

Do you sometimes wonder if strange goings-on in the next office or on an upper floor by hotshots—who in reality don’t know squat—could bring down your business?

I find astonishing the number of rogues who make decisions not knowing the rules, not understanding their business model and, worse, worse, worse, not testing small.

Instead—convinced they know it all—they roll out big. When things don’t go their way, they double-down. And everybody gets clobbered—fellow employees, stockholders and the public.

1. Nick Leeson and the Barings Bank Disaster
From “Nick Leeson: The Real Rogue Trader, A Timeline in Quotes”:

Barings Plc, the 233-year-old British investment bank [and personal bank to HM The Queen] that helped finance the Napoleonic wars and the Louisiana purchase, is broke after one of its Singapore traders lost more than $1 billion.

The trader, Nick Leeson, got in over his head with “massive unauthorized” trades including an exotic bet called a “short straddle.” He fled Singapore to Kuala Lumpur where he checked into the 5-star Regency Hotel with his wife Lisa. After an international manhunt, Leeson was picked up in the Frankfurt Airport and wound up spending four years in what he called “a gang-ridden Singaporean jail, in conditions that defy belief.”

On Leeson’s website he glories in calling himself “the original Rogue Trader whose unchecked risk-taking caused the biggest financial scandal of the 20th century” and reports that he “continues to be in-demand around the world for conference and after-dinner speaking.”

In 1995, after much gnashing of teeth and wailing in the streets, Barings was sold to ING for £1. In 2004, ING sold Barings to Mass Mutual and Northern Trust.

2. The Geeks in the Back Room, Dick Fuld and the Crash of Lehman
I have two good friends who worked at Lehman Brothers, 158 years old and Wall Street’s fourth largest investment bank with $640 billion in assets.

Comments
  • GMac

    I worked in the subprime for a major bank for 9 years just prior to the crisis, as a director and officer. We, other managers and I, used to take turns testifying at various government inquiries as to why we weren’t lending more to customers that couldn’t pay us back. It was called "red lining" at the time, and we were under constant regulatory pressure to be "fair." The historical revisionists seem to overlook that fact, and the other fact that the financial industry is a direct extension of US government. fiscal policies at many levels It is also the most regulated industry in this country., second to none, not even the pharmaceutical industry. It wasn’t a lack of regulations that caused the financial crisis, it was the specific regulations in place at the time, especially interpreted by the liberal lending politics of the time. As far as the scathing assessments of Fiorina, she no more caused the inevitable disaster at HP than President Hoover caused the Great Depression. HP had already become like many of our institutions– rife with tenured, entitled, lazy technocrats where any change or disruptive technology was met with violent opposition. (Just a small correction, Meg Whitman inherited the "mess" from Mark Hurd, not Carly Fiorina, not that it matters one iota. )

  • Carolyn

    I read a fascinating book on the 2008 crash: The Big Short, by Michael Lewis. I think you’d be interested in reading how a couple of people figured out that, in fact, not only could everyone default on their mortgages all at the same time, it was possible to predict when it would happen. They studied the data, just like a smart marketer! It seems obvious in hindsight . . . but, because it had never happened before, the greedy people running the deals couldn’t believe it ever would. According to Lewis, it was as much a failure of imagination as a failure to test.

  • Cranky

    What the Lehman case points to is the crying need for strong banking regulations and even stronger regulators. You wouldn’t feel safe driving if every intersection had no stoplights, stop signs, or speed limits.

    If we don’t feel safe throwing out the rulebook that prevents many automobile crashes, how can anybody support "less regulation" (it’s really "even less regulation") for banks that can not only impoverish their stockholders, but also crash the nation.

  • bjvl

    Denny —
    I’ve had to deal with the "failure to test" paradigm–there are few things more frustrating and ultimately demoralizing than a "boss" who thinks they know which way the customer’s going to jump every single time. And when they fail, they fail big. And then some manager gets fired (usually the one who tried hardest to warn them off what they were doing) and the whole d*mned thing starts all over again.

    It’s especially problematic when the Boss has enough successes to think they’re infallible–so they see no "need" to test.

    But, I gotta say, "conned by the geeky quants in the back room"? Really? This whole "geeky quants in the back room" thing sounds like a line from Grease 2 where the nerds are to blame when the CEO jock falls down on the football field during the homecoming game. Those CEOs weren’t conned. They knew exactly what they were doing–milking the poor and middle class for money to pad their own wallets and golden parachutes. Don’t let them off the hook with language like "conned."

  • C. Thomas (Tom) Smith, III

    Thanks Denny. I’ve worked for a number of companies and clients who don’t do research because they already "know" what their customers, prospects, channel partners and most sadly, management team and employees, think.

    I don’t know until you ask and asking is testing.