Leeson Factor
With all that's changing - new services, products, ways of manufacturing, delivery, etc - is it any wonder that those at the top of today's enterprises have little or no understanding of what's going on and who's doing what in their own organisation (let alone what's happening at the competition)?
The pace of change is not only accelerating, it's making a mockery of many of the safeguards that would have protected yesterday's enterprise. And let's not forget, that yesterday's top team would probably have made it to the top by having worked their way through all that went on in the business. So knew it all. But not today.
And, even if the more enlightened executives regularly 'walk the job', few will be talking with people doing the sort of jobs they did in their early days. So unsurprisingly the top team's grip on reality (and the enterprises assets) are tenuous even at the best of times.
Remember Nick Leeson? He was the 'derivatives trader' whose unchecked risk-taking caused the demise in '95 of Barings Bank (a British merchant bank founded in 1762).
In '92, Leeson was appointed as the manager of a new operation in futures markets on the Singapore Monetary Exchange (SIMEX). He was soon making millions for Barings by betting on the future direction of the Nikkei Index. His bosses in London were delighted with his efforts unaware of the mounting losses that Leeson was racking up.
However, like many other financial institutions, the operations lacked sound checks and balances. Furthermore, Leeson's antics took place many '000s of miles away from the London-based 'top team'. That only made matters worse.
The collapse of Barings Bank and Nick Leeson’s role in it is one of the most spectacular debacles in financial history and joins other cases of rogue trading, financial scandal and corporate fraud - SocGen ('08), Lehman Brothers ('08) and UBS ('11).
Another example is the insane thinking that precipitated the collapse of Northern Rock ('12). Someone came up with the bright idea of borrowing short and lending long which, as every qualified banker knows, is a recipe for disaster.
It makes me ask how the people at the top arrived there (surely examples of the Peter Principle). Was it a case of the 'Emperor's new clothes' or a senior team in awe of the Chairman. Surely someone (even a cabal) from within the top team should have questioned the thinking behind the strategy.
At the heart of each of the failures are financial products (or ways of using them) that were unheard of when I trained and qualified as a banker in the early '70s. But - as I mention elsewhere - by the mid-'80s deregulation, competition and numerous new financial products turned the banking industry upside down.
In the blink of an eye, predictable and unspectacular growth was replaced by exceptional business opportunities, hugely increased profitability and major volatility in financial markets – a state of affairs that has existed ever since and been accelerated by mergers, deregulation and a relentless, almost suicidal, drive for growth, market share and profit at any cost. This dash for glory (akin to a C19th Gold Rush) was unregulated and poorly monitored and led to spectacular failures, bail-outs and economic turmoil.
That was exactly the situation when I launched my own (short-term) lending operations in '86, i.e. no regulations or oversight from the Bank of England or other authority.
However, I will say this, the syndicate of international banks that lent my firms the (very sizeable) funds to on-lend to others had the good sense to safeguard their lending by insisting we were audited and that our portfolio of loans was scrutinised on a monthly basis by independent accountants. That kept us honest and the lenders happy.
But that was over three decades ago.
Having read about ongoing issues in the US banking sector, if I were in banking today, I don't think I'd sleep too well at night for fear of another Barings or Lehman Bros. And that's even though today's banks are more regulated and controlled (or, seem so).
What are your worst nightmares work-wise?