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How Individual Firms Can Prevent A Leeson Incident From Happening To Them - Research Paper Example

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How Individual Firms Can Prevent A Leeson Incident From Happening To Them

This research paper tells that the collapse of Baring Bank was primarily due to one rogue trader, named Nick Leeson, who was making fraudulent transactions. Leeson occupied a great deal of power in Barings Limited, as he was both the Chief Trader and Head of Settlements, which means that he could make any trades he wanted without any oversight – the fox was in charge of the chicken coop, so to speak. What this essentially meant was that Leeson was able to cover up losses and report them as gains, because, as Head of Settlements, which was in charge of reporting trading losses and errors, he was able to be dishonest in this way. This was brought to the attention of the auditors, which stated that this set-up provided great risk, but Barings did nothing to rectify it. In the end, it was this lack of governance that proved to be the undoing of the firm, as Leeson single-handedly brought the bank down. The Leeson affair was caused by a number of different factors. First, according to Hoch & Kunreuther, bad decisions played a large part in fomenting the conditions under which the scandal occurred. One of the bad decisions was on the part of the managers, who looked the other way regarding Leeson because their emotions got in the way. The managers liked Leeson, as he initially was successful in trading, and the emotion of greed got in the way of closely scrutinizing him. Moreover, Leeson had very little experience in trading, and he had some personal bad debt that was not disclosed in his application for a trading license. All of these should have been red flags, however, they were overlooked by the individuals in the hiring process and by the managers who could have prevented Leeson’s reckless trading, simply because Leeson was liked (Hoch & Kunreuther, 2001, p. 6) Hoch & Kunreuther (2001) also state that there were other reasons why there were so many bad decisions that were made in the Leeson case. One of these is that the company relied too much on intuition. Another is that they were in too much of a rush – they felt that they must capitalize on the Far East market as quickly as possible, without implementing the ...Show more

Summary

This paper aims to examine how the United Kingdom changed its laws in response to the scandal, by examining the new regulations that have come about to address the Leeson affair. By this research, firms may be able to take the steps necessary to prevent this from happening to them…
Author : whoeger
How Individual Firms Can Prevent A Leeson Incident From Happening To Them essay example
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