Rogue to recovery

Don’t lose sight of your workforce, warns Nick Leeson, the former employee of investment bank Barings who lost £830m in trading and was held responsible for the biggest financial scandal of the 20th century.

“The thrust of everything at Barings was always: how much money are we going to make? Organisations need to focus more on the welfare of staff,” he says. “I don’t think any attention was paid to that.”

After the crash, Leeson was convicted of forgery and cheating and spent four-and-a-half years in a Singapore jail. During this time, his marriage ended and he was diagnosed with cancer.

With 10 years of hindsight, employers can draw important lessons from his experiences – especially from the psychological aspect of the way the stress affected him. Fear of failure and how people’s need for status can get out of hand are among the subjects dealt with in Leeson’s book, Back from the Brink – Coping with Stress, which he co-wrote with psychologist Ivan Tyrell.

In the lead up to the collapse of the 233-year old bank, Leeson was constantly scared because very simple things, such as someone asking questions he couldn’t answer, would expose him. And he wasn’t sleeping well. “All I was doing was surviving,” he says. “It was just a period I coped with.”

Leeson says the change in his behaviour in the workplace was glaringly obvious, yet people ignored it for months. When he first went to work for Barings, he would be at his desk at 7am and would work 20-hour shifts. He was very diligent and dedicated to what he was doing. Towards the end of his time at Barings, just before its collapse, he would arrive at the last minute, slope off after a couple of hours and turn off his phone so he could not be contacted.

Although Leeson says money was never a great motivator, the success and status it brought were. His need to have control and achieve success blinded him to what was going on around him. It led to greed and to living a lie to maintain his position.

He says: “When immature people have status, they’ll do absolutely anything to protect it. If you ask for help, then your status is immediately diminished. Certainly there are others who would find it easier, but I’ve spoken to a lot of people in different organisations who said they wouldn’t ask for help even when they were struggling. I think it’s a personality type thing.”

Rather than admit to being out of his depth and close his illegal loss-hiding account, Leeson was desperate to live up to his own and others’ expectations. He bluffed his way through for almost three years.

“The easiest step should have been to ask for help, but that meant admitting I was failing,” he says. “I couldn’t turn to any of the people who were important to me and admit that. I’ve never really been able to describe it but pride is the thing I put it down to.”

One of the failings was that there was never a proper manager-employee relationship. Leeson says: “Throughout my time in Singapore, the people who worked for me were my friends. There was never any differentiation between them and me. Whenever they made an error, it went into the illegal losses account. They used to make 10, 15, 20 errors a day, but I never reprimanded them. There was never that distinction.

“That blurring of roles really did go against me in that those people should have been reprimanded, and they should have been fired if they continued.”

The naivety of the managers responsible for appointing Leeson to that position is one explanation put forward by Leeson’s co-writer Tyrell for the Barings crash. He believes the complete autonomy he was given was one of the reasons the crash happened on such a large scale.

Call me irresponsible

“In terms of blame, then it has to be mine,” says Leeson. “Obviously, I brought a lot of it on myself but it was all from very small decisions – decisions I was never equipped to make.”

He was in his mid-20s when he was employed by Barings.

“My age wasn’t commensurate with the level of responsibility I was [given]. I’m the first to admit I didn’t have the necessary management skills, but there’s an argument that Barings let me down in that the company didn’t equip me with the necessary skills to do the job.”

Leeson says he never went on a training course throughout his time at Coutts, Morgan Stanley or Barings.

He strongly believes that employers in financial services should focus their attention on the vital regulating and back-office control roles that are seen as far less glamorous. They also don’t offer the same financial rewards as the trading floor. “In risk management and compliance, you need strong people to make sure controls are in place and people aren’t getting complacent. If controls aren’t in place then individuals will react. Complacency was a strong theme that ran throughout everything at Barings,” he says.

“I can think of 10 occasions at Barings when, prior to my escapade, if I’d seen more severe penalties perhaps I would have thought twice about what I was doing.”

Despite “glaring differences that were ludicrous”, Leeson wasn’t questioned about his reports. “The stuff I was reporting was completely nonsensical and any form of investigation into it wouldn’t have held up,” he says.

The key decision-makers at Barings were people who didn’t really understand the business, claims Leeson. This is one of the reasons why, to a certain extent, he doesn’t feel sorry for some of the people who lost their jobs at Barings following its collapse.

“There were a lot of people in senior positions who were getting a lot of money to control what I was doing. They failed. If anyone suggests that they were doing their job properly, I would strongly disagree.”

Adequate controls are one thing, but employers should understand the people on the trading floor who are taking the risks, he warns. While some traders are straight down the line, highly intelligent and motivated individuals, there will always be a small group of rogue traders who will bend the rules and take risks, he says.

Worryingly, Leeson is convinced that such scandals will continue to happen. “The episode was so big, so catastrophic, that it should have been a wake-up call, but that’s clearly not the case,” he says.

Leeson says the post-Enron regulations have serious implications for the financial services industry. With the level of responsibility these new regulations are going to place on the organisations’ management, people will have to be more in touch with what is going on, he says. Yet, he believes, many employers simply aren’t gearing up to this because of the high costs involved.

Treading a fine line

As someone who describes himself as being success-driven from a young age, Leeson says there is often a fine line between employees being stretched and being stressed. A degree of trust combined with regular consultation and evaluation with a manager is essential, he says. Employers should ask their staff – perhaps through a form – whether they are being stretched enough, then allow them to respond anonymously and make sure it filters down the organisation, he suggests.

“I was one of those people who would always accept that I could cope even if that meant me working until 3am. I’m not like that now – I’ve learned a valuable lesson.”

While Leeson says his life now is not stress-free, he is able to limit the number of stressors more than most people. “I think we all have innate coping mechanisms. Being in prison forced me to stop and evaluate what I’d done over the years. It made me realise that there were things in my life that I could influence and things that I couldn’t. I don’t let the things that I can’t influence worry me now.”

So if Leeson could turn back the clock, what would he change? “There are thousands of things I could have done differently, and one of them would have been not getting on the plane to Singapore, but I have to deal with the reality of it. I can’t spend all day thinking ‘What if?’ It ain’t, so deal with it.”

Lessons for HR

  • Hold regular conversations with employees to check they are coping
  • Ensure employees are properly trained to do their jobs and have clear, defined roles
  • Put in place forums where employees can express their views about the organisation.

Timeline of events

  • 1967 Born in Watford, Hertfordshire
  • 1985 Started work at Coutts
  • 1987 Moved to Morgan Stanley
  • 1990 Was recruited by Barings
  • 1992 Went away to work in Barings’ Singapore office
  • 1993 Made £10m – about 10% of Baring’s profit for that year
  • 1994 Made huge losses which he hid in an illegal account
  • 1995 Accused of losing £830m and sentenced to six-and-a-half years imprisonment for forgery and cheating. Barings Bank crashed and was sold to a Dutch bank for £1
  • 1999 Released two years early from jail on the grounds of good behaviour. Wrote the book Rogue Trader about his exploits, which was later turned into a film starring Ewan McGregor and Anna Friel
  • 2000 Studied for a psychology degree at Middlesex University
  • 2003 Treated for colon cancer and made a full recovery. Remarried
  • 2005 Appointed commercial manager of Galway United FC in Ireland, where he now lives. Most of his income comes from after-dinner speaking

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