BusinessCorporate FinanceSetting the perfect trap

Setting the perfect trap

Early in my career, I investigated frauds at National Westminster and Baring Brothers. NatWest lost £93m and Barings lost several hundred million, leading to its collapse.

The lessons of the day still haven’t been learned – you can’t build a good
enough mousetrap, as human beings are too smart. National Westminster’s disaster
came several years after Barings.

By then, banks had tightened up internal controls significantly.

Internally, NatWest had front-office risk monitoring, middle-office controls,
compliance officers, internal audit and risk management committees. Externally
they were monitored by their auditors, the FSA and the Bank of England. Still, a
clever trading scheme, brainchild of a single trader, cost them dear.

So what is missing? Organisations have ‘hard’ and ‘soft’ aspects and both
drive performance. The hard side is exemplified by the NatWest structures,
processes and systems designed to catch the potential wrong-doer.

The soft side is the real hard side, though – organisational culture, deep
attitudes and beliefs, and emotions. Few ethics programmes tackle these
sufficiently and many institutions are still disasters waiting to happen.

Culture is a complex phenomenon and difficult to change. The culture at
NatWest typifies many high-pressure organisations: silo-driven internal
competition, ‘don’t ask, don’t tell’ internal politics, rewards based entirely
on ‘ends’, disrespect for ‘pencil pushers’ who support the business and macho
attitudes to failure that promote concealment.

Cadbury Schweppes is an example of a company that is taking the high road.
Working with Future Considerations, they devised an ‘ethical risk’ game that
tested managers ability to resolve tough issues arising from globalisation.
General Electric in the US has a reward system, based not just on the numbers,
but also on how managers get their results.

Organisations still need good mousetraps, but they also have to worry about
the mice they hire, how they reward them and what behaviours are modelled by top
leadership. The best mousetrap is one that is never sprung.

Paul Gibbons is managing director of Future Considerations London

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