13 ETHICAL OBLIGATIONS AND THE MANAGER: CASE STUDIES
by Paul Rogers
 
 
Case Study: National Australia Bank.............Although the Australian Prudential Regulatory Authority’s (APRA) report into the situation concluded that the losses were due to the collusive behaviour of the traders, it also stated:  “However, it can also be contributed to an operating environment characterised by lax and unquestioned oversight by line management; poor adherence to risk management systems and controls and weaknesses in internal governance procedure” (Buck).  APRA also found that there was an exclusive focus on process and documentation rather than looking at the substance of issues and taking responsibility for them.............In response to this, the National Australia Bank’s CEO made a number of statements on values and culture in NAB’s Concise Annual Report 2004 (http://www.nabgroup.com/vgnmedia/downld/Concise_NAB04.pdf). The fifth paragraph under the heading “Our Strategy” reads:
 
“A new Board and executive team is committed to leading culture change by example.  A new set of Corporate Principles has been developed and sent to every employee.”  NAB’s Corporate Principles, which are said to be used as the basis for its core beliefs and values, are:
• “we will be open and honest
• we take ownership and hold ourselves accountable (for all of our actions)
• we expect teamwork and collaboration across our organisation for the benefit of all stakeholders
• we treat everyone with fairness and respect, and• we value speed, simplicity and efficient execution of our promises.”  http://www.nabgroup.com/0,,32714,00.html
 
Under the heading “Major gaps in our cultural fabric”, the CEO’s statement in the Concise Annual Report 2004 reads:  “While the National had an agreed set of values, people were not held accountable and values were not reflected in the way people were assessed. Culture change programs were voluntary and there was a lack of visible and consistent leadership in this area.  This led to a focus on achieving short-term profits without regard to the way in which this was done, and low levels of employee engagement.”.............There are a number of corporate governance lessons that can be learnt from this case study.  The NAB case study demonstrates the need for a proper and sustainable corporate governance culture in an organisation, with clear lines of authority and internal controls. Risk management needs to be dealt with properly. A divided board cannot stand...........
 
 
 
Case Study: Barings Bank
In February 1995, one man single-handedly bankrupted the bank that financed the Napoleonic Wars, the Louisiana Purchase and the Erie Canal. Founded in 1762, Barings Bank was Britain’s oldest merchant bank and Queen Elizabeth’s personal bank. Once a behemoth in the banking industry, Barings was brought to its knees by a rogue trader in its Singapore office. That trader, Nick Leeson, was employed by Barings to profit from low-risk arbitrage opportunities between derivatives contracts on the Singapore Mercantile Exchange and Japan’s Osaka Exchange. A scandal ensued when Leeson left a $1.4 billion hole in Barings’ balance sheet due to his unauthorised derivatives speculation, causing the 233-year-old bank’s demise.............Derivatives were originally synthesised as a tool of risk management. The idea of “hedging” goes back to the old agricultural practice of building hedges to keep in the good and exclude the bad. Yet, the market has made a virtue of speculation (which is the euphemism used to describe what others freely admit to be gambling). A gambler is often blind to the consequences of each action. The temptation is to raise the stakes even higher. As can been seen in this case, there are clear winners and losers. What is more, the winners have no mercy. They press home their advantage to the last...........
 
The collapse of Britain’s oldest merchant bank, Barings, should hold a number of lessons for directors and other officers responsible for a company’s operations. Most important is the need to realise that no amount of external or internal regulation and surveillance is going to prevent determined people from committing illegal behaviour.  Instead, directors should realise that they can expect a sympathetic hearing after having made real and sensible efforts to ensure that management addresses issues to do with the culture of the organisation they control.  The investigation ordered by Britain’s Chancellor of the Exchequer concentrated on issues related to internal control and compliance mechanisms. Thus a golden opportunity to address issues of the management of derivative-related risks may have been squandered because the seeds of the destruction of Barings lay instead in the micro-culture of the dealing room.  The crisis precipitated in Barings’ Singapore dealing room could just as easily have been the basis for a spectacular triumph. As is so often the case, censure has followed failure.  Leeson’s behaviour was condemned because he bet the wrong way and then compounded his error by chasing losses. Had his judgment (or luck) been a little better, he might now be enjoying the fruits of an enhanced reputation and a healthy bonus. It may appear a little cynical, however, one must wonder whether Leeson’s superiors would have castigated him for the same deals if they had led to windfall profits...........
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Case Study: CLERP 9 Act
Case Study: Australian Postal Corporation........
Case Study: Enron..............
Case Study: Foster’s Group.................
Case Study: HIH..................
Case Study: James Hardie.................
Case Study: Leighton Holdings............
Case Study: One.Tel................
Case Study: Ponzi Schemes.................
Case Study: The Rule in Foss v Harbottle..............
Case Study: The Sarbanes-Oxley Act.............
 
 
Attachments area
 
Preview attachment chapter_13.2_case_studies.pdf
 
 
chapter_13.2_case_studies.pdf