News

May 30 2021

Who said this, about what and when?

“All organizations have bad apples but what an organization ….. also has is well paid and exquisitely educated bosses, part of whose job is to spot these bad apples and, if they are spotted, deal with them.”

It could have been said about any number of organizations over the years.

In fact, it was said last week about the BBC. It was said by Andy Webb, the journalist who uncovered the facts about how Martin Bashir got that interview with Diana and the – even worse – scandal of how this was covered up over the years by the BBC.

There is much that is familiar in this story:

• wrongdoing – in particular, immensely profitable (both financially and reputationally) wrongdoing;
• a “star” who can seemingly do no wrong and is protected by his bosses;
• whistleblowers who are ignored or punished;
• a wholly inadequate initial investigation;
• an eventual critical external report, continuing reputational and other damage and one hell of a mess to clean up.

As always, it is the response to and cover-up of the initial wrongdoing which causes most problems.

But it was what Andy Webb said next which goes to the heart of the issue of all wrongdoing and the culture change necessary to minimise it and its consequences –

“It would have been a huge ask of the Head of a News Division, having recently seen the most famous, the most significant piece of news coverage in the Corporation’s history, having gone round the world, having won prizes and plaudits, how much moral courage do you need to pull the plug on the story …. by saying that it was gained through an egregious ethical breach? Who would have been brave enough to do that? It’s my feeling the bosses were not brave enough to do that and it prompted the cover up.”

This is the acid test. A two-part test, really.

• When a high earner, a star, a prize winner misbehaves, will the bosses have the moral courage to pull the plug?
• And are those lower down the pecking order confident that this is what the bosses will always do?

Moral courage is at the heart of professionalism, at the heart of any successful, worthwhile, sustainable culture. It is its absence which so often allows small problems to become big ones. Building, reinforcing and rewarding the courage necessary to take difficult steps, to be open about what you are doing and why are at the heart of any successful culture change programme.

This time the BBC has been found wanting. But how many other organisations can honestly answer yes to both questions?

Photo by Varvara Grabova on Unsplash

April 6 2021

First – a definition.

“Lessons learnt: lessons which are never learnt by those who need to learn them.”

Today we learn that Credit Suisse has lost 4.4 billion Swiss francs following Archegos’ failure. This comes on top of its problems with Greensill, now in administration. This will result in a first quarter loss of ca. 900 million Swiss francs and has already led to the departure of its Head of Investment Banking and Chief Risk Officer.

A world of pain awaits.

– There may be more departures. Others will be nervous about the scrutiny now being given to past decisions.
– There will be internal investigators, internal audit, external investigators, lawyers, accountants and regulators crawling over thousands of internal documents.
– The remediation costs will be horrible.
– Clients whose money was invested in these ventures will need to be pacified if legal action is to be avoided.
– Enforcement action from regulators may follow. Scrutiny by them certainly will.
– It will be urgently looking to see where else it has made similar mistakes.

And a number of other banks also involved with these two entities will be undergoing something similar, though with less publicity. They have either had – or will have in due course – their turn in the sun.

Still, it’s not all bad news. The Chief Executive has said that “Serious lessons will be learnt.”

Would it be unkind and/or tactless to say that if it had learnt any of the serious lessons that were available to be learnt from the many similar disasters over, ooh I don’t know, the last couple of decades or so, they might not have had to learn them now and that £3.4 billion would still be in the bank?

It would. Oh well. Never mind. Let me update the definition instead.

“Lessons learnt: lessons which are never learnt by those who need to learn them, until it is too late.“

Photo by Tom Pumford on Unsplash

March 30 2021

Perhaps there was a clue in the name: Archegos. Arch. Egos. As a description of many in finance it can scarcely be bettered. A novelist might even think it a tad too unbelievable, unless you were seeking to write satire.

But why bother when reality serves it up on a plate.

The founder of Archegos Capital Management, Bill Hwang described himself in 2008 as “like a little child looking for where can I invest to please our God.” Not long after – in November 2009 – Goldman Sachs’s Lloyd Blankfein described  bankers as “doing God’s work“. Oh dear. The full extent of what bankers had been doing had yet to reveal itself, whether to God or anyone else. Still, PR advisors would do well to note that such statements do not impress. Rather they tend to bring to mind the Ralph Waldo Emerson quote:

“The louder he talked of his honour, the faster we counted our spoons.”

Back to Mr Hwang. At the time of his humblebrag he was running Tiger Asia Management, which ended up being one of the largest investors in the expanding and profitable Asian market.

What God thought of Mr Hwang’s activities is unknown. What the SEC thought is, however. For in 2012 following a lengthy investigation, also involving the HK regulator, he pleaded guilty to insider trading and manipulation relating to trading in various Chinese stocks in late 2008 / early 2009. Surely not when he was trying to please God? Yes, apparently so.

A humongous fine inevitably followed. And almost as inevitably, the following year in 2013 Tiger Asia Management was wound up and Archegos rose, Phoenix-like in its place.

Now it is in trouble as a result of risky and very large investments having soured. Also in trouble are a number of banks which funded it, provided it with services and helped it trade. Questions no doubt are being asked – and, if not, they should be – about banks’ exposure to the firm, was this within risk limits, why so much leverage and so on. Other questions might also be asked: what due diligence was done? Was a fund run by a convicted insider dealer really a suitable client? How was it monitored? And so on.

Still, since bragging seems to be the fashion, might I modestly refer you to this article and my comments on what is often found when something goes wrong: “…so often, in virtually every case, there were bloody great red flags, or there was a clue that was missed.”

The name might have permitted a wry smile. Mr Hwang’s track record should not have done. Does no-one ever read this stuff?

Photo by Orkun Azap on Unsplash