By Stewart Hamilton
This ebook is for someone who desires to comprehend what actually lies in the back of the scandals and failures of world company which marred the 1st few years of the twenty first century. It examines why businesses fail, discovering the explanations few, but all too universal. It additionally explores what the prudent investor, board member or supervisor can be alert to yet usually isn't really.
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Additional info for Greed And Corporate Failure: The Lessons from Recent Disasters
Like Barings, there was a matrix management structure in place at AIB and Allﬁrst. 14 A breach of a fundamental principle of internal control, that of ‘segregation of duties’, had occurred at AIB, with Rusnak able to alter the computer records of his outstanding trades. Leeson had done similar things in Singapore. This breach was compounded by a weak internal audit function and poor follow-up of recommendations made or problems identified. Allfirst’s internal audit department suffered from inadequate staffing, lack of experience and too little knowledge of the risks involved in trading.
The savings thus achieved, compared with the loss of $691 million, must rate as one of the worst bargains ever. Second, and even more improbably, Rusnak was allowed to continue to trade even when on vacation, using remote computer access. Most organisations, if they have any sense, have mandatory holidays and rotation of personnel, as it is well known that frauds are often uncovered during the perpetrator’s absence. Ignoring early warning signs With both Leeson and Rusnak, the market was aware of the very large positions they had built up.
Always ready to invest in far-ﬂung places, the bank got its ﬁngers burnt ﬁnancing, inter alia, a water supply and drainage company in Argentina (the Paciﬁc Rim of the day). 4 Barings was saved by the Bank of England at a cost of £17 million (equivalent to £450 million today). Within four years the debt was discharged and Barings was once again one of the most powerful banking houses in Europe. A century later, at the beginning of the 1980s, Barings, although tiny compared with the British high street banks, still had a reputation as one of the world’s most pre-eminent ﬁnancial institutions.