Ken McHattie CA, ICAS President: Can we be a learning profession?
ICAS President Ken McHattie CA looks back on this year’s ICAS Conference and some lessons from a rogue trader.
The 2016 ICAS Conference was a great success, with speakers on a wide range of topics from the future of the profession in a digital age to the implications of Brexit for Scotland, the UK and the EU.
But perhaps the most interesting part of the event featured the chair of the ICAS Ethics Board, Norman Murray CA, and one Nick Leeson. I suspect some of our members may feel a little queasy at hearing that the man who, in 1995, brought down the City of London’s oldest merchant bank, Barings, was appearing at our conference. I confess that I shared those reservations, but I could not have been more wrong.
Nick Leeson provided an account, both riveting and disturbing, of an £862m financial catastrophe.
Norman Murray talked about the “tone at the top” and the need to establish the right culture in boardrooms. If businesses can’t get this right at director level, it’s questionable, to say the least, whether other parts of the business will operate responsibly and ethically.
Nick Leeson then provided an account, both riveting and disturbing, of an £862m financial catastrophe. Leeson, based in Singapore, was Barings’ star trader. He set up an unauthorised account to hide a loss incurred by another trader in the team and when the account went unnoticed he began to use it to hide losses on the trades he made on clients’ behalf. He ended up using Barings’ own cash to try to recoup his increasing losses, running up liabilities the bank could not cover. Barings collapsed in February 1995; Leeson was arrested and served four-and-a-half years in a Singapore prison.
Unfortunately, Leeson’s experiences and the lessons to be learned still resonate today. Among the key issues he highlighted are: the culture of the organisation was highly competitive and individualistic; mistakes were never discussed, and no-one asked for or offered help; the organisation completely failed to pick up on his behavioural issues resulting from the stress he was suffering; internal controls were seriously defective; compliance and external audit personnel were inexperienced and too ready to accept Leeson’s assurances. The last point is key for our profession. As Leeson summed it up “knowledge is nothing without understanding”.
The Barings' collapse was the world’s biggest in 1995 but 20 years later has been relegated to 14th place.
One might have thought that a collapse this seismic would have resulted in wide-ranging and enduring changes. However, as Leeson pointed out, the Barings' collapse was the world’s biggest in 1995 but 20 years later has been relegated to 14th place. Hardly a glowing endorsement of the financial world’s ability to learn from its mistakes.
So, here we are in 2016, still trying to learn. Perhaps we are doomed to repeat the mistakes of the past. But perhaps there’s a different solution, one where strong internal processes and procedures, and sound corporate governance, work in tandem with a re-energised ethical approach.
This will require members of our profession to demonstrate clear and unequivocal ethical leadership. Most, if not all, financial scandals could have been avoided by the principles espoused in The Power of One and, in particular, the exercise of moral courage. If we are to have any chance of avoiding or minimising future scandals, the onus is on professionals to take responsibility for changing the culture of business. Nick Leeson stands as testimony to what happens when we get this wrong. It is our job to do all we can to make sure we do it a whole lot better in future.