Negative Decisions Issues - Essay Example

Negative Decisions The case that will be observed and described in the present paper is the bad experience of the manager of Baring Bank. A manager, who made a series of bad decisions that resulted in negative condition and huge losses for the whole company, was Nick Leeson. However, while describing the given case it is necessary to mention that this was not the only person responsible for bank collapse, but supervising managers did a series of mistakes as regards to the accident as well. As the commentators define the case that will be described in the present paper, this accident was "one of the most spectacular collapses in banking history". (Hoch, p. 26) The case with Barings Bank is one of the most vivid examples of how wrong decisions may affect a stable and seemingly reliable company. The theory and experience of decision-making state that the person should foresee all possible consequences of his actions in order to avoid possible catastrophe. It is evident that Nick Leeson omitted this regulation. He made a strategic error in his decision and this led to a collapse, which caused the bank experience trading losses that exceeded $1 billion. This accident happened in 1992, in the middle of July. It started with an error made by one young trader, working in Singapore office of the Barings Bank. This young specialist had to buy the contracts, but he sold these contracts instead, by mistake. Due to this error the bank had losses for about $30000, and the company had to cover these losses. Lesson decided to cover up this error. The question here is whether Leeson should have revealed this mistake to supervising managers or hided it. As it has been said above, he decided to hide it, wishing to help and support one of his employees. This was the first stage in a series of mistakes on many levels that resulted in collapse of the bank. What has started with an attempt to conceal employee's mistake, resulted in multiple attempts to hide his own mistakes in derivative market, and this deception together with many negative decisions led the bank to crash. As the experts comment similar situations, "How did a back office clerk in his 20s become responsible for bankrupting one of the world's oldest merchant banks The answer: many bad decisions" (Hoch, p. 40). It is evident that this manager cannot be fully responsible of what happened to company. His own mistakes that he tried to hide were evidently known to supervising managers, but these errors produced the same wrong decisions as he had once made, and supervising managers allowed him to act independently and provided him with the holes to slip through. It is known that Nick Leeson started his working career as the manager who was responsible for fixing the mistakes of other traders. These were the mistakes connected to calling out the orders to sell or buy. As a rule, these mistakes are usually noticed and fixed within a day and a night in special departments. Leeson had a capability to detail and scrupulous working, so this feature had helped him in getting this job three years before he made his fatal decision. Soon after he started working, he was sent to Jakarta branch to examine heaps of papers accumulated in one of the offices. Then in 1992 Nick Leeson was suggested a positionoif a manager responsible for running futures subsidiary in Singapore office of the Barings Bank. During a term of 3 years that passed after his appointment, the losses caused by his own trading mistakes exceeded $1 billion. He confessed he had deceived the Barings Bank and SIMEX (Singapore International Monetary Exchange). Leeson was arrested, and sentenced to 6.5 years of imprisonment. The fist question that comes to mind while observing this case is how this manager concealed his errors and deception for so long. In case his mistakes had revealed in time, this wouldn't have resulted in catastrophe. It is possible to define several strategic mistakes in the process of decision-making that led to collapse. Overwhelming emotions. It is known that supervising managers in Barings Bank treated Leeson well, as the commentators describe it, they regarded him as a "golden boy ... [who would help them] reap enormous profits in the emerging Southeast Asian markets." (Hoch, p. 68)Due to his positive experience in the settlements banking department, and due to their positive attitude to him, they missed some warning signs that appeared early. For instance, few days after Leeson came to Singapore, London's Securities and Futures Authority reported that he had neglected two significant debts in his application for a license of a trader. In 1994 some auditors who worked in the same company overlooked some Leeson's errors in contracts, because these auditors liked him. Thus, managers' emotions made them forget about their duties and neglect evident errors. In case they checked their employee regardless of positive attitude to him, many bad consequences could be prevented. Reliance on intuitive management. It is known that intuitive manner of management was encouraged in this company. This accident, as well as some others that happened in the same company, made evident that reliance on own intuition should not direct the actions of a professional. It is not bad for the manager to take into consideration his instinctive disposition, but it should not be the main reason for performing this or that action. Accent on Speed. As the specialists state, "Barings executives appeared to make decisions quickly, racing to take advantage of market opportunities and failing to institute a sufficiently rigorous system of controls". (Konen) Speed and tempo often result in neglecting essential issues, or missing mistakes that could have been prevented on early stages. Quality should not suffer due to demand of high speed. Incapability to notice a deception. Leeson's supervising managers were sure they would notice serious mistakes in case some happen. But they did not take into account that the manager could cheat them. Thus, it is necessary to check out all necessary things even in case a manager is sure in person's professionalism and skills. Incapability to estimate the risks adequately. When this case was investigated it was found out that Leeson worked on two positions - A clerk in settlement department in Jakarta and a floor manager of Barings on the SIMEX. These two positions were supposed to examine one another, and appointment of one person to both these positions violated one of the basic regulations of banking security. This decision highly increased potential risks, but supervising managers did not understand how much the risks were increased: "decision makers have great difficulty in evaluating low-probability high-risk events before disaster strikes so they tend to underprotect themselves beforehand and overprotect themselves afterward". (von Winterfeldt, p. 89) Imperfect system of IT for providing support in decision-making. It turned out the Barings Bank was lack of global computer net that could provide effective give-and-take among the managers working in branches of various cities. In case such system existed, it could have allowed managers in head office be aware of condition of the bank in any country of the world. It is also necessary to apply information technology in making decisions. Lack of control. After the accident happen, experts studying it and the consequences it had, wondered how it could happen that a manager of Leeson's level could cause such huge losses. The Bank of England came to the conclusion that this collapse was caused "by a serious failure of controls and managerial confusion within Barings". (Hoch, p. 78) To put it differently, many managers made wrong decisions. These were wrong decisions that were made by them as managers, individuals and regulators, and all this led to collapse. This case makes evident that a professional must carry out all his duties without regarding to personal attitude to employees, without relying on his own subjective opinion. Necessary control should be provided on all levels in order to prevent possible mistakes or fix them in case they appear. Works Cited. von Winterfeldt, D., & Edwards, W. (1986). Decision Analysis and Behavioral Research. New York: Cambridge University Press. Konen, J. Elliott, D. Effective Behavior Management. Available at http://ohioline.osu.edu/index.html Hoch. S., (ed.), Kunreuther, H., (ed.) (2004) Wharton on Making Decisions. John Wiley & Sons Inc. Read More