10 Insights by Nick Leeson on Risk, Failure and Success 1

Today I attended a AccessPay event at the Barbican Centre in the heart of the City of London. There were some interesting presentations from SWIFT, Barclays and Faster Payments. The highlight was the keynote speaker Nick Leeson, the infamous rouge trader who brought down Britain’s oldest merchant bank in 1995. Admittedly, I don’t know too much about exactly what happened and how – it was a little before my time. But the speech from Nick Lesson was very insightful and 20 years on from the fall of Barings, and with recurring financial¬†calamities there are clearly lessons for us all to learn. Most importantly, the themes that Nick Leeson was speaking about weren’t specific to trading, they are applicable across industries and of course very relevant to corporates involved in payment processing.

10 Things I Learnt from Nick Leeson

1. Like him or loathe him, Nick Lesson’s story is intriguing

  • In 1995 Nick Leeson’s dodgy dealing brought about the collapse of Barings Bank, Britain’s oldest bank – trading since 1762
  • The collapse of Barings, the “Queen’s Bank” sent shock waves across the global financial markets
  • Nick Leeson’s subsequently spent a week on the run
  • Nick was eventually arrested in Frankfurt, Germany and sentenced to six and a half years in a Singapore jail
  • While in prison, Nick Lesson went through a divorce and diagnosed with cancer
  • In 1999 Leeson was released from jail and returned to the UK

You could make a film, eh…? ūüėČ

2. Make Hay While The Sun Shines

Well, Nick certainly did that. In his London days, it was an era of deregulation, a bustling City with opportunities for those seeking them. Nick’s rise through the trading ranks in London landed him a job at Barings Bank in Singapore. It was at Barings that his problems started and where he got himself into a situation that he couldn’t handle.

Nick explained that Barings was the most embarrassing period of his life. He says it was his need for success and fear of failure that drove him to try and dig himself out of the massive hole that he had dug.

3. Wake Up and Smell the Coffee

Nick Leeson explained that during his time at Barings, he was clearly in the wrong. But at the same time there were danger signs there for everyone to see, Nick described how:

  • The bank was using disparate systems, so it made it easy for him to cover his tracks and difficult for people to join the dots
  • The portion of the bank that Nick was working at, Baring Securities was essentially a start up that was experiencing organisational difficulties in merging with the wider established bank
  • Employees were just doing enough, just doing what they needed to
  • Employees weren’t asking questions and challenging one another
  • People simply didn’t have the time to see and question what was going on around them

4. The Silver Bullet….

According to Nick Leeson, there isn’t one! The best solution is to have in place the correct blend of people, technology and robust controls.

Nick described how various industry failures share at least one or more of the following traits:

  • Inadequate and fragmented technology and systems
  • Insufficient or no process controls
  • Employees have little knowledge about the complete business process
  • An environment where the people, processes and status quo are not challenged

5. Once We Accept Our Limits, We Go Beyond Them – Albert Einstein

The first time that Nick entered a illegal trade, he explained how he thereafter expected a knock on his door on an hourly basis. That knock never came. And in waiting for the knock, Nick Leeson was able to take advantage of the weak controls, lack of visibility at the bank and believed that he could in the meantime correct the deteriorating situation.

The key message here is that Nick was never questioned. There was a culture in the organisation that didn’t allow the ‘high flyers’ to be challenged which in turn allowed Nick to continue doing what he was doing.

Nick explained how he “was pushing the limits, and this ultimately led to the collapse of the bank”. He stressed the importance of having limits within a business, which should be enforced rigorously.

6. Failure is only the opportunity to more intelligently begin again. РHenry Ford

The Silicon Valley matra these days is Fail Fast, Fail Often. Nick highlighted the many failures at Barings! The problem was that these failures werent being communicated to people within the organisation, instead the failures were being brushed under the carpet and they quite literally snowballed.

Nick explained how an environment where failures happen and are reported can enable the appropriate safety mechanisms to kick in. This didnt happen at Barings, and so the failures continued.

7. It is fine to celebrate success, but it is more important to heed the lessons of failure РBill Gates

Following on from the above point, around failure. Nick talked about how the bank would regularly talk about its successes, but never about failure. This is a really interesting point. Success gives us all a good feeling. But the failures and breakdowns must be recognised and scrutinised, so that you can exercise some degree of damage limitation going forward.

8.¬†Believe you can and you’re halfway there – Roosevelt

Nick described how employees at Barings wanted to believe in the success story, and early profits led people to believe – and unfortunately continue to believe – without question that all was well. Nick went on to explain how people were influenced by what they saw and heard, even if it was untrue. And so the merry go round continued – there was a culture of complacency.

9. Knowledge is Nothing Without Understanding

Knowledge is Nothing Without Understanding was a recurring quote that Nick Leeson referred to. Apparently it was originally coined by the Wall Street Journal. The point Nick was making was that processes and well written procedures, risk assessments and compliance forms are all well and good, but if people in your organisation don’t understand the fundamental business and processes that drive the business the procedures and forms are virtually useless.

That’s food for though, eh?

10. Start where you are. Use what you have. Do what you can РArthur Ashe

Interestingly, Nick ended by talking about success. It was thought provoking. He went on to say “forget about the things you cant influence, and concentrate on those that you can”.

The next question was “What is success?”. It can be exuberant or simple – Nick explained that it was a personal question – for some, it is putting food on the table. I say, Amen to that!

No doubt referring to his own young age 25 when he went to Singapore, Nick suggested that “when a immature person has status, they will do anything to protect it”.

Kindly¬†TWEET or share this post via LinkedIn- Thank You…!!

If it sounds too good to be true, it probably is!

It was a captivating keynote speech, one during which I was able to make several references back to payments. Key recurring themes that Nick talked about, which corporates need to keep in mind include the use of connected systems, the danger of legacy systems, the importance of controls and particularly employees with a sound understanding of the business process. In addition to this, Nick highlighted how culture plays an important role in the way in which an organisation functions. A collaborative culture with the ability to question and challenge, where employees are treated equally was a message that Nick conveyed repeatedly.

Nick is clearly a very controversial person, but some interesting points – don’t you think? I’d love to hear your thoughts on this post below…


One comment on “10 Insights by Nick Leeson on Risk, Failure and Success

  1. Pingback: The Top Payments News Stories in November, 2015

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