The Handbook of Board Governance, 2nd Edition

44Ensuring Good Governance and Business Success in International Subsidiaries

Thomas C. Sears BA MBA PhD

Retired Canadian Bank Executive

My phone rang. On the line was the senior vice president of one of my largest clients. In the six months since taking up my posting in London, we had become quite friendly. But this call was different. This normally very personable executive sounded like a father who had just lost a child. His tone was serious. He sounded stunned … not knowing what to do. “Tom,” he said, “we have just been told to put down our pencils and go home … every one of us.” His words have echoed with me over time, since that Friday morning. This is how I first learned of the greatest breach of corporate governance in history to that date.

Kevin's firm, the world's largest merchant bank, was founded in 1762 in London, England. By 1995 it had become one of the most powerful companies in international finance. Baring Brothers Bank was about to enter the corporate history books for all the wrong reasons.

Three years earlier, Nick Leeson was appointed to head up Barings' new derivatives and futures trading subsidiary in Singapore. Shortly after his arrival and unknown to others, Leeson started making unauthorized and speculative trades. These “bets” were initiated to cover a loss caused by an error on a client account. His brand-new subsidiary was going to have to cover that loss and it would reflect poorly on him as unit head. He decided to roll the dice to cover that ...