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Ian O. Ihnatowycz Institute for Leadership

Managing Personal Drive and the Fear of Failure - Lessons from Nick Leeson, the Rogue Trader who brought down Barings Bank

  • Kathryn Tang
  • |
  • Aug 1, 2016
Managing Personal Drive and the Fear of Failure - Lessons from Nick Leeson, the Rogue Trader who brought down Barings Bank

About the Author:  Kathryn Tang is a current MBA student at Ivey Business School with an undergrad education in Mechanical Engineering and Political Science. Coming from the Wind Engineering Consulting industry at RWDI, Kathryn has experience managing people for greater performance and recognizes the impact potential of effective leadership and the importance of having an ethical foundation. 

On Thursday, July 21, Ivey Business School’s MBA class had the pleasure of speaking to infamous derivatives trader Nick Leeson, whose unauthorized high-risk trading and fraudulent transfers caused the collapse of Barings, the oldest merchant bank in the world, in 1995.

While Leeson was originally slotted to join us in person, he was not able to obtain a visa to fly into Canada. He instead spoke to us through video conferencing, a reminder of the consequences of his actions.

Leeson joked that he was seen as the top of his own gang in prison, that the audience must be disappointed expecting to see someone who looks like Ewan McGregor from the movie Rogue Trader, and that he's been undeservedly described as the only person who can write a cheque and cause the bank to bounce. Despite pointing to some institutional failures in Barings that led to its destruction, Leeson regrets that on a personal level, he is not the person he wanted to be. As a result of his choices two decades ago, Leeson is remembered as a criminal whose lasting legacy is for causing the catastrophic failure of Barings Bank.

To my surprise, Leeson's actions portray him not as a master manipulator with a grand scheme to bring down Barings, but a young man in need of guidance. He was driven by a need for validation by his colleagues, to be accepted by his peers, to be protective of his subordinates, and yet paralysed by the fear that his stumbles could jeopardize his relationships. As his losses accumulated, his wishful optimism for luck to turn around, confidence in his ability to control the market, and his appetite for risk developed. Narrowly escaping discovery through an external audit only amplified his willingness to gamble at the expense of his stakeholders.

Reflecting on Leeson's indiscretions, there are lessons we can all draw from his story in order to be more aware of our driving motivations as leaders. In doing so, we can consistently behave ethically, and cultivate the next generation of influencers to mindfully impact their communities for the better.

1. In order to lead with integrity and honesty, we need to first become comfortable with failure. We need to establish identities based on our character, rather than performance. We need to gain experience in facing setbacks in order to overcome fear of being defined by our mistakes, so we can be accountable for our actions.

2. We're often motivated through incentive structures that focus on short term returns. Thinking about how we want to be remembered and about the legacy we want to leave behind can help us redefine our values. A long-term critical perspective of our struggles helps us develop resilience by allowing us to see obstacles as detours rather than dead ends.

3. When gambling, we need to avoid the common fallacy that positive outcomes are due to our excellent decisions, and that negative outcomes are due to bad luck. In Leeson's case, the turnaround of the 88888 account led him to believe that he was in control, and built his confidence to take increasingly greater risks.

4. When managing a team, we need to recognize that we are not only responsible for their performance, but also for developing their abilities to cope with failure and setbacks. With an air of hope, Leeson tried to protect his protégés by reassuring them when they performed poorly. However, trainees grow through developing a toolkit to navigate their environments in times of difficulty. As mentors, we need to be mindful that we do not overprotect our staff and shield them from these valuable learning opportunities.

5. Every one of us has a responsibility over both our actions and our emotions. Through practice, we can train ourselves to be more emotionally responsible. Though effective checks were not in place at Barings Bank, we have the ability and responsibility as individuals to choose the ethical path toward crafting more reliable organizations.

6. As our global connectivity increases, we need to build robust institutional structures to ensure that we have the effective checks and balances for fail-safe systems. Barings largely relied on honour systems, with the 88888 account undiscovered through an external audit, and with trading caps ignored. Building on a basis of ethical behaviour by individuals, independent systems ensuring compliance will help reinforce norms and act as a secondary safety net in case actors stray from their obligations.

Nick Leeson's cautionary tale is just one example of the massive impact that individuals can make on their communities. We have been fortunate at Ivey for the opportunity to speak to Leeson and reflect on his journey. Moving forward, we can apply these lessons to be more aware of our actions, be more responsible leaders, and build robust institutions that more effectively achieve our long term objectives.