What do you think have caused the collapse of Barings?
The roots of Barings collapse lie in the merger between Barings private banking division and its securities division.
As noted in the case; the private banking division was a cautious “no risk” family run business and the securities division was aggressive and opportunity seeking. Clearly there was a clash of cultures. The reasons behind the clash must have been to do with not having common ground and definitions of basic assumptions, values, beliefs, and norms. Barings did not do a good job of identifying a middle ground for a common culture, post merger.
Organizationally, Barings merged the two divisions in 1992 and attempted to have a congruent matrix organization. The matrix organization was ill formed and this is evidenced in the fact that Nick Leeson did not have a manager or chain of command. Moreover Barings started hiring young moderately experienced college graduates and positioned them high in the organization well above seasoned senior employees. This created an organization structure that was experienced at the bottom but naïve at the critical decision making top level.
From a control standpoint, although Barings knew that trading, and future and options must be segregated to prevent fraud, it did not act on it until it was too late. Emphasis on risk management always took a backseat until the new asset and liability committee (ALCO) was formed n August 1994; two years after the merger. There were no systems for checks and balances as is clear from the fact that Leeson had unfettered access to Barings funds.
After the merger, Barings blinded itself to the need for constituting a charter for personal and professional behavior and gave undue recognition to financial success at any cost. In case of Nick Leeson Barings decided to overlook personal transgressions by debating that they don’t constitute a professional risk. A case of Person-Job fit can be made for the management that did...
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