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Q: What do
you make of Jerome Kerviel, the trader who just lost $7
billion for Société Générale with his secret dealings?
Jorge Gonzalez Henrichsen,
Mexico City
A: We
think his dealings probably weren’t so secret.
In fact,
we’d wager that ever since the details of Jerome Kerviel’s
trickery started being exposed, more than a few of his
coworkers have been cringing.
“I knew
something was wrong with that guy,” they’re confessing at
home or whispering to each other. “He always gave me a
strange feeling.”
Some are
recalling the times they almost spoke to a manager about
their concerns, but stopped themselves. “I didn’t have any
real proof,” they might tell you by means of rationale.
Or: “It’s
always better to keep your head down.”
Or: “No
one would have listened.”
It’s hard
to argue with these explanations. Kerviel was
astonishingly adept at covering his tracks, slipping
through several of the bank’s security firewalls.
And it’s
true that organizations—especially hierarchical,
bureaucratic ones—can develop cultures in which the rank
and file don’t feel exactly enthusiastic about reporting
bad news upward, especially if it’s just a hunch. They
sense their managers don’t want to hear it, and their
managers, busy with competitive pressures, don’t do much
to persuade them otherwise.
We don’t
want to jump on the standard blame-the-company bandwagon.
Sure, some companies could make it easier for employees to
come forward with concerns.
But from
our experience, even when companies provide convenient,
confidential ways for that to happen, few employees use
them.
Suggestion
boxes remain empty. Ombudsmen wait for the phone to ring.
Even in
organizations where managers make it abundantly clear that
risk management is everyone’s job and where those who
speak up are celebrated as role models, there just seems
to be a human disinclination to squeal. People would
rather wait, in hopes that the miscreant in their midst
fades away or gets caught. And so, time and again, you get
cases like Kerviel’s—rogues who raise hackles but not
alarm bells. In 1994, after Kidder, Peabody lost hundreds
of millions at the hands of a trader named Joe Jett,
several of his colleagues admitted they’d long suspected
he was up to something illegal.
“Someone
trading such mundane products could never have been making
those kind of profits,” they generally said. “We figured
someone upstairs would eventually get that.”
This
all-too-human dynamic brings to mind the tragedy at
Virginia Tech (though, of course, there is no comparison
between the magnitude of the incidents), where 32 people
were murdered in 2007 by a student. After the tragedy,
dozens of people who had previously been in contact with
the killer said they had been worried for months that
exactly such an incident would come to pass.
Some had
spoken up, but many more, silently hoping he would go away
or get noticed, had kept quiet. Soon after the shootings,
Virginia Tech instituted numerous safety measures designed
to make another such incident impossible. That’s what
happened at Kidder, Peabody.
And that’s
what will happen at Société Générale, too. New financial
controls will be put in place—all designed to prevent
another case just like Kerviel’s.
Such a
response is understandable, of course, and necessary. But
it’s ironic: the likelihood of another exact Jerome
Kerviel is slim.
Instead,
someday, somewhere, there will be a different rogue with a
different, ingenious scheme. After all, the imagination of
the bad guys is always bigger than the imagination of the
good guys.
That’s why
companies can never stop encouraging employees to come
forward with concerns as early as possible, and rewarding
them when they do.
That’s why
they must always make sure risk managers hold positions of
real authority. Too often, these individuals earn less, in
terms of money and respect, than the people they are
“policing.” As long as that’s the case, bad news will
never travel high enough, fast enough.
In the
end, however, the Kerviels of the world will be kept in
check by the happy fact that people are generally good and
control systems are generally effective.
Think
about it. Many companies are as big as cities: the Société
Générale Group, with its nearly 135,000 employees, is
about the same size as Bridgeport, Connecticut, and
Topeka, Kansas.
Given that
comparison, it is actually sort of amazing that business
doesn’t spawn more rogues and let more of them through the
cracks.
So yes,
there will be another rogue someday who “surprises” the
world. The biggest surprise, though—given the way
eyewitnesses tend to worry and wait in silence—is that
there aren’t more of them.
*****
Jack
and Suzy Welch are the authors of the international
bestseller Winning (Collins). Their latest book is
Winning: The Answers: Confronting 74 of the Toughest
Questions in Business Today (Collins). They are eager to
hear about your career dilemmas and challenges at work and
look forward to answering your questions in future
columns. You can e-mail them questions at winning@nytimes.com.
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