3.

0 Highlight the corporate governance issues that

contributed to the collapse of Barings Bank

Corporate Governance is the system of rules, practices and process in which

a company is directed and controlled, as talked in the Cadbury Report. It
involves balancing interest of the company’s stakeholders. According to Jane
Muir (2016), corporate governance directly impacts the profits and reputation
of a company. Having poor policies could expose the company to lawsuit,
fines and also loss of capital investment. However, corporate governance,
even if flawlessly executed, does not necessarily be safer though it could
make a company more efficient (Laeven and Ratnovski, 2014). Generally, the
main elements of Corporate Governance, as shown in Figure 1, are good
board practices and procedures, control environment, transparent disclosure,
well defined shareholder rights and board commitment.

Figure 1: Elements of Corporate Governance

In the case of Barings Bank, the company faced corporate governance issues
that contributed to the collapse of the company. These corporate governance
issues include Independent Leadership, Risk Oversight and Transparency.

3.1 Transparancy
According to an article written by PwC in 2006 titled - Transparency and
Disclosure, it is important that the financial and operating results of an
organization are prepared and disclosed in an easily understood manner.
Plus, organizations must also disclose policies to business ethics. In Baring
Bank situation, there are a number of key indicators of dysfunction in
corporate governance and tone of the organization.

3.1.1 There was a lack of seperation between front and back offices in Barings
Futures Singapore (BFS)
Nick Leeson whose real name is Nicholas William Leeson, born February 25,
1967, as mentioned earlier was the trader that contribute a large chunk of
Baring Bank’s collapse. He served as the general manager for Barings
Futures Singapore (BFS). Barings wanted to save overhead cost and
employed only a manager instead of two for such an important position. As
the general manager, Nick Leeson controlled both sides of trading operations.
In his position at that time, he was able to trade without permission and then
manipulate the amount and details of the transactions, hiding them from the
management. The account 88888 was used to hide losses Leeson had made
from unauthorized transactions.

According to Monthe (2007), Nick Leeson had made false declarations to

regulations authorities that had allowed him to accumulate his losses and
avoid margin call which should have audited losses daily.

When Nick Leeson first moved to Singapore, he was assigned with several
supervisors. However, his actions were not being monitored by these
supervisors as they did not feel responsible for supervising Leeson.

James Bax, who was then the head of Barings Securities in Singapore had
made a comment to senior management in London for the fact that Nick
Leeson’s unclear reporting lines would create a danger of setting up a
structure that will prove disastrous, (Dickstein and Flast, 2009). Quoting Nick
Leeson himself, “My reporting lines were as hazy and inbred as the Baring
family tree itself”. However, James Bax’s comment was ignored letting Nick
Leeson to continue his actions and position without appropriate supervision
and direction and check and balances.

In conclusion, Nick Leeson was given too much autonomy and authority as a
trader. He was able to hide his losses from his trading activities because he
was not authorized by anyone. Plus, there was a lack of transparent
disclosure of the financials from Leeson. Management of Barings Bank did not
raise any questions regarding the reports that Leeson was supposed to hand
in daily regarding his trading to be audited.

The lack of transparecy in the financial reporting between Nick Leeson and
the management caused Barings Bank to collapse.
3.2 Independent Leadership
An independent leadership is vital for every company to have to oversee and
guide its management. Independent leadership could be an independent
chairperson or director. According to Thompson (2019), independent judgment
is almost always in the best interest of the company and its stakeholders.

3.2.1 CEO of Barings Bank

A Chief Executive Officer (CEO) by right should be responsible for a company’s
long-term development strategic plans and the effective execution to align with
the strategic plans.

However, Christopher Heath, who was then the CEO of Barings Bank, did not
execute his responsibilities fairly. After the success of the company in the
Eighties,
3.3 Risk Committee