September 2011 Archive

The financial world was shocked once again to learn that a trader for UBS, Kweku Adoboli, from Ghana, had caused the bank to lose the whopping sum of $2.3 billion. He was trading with the bank’s money, not with the funds deposited by the clients of the bank. Nevertheless that amount represents the total amount of profits the bank would have made in the 3^rd Quarter of 2011.  Mr. Adoboli was arrested in London where he lived and worked. This event is in many ways similar to what happened last year with Mr. Kerviel at the French bank Societe General, who caused the bank to lose $7 billion. The Chairman of UBS, Oswald Grubel resigned because of this scandal.

UBS claimed that Mr. Adoboli engaged in “unauthorized and “fictitious” trade that “violated UBS risks limits.” Mr. Adoboli claims that his superiors knew and condoned his trading. Did the bank “turn a blind eye” on his activities? That is definitely a possibility. Had Mr. Adoboli not miscalculated in his trading, one can imagine that he could have made $2.3 billion for the bank. His unauthorized and risk taking would have been praised and he would not be in jail right now.

We all have a tendency or the temptation to turn a blind eye on the activities of others if we think we may benefit from them.

James. B. Stewart of the New York Times in his article “At UBS it is the Culture that is Rogue” published on Saturday September 24, 2011 believed that the culture at UBS is the one responsible for the scandal. He defines the culture as one where “individual advancement is stressed over team efforts,” a place where “every one is separate. People cut their own deals and it is every man for himself. A lot of people made a lot of money that way and it fueled jealousies and efforts to get even better deals. People thought of themselves first and maybe the bank if they thought about it at all.”

This story leads to the question of whether the system corrupts the individual or whether the individual corrupts the system. The Ethics and Compliance Officer Association (ECOA) produced a documentary called “Ethics on Trial” that addressed this very question. The format was a mock trial with counsels for each positions as well as witnesses and the audience played the role of the jury.

Those that argued that it is the system that corrupts individuals made the point that the corporate incentive systems set expectations for employees that either condone or even promote wrongdoing.

Those that believed that it is the individual that corrupts the system argued that any corporate structure or system no matter our rigorous its design can be manipulated for personal gain by corrupt individuals.

I tend to agree with the latter position. Even in a corrupt environment, individuals still retain a conscience and a free will not to engage in unethical and illegal behavior.

As Vincent Van Gogh once said:

“Conscience is a man’s compass.”