Nick Leeson & Decision-Making

Nick Leeson & Decision-Making

1. Because of limited resources, his first decision as BSS general manager, was to hire young and inexperienced staff.

   • The lack of experience from his staff caused a mistake which led to a loss of £20,000
     • This mistake was the reason why Leeson set upt the 88888 error account, where he hid all of his losses.
       • In this case, the initial decision made by Nick Leeson affected greatly the development of his operation. If he, as a leader would have made the directive decision to ask for a better budget to hire a more experienced staff, then his operation would have less possibility of mistakes that caused losses.

2. From 1992, Leeson made unauthorized speculative trades that at first made huge contributions for Barings - up to 10% of the bank's profits.

   • However, he soon lost money in his operations and hid the losses in the error account 88888 he previously created.
     • At the same time, Leeson hid documents from statutory auditors of the bank
       • In this aspect, not only was Leeson’s poor judgment demonstrated, but also Barings’s internal control executives and managers proved to have no regulation over Lesson’s operation, by neglecting his loses and even authorizing the extra funds he requested to continue trading.
         • The lack of authority by the executives at Barings Bank as well as their inefficient inspection to Nick Lessons work was one of the main causes of the downfall of the Bank. As leaders of such an important company, it is always at their best interest to keep close control at their employees activities and decisions

3. On 16 January 1995, Leeson placed a short straddle in the Singapore and Tokyo stock exchanges, essentially betting that the Japanese stock market would not move significantly overnight. However, the Kobe earthquake hit early in the morning on 17 January, sending Asian markets, and Leeson's trading positions, into a tailspin.

   • Leeson attempted to recoup his losses by making a series of increasingly risky new trades , this time betting that the Nikkei Stock Average would make a rapid recovery. However, the recovery failed to materialise
     • Overconfidence was one of Nick’s biggest mistakes, as it is a universal and prevalent cognitive bias that affects decision making in operation management. His judgment was so overpowered by his overconfidence that he never thought about a negative outcome of his decisions.
       • Effective leaders take time to consider the potential negative outcomes before deciding what action to pursue. They ask what failure would look like if the resulting outcome went down a specific path. This is a process that was not part of Nick Leeson's decision making process, otherwise it would have changed his judment.

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