|
Stephen G. Heckman
By now everyone has heard the name of Jerome Kerviel, the trader who single-handedly caused the French bank Societe Generale to lose $7.1 billion.
This is the biggest rogue trader scandal in world history, and dwarfs the former greatest rogue trade loss of $1.4 billion by previous bank-crashing champion Nick Leeson.
Jerome Kerviel is now somewhat of an Internet cult hero, and even has fan clubs, such as one on the Web site Facebook recommending him for the Nobel Prize in Economics.
Some are praising him for his vigilante attacks on an icon of capitalism, labeling him the Che Guevarra of finance, while others are ridiculing him as the world's greatest dunce.
But whether hero or fool, the question is, how could one man cause such a scandal in France's second largest bank? Where was the accountability? How did Jerome Kerviel pass all 17 audits in 2007 without suspicion of illegal, off-hours trading?
How could an employee earning $146,000 per year cause so much damage that the bank's chairman himself would offer to resign?
What Societe Generale lacked was a Kim Yong-chul, an informant loyal to none but himself and willing to denounce corruption even at the highest level.
Kim is the former top attorney to Samsung who recently denounced three top Samsung executives for giving bribes. He also denounced Samsung for creating a slush fund to pay off politicians and journalists.
Many Koreans disagree with Kim's denunciation of Samsung, stating that damage to Samsung's reputation will affect Korea as a whole. Many believe that any impact on Samsung will inadvertently trickle down to affect other Korean companies.
Samsung is so important to Korea that it has even been sarcastically called ``Republic of Samsung,'' implying the company and the country are synonymous.
But while there is some truth in crediting Samsung as being the powerhouse of Korea, it is also true that a company needs accountability to avoid becoming a victim of fraudulent activity.
Had Kim Yong-chul not denounced Samsung, the company would have continued distributing bribes and creating slush funds until one day exposing the company would create irreparable damage.
This is what happened with Societe Generale. For two years an unassuming Jerome Kerviel traded illegally in the market, and because there was nobody to denounce him, the bank has now lost billions in profit, its stock price has dropped, and it is already being sued by 100 angry shareholders.
The problem is that Kerviel had no accountability, which encouraged him to take greater and greater risk as he was constantly lured by the temptations of ever greater reward.
Ironically, during this time Risk magazine named Societe Generale ``equity derivatives house of the year." Nobody knew the risk that Kerviel was actually taking as he gambled more than the value of the entire French bank.
Jerome Kerviel has now been questioned by the French national police in a room so tense that you could probably smell the sweat. His house has been raided, his future as a trader is obsolete, and the cost of hiring lawyers has probably done severe damage to his personal finances.
I'm sure that now as he ponders his future in his ransacked room, he is wishing he had had a Kim Yong-chul as his coworker to hold him accountable.
Kim would have put a stop to the risk-taker's foolish trades and prevented his mistakes from blowing out of proportion once and for all. He wasn't afraid to blow the whistle on corruption at Samsung, and was willing to face the entire company itself.
Of course, Kim waited to retire before acting on his conscience, but at least he eventually acted, and was able to make his company more transparent and honest as a result.
No company can have a perfect system of checks and balances without individuals such as Kim Yong-chul to uphold ethical standards. We've seen in the case of Societe Generale that the countless audits were unable to pick up on Kerviel's scheme.
Neither were the computer programs helpful ― Kerviel simply bypassed those. What Jerome Kerviel needed was an insider, a coworker or a boss, strong enough to stand up to Kerviel's corruption.
Turning someone in for the sake of one's conscience can sometimes be a daunting task, but as is often the case, it takes a rogue traitor to keep a rogue trader in check.
Stephen Heckman is an instructor at Hanyang University in Seoul and advisor of the Hanyang Journal. He is currently on vacation in France. He can be reached at stephenheckman@gmail.com.
|
Home l Archives l Learning Times | Sitemap | Subscription l Media Kit l PDF
