nick leeson and the collapse of barings bank: socio-technical networks and the ... · 2019. 12....

Nick Leeson and the Collapse ofBarings Bank: Socio-TechnicalNetworks and the ‘Rogue Trader’

Ian GreenerUniversity of Manchester, Manchester, UK

Abstract. This paper examines the collapse of Barings Bank, utilizing anextended analytical framework based on Callon’s sociology of translation.It shows how Leeson linked himself inextricably with Barings’ executivesneed for profit, mobilizing them (and others) into defending him when hisactivities were subject to scrutiny. It goes on to explain the process throughwhich Leeson effectively lost control of his socio-technical network, andconcludes by examining the difficulty of Leeson’s presentation of himself tothe world as a ‘rogue trader’. Key words. actor-network; Barings; Leeson;rogue trader

The story of the collapse of Barings Bank has become a case-study in therisk financial institutions face from fraud (see, for example, Howells andBain, 1998: 292–93). It has also become a reference point against whichnew cases of financial malfeasance are judged—asset traders who loselarge sums of money are described as the ‘new Nick Leeson’. Leesonhimself remains a popular media figure, appearing on quiz shows adecade after the events from which he derives his fame.

This paper utilizes Callon’s ‘sociology of translation’ (see especiallyCallon, 1986) to analyse the case of the collapse of Barings and Leeson’srole within it. It does this in order to present a systematic analysis of thecase that develops Callon’s framework further by incorporating insightsfrom the work of Munro (1999) to extend the vocabulary of actor-networkterms to include two more concepts necessary to account for the disin-tegration of a socio-technical network. The paper demonstrates howexisting accounts of the collapse of Barings are in themselves incomplete

Volume 13(3): 421–441ISSN 1350–5084

Copyright © 2006 SAGE(London, Thousand Oaks, CA

and New Delhi)

DOI: 10.1177/1350508406063491 http://org.sagepub.com

articles

but, through the use of actor-network concepts, can be integrated topresent a more complete picture of the bank’s collapse. Finally, the paperexamines the paradox of Leeson’s presentation of himself as a ‘roguetrader’ in the light of its findings.

The paper is structured as follows. First, it presents an account ofCallon’s ‘sociology of translation’, extending the analytical framework toinclude insights from the work of Munro (1999) that inform the presenta-tion of two new concepts, ‘remobilization’ and ‘disentanglement’. It goeson to demonstrate how Leeson constructed his actor-network and effec-tively subverted the management hierarchy at Barings. Third, it showshow Leeson lost control of his actor-network, and how it came toremobilize against him. Next, we show how, after his fraud becameapparent, Leeson failed to disentangle himself from the durable recordsof the fraud he had hidden for so long. Equally, those enroled by Leeson,many of whom were formerly keen to associate with him in order to sharein his success, also now had to disentangle themselves from his actor-network in order to avoid sharing blame. Finally, we examine theimplications of this in understanding the ‘rogue trader’.

The Sociology of TranslationActor-network theory (ANT) presents a diverse range of theoreticalconcepts and approaches (see for example Callon, 1986, 1991; Callon andLaw, 1982; Latour, 1986, 1991; Law, 1986a,b, 1991, 1992) that are typi-cally applied to explain the construction and durability of socio-technical networks (Dent, 2003; Hull, 1999; Lee and Hassard, 1999). ANTallows us to study the ‘assembly and stabilization of diverse human andnon-human entities within diffuse socio-material systems’ (McLean andHassard, 2004: 495). It seeks to explore how human and non-humanentities are combined heterogeneously to present strategic ‘translations’of interests in which some entities come to represent and speak for otherswithin the network. As such, ANT is well-suited to generate insights intothe behaviour of complex technological and geographically-dispersednetworks—a description that matches the world of international deriva-tive trading that forms the backdrop to Leeson’s fraud.

We take as our analytical model Callon’s ‘sociology of translation’(Callon, 1986), perhaps one of the most explicit analytical frameworksproduced in the ANT literature, and through which we attempt toexamine the strategies through which Leeson imposed his definition ofBarings’ situation over that of other interested entities both within andoutside of the bank. Callon’s work has proven hugely influential; itformed the basis of Stewart Clegg’s work on ‘Circuits of Power’ (Clegg,1989), and was recently discussed extensively in a special edition of thejournal, Economy and Society. Callon’s approach is only one within theANT canon, but we hope to demonstrate it has considerable analyticalpurchase on the Barings case.

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Organization 13(3)Articles

Callon discerns four ‘moments’ in the translation of a socio-technicalnetwork: (i) problematization; (ii) interessement; (iii) enrolment; and (iv)mobilization. Through these moments, Callon demonstrates how, in afishing port, researchers engaged with attempting to investigate thereproductive habits of scallops, fishermen and the scallops themselvesfind that their fortunes are inextricably linked together. Problematizationdescribes a series of associations between entities, defining their identityand their goals. In problematization, entities seek to become indis-pensable to one another through their selection and definition of theshared situation they inhabit and collectively face, the ‘obligatory pas-sage point’ they must negotiate together. Because each entity in an actor-network cannot achieve its desired goal or goals without the co-operationof other entities, and because these goals may be incompatible, at leastone entity must accept the particular problematic form of other entities orface the dissolution of the actor-network with the result that no entitywithin it achieves its goal. In Callon’s second moment of translation,‘interessement’, an ‘entity attempts to impose and stabilize the identity ofthe other actors it defines through its problematization’ (Callon, 1986:207–8). As we noted above, the different goals of actors coincide atobligatory passage points through which all the entities in the networkmust negotiate. In interessement, actors attempt to impose their defini-tion of the situation they collectively face upon other entities in the actor-network, ‘locking’ other actors into particular roles as they do so. There islikely to be conflict and contestation. Where an entity imposes ornegotiates its interests to a position of dominance over those of otherentities, it defines the inter-related roles attributed to other actors pre-pared to accept them. If interessement is successfully achieved, Callon’sthird moment occurs, ‘enrolment’. Enrolment therefore is the result ofsuccessful interessement, where a particular problematization is givenpriority over others in the actor-network, and where other entities come todefine their roles in relation to it effectively becoming ‘enroled’ accordingto the definition of the situation imposed by a particular entity.

Callon’s final moment is that of mobilization in which we explore ‘whospeaks in the name of whom’ (Callon, 1986: 214)—we examine what theresult of the enrolments in the actor-network have been in terms of therepresentations they attempt to make on behalf of others. In Callon’soriginal article, the entities that appeared to have secured a successfultranslation found themselves challenged, and actors were diverted fromtheir problematization of the obligatory passage point, modifying theactor-network’s equilibrium, but not fatally undermining it. Even so, it isnot clear exactly how this process occurs in Callon’s paper. We knowthat, even where entities have been successfully enroled and mobilizedthrough a particular problematization, that an actor-network is not insu-lated from change. Through either design or contingency, entities canresist the roles in which they have been cast, and cast doubt upon thedominant problematization of the obligatory passage point the entities

Nick Leeson and the Collapse of BaringsGreener

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share. This paper presents two additional concepts to describe theprocess by which an actor-network unravels based on ideas from Munro.It is to these that we now turn.

Munro’s (1999) analysis of ‘centres of discretion’ offer key insights as tohow to account for the disintegration of an actor-network. Munro sug-gests that actors achieve ‘discretion’ through their ability to label eventsor records as ‘failures’ or ‘successes’—a discretion which is achievedthrough the mobilization of ‘technologies of management’. FollowingBarnes (1986), Munro differentiates between ‘authorities’ and ‘powers’,the former of which is able to exert control over other entities withoutdiscretion. A sleeping policeman (the speed bump, not the somnambu-lant law enforcer) is an ‘authority’ which has the ability to exert controlover other entities as it is able to slow down traffic, but without thechoice of letting some motorists through, or letting others away with anoffence. A police officer with a speed gun, however, can decide whetheror not to impose a sanction—he or she has acquired discretion, and so isa ‘power’. Where the police officer makes a record of a motorist’s offence,he or she acquires the ability to defer the punishment to a later date, orimpose it immediately, achieving even greater discretion.

Munro’s work has significant implications when considering the disin-tegration of an actor-network. The process through which entities in anactor-network mobilize against the entity previously imposing their prob-lematization upon it, we shall term ‘remobilization’. Remobilizationoccurs when entities come to place an alternative problematization attheir centre of calculation, with attendant consequences for the enrol-ments that were a part of the previous problematization. Remobilizationis a point where authorities once again become powers, re-establishingdiscretion, even if only in the moment of choice between problem-atizations. This concept can be differentiated from Callon and Law’s(1982) ‘counter enrolment’, which is a dispute in the formation of anactor-network resulting from competition to define the problematizationaround which that actor-network will mobilize—remobilization occursafter the actor-network has already been mobilized, where entities chal-lenge and overturn the problematization around which they were pre-viously working. Equally, the concept is different from Mort’s (2001)‘disenrolment’, which is where previously enroled actors are excludedfrom the actor-network to preserve its dominant problematization. Remo-bilization leads to the destruction of the dominant problematization, notits preservation.

The second concept introduced in the study is that of ‘disentangle-ment’, which describes the concept where, after an actor-network hasremobilized, entities attempt to disassociate themselves from the entitywhose problematization had previously mobilized them. Disentangle-ment is the mirror image of interessement, it is the disassociation from anentity and its plan. Disentanglement, because of geographic associationand the durability of records, is a difficult process and, as we shall see,

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raises complex questions about the attribution of accountability andblame.

The Problematization of the Situation at Barings

I drew a circle on a pad of paper, and then added some spokes radiating outof it. I jotted down the names of the people I spoke to every day . . . Forvarious reasons they all wanted my profits to be real. They all benefit fromme, and in different ways they all put me under pressure to create theseprofits. (Leeson, 1996: 258)

Nick Leeson was held by financial authorities to be almost solelyaccountable for the bankruptcy of Barings, the world’s oldest merchantbank, losing some £850 million of its assets in the process withoutapparent personal gain. This paper cannot present more than outlinedetail of the events at Barings, or of Leeson’s personal background, butwill attempt to sketch sufficient detail to make clear the nature of theproblematization that began the process through which Leeson con-structed his actor-network. To do this, we must present a list of our mainactors, and provide a little background for each. It is perhaps worthstarting this by talking about the Barings’ background in order to betterexplain the situation in which Leeson found himself at the beginning ofhis fraud.

Barings was a great power in the City of London in the 19th Centurybefore coming close to bankruptcy in 1890 as a result of a disastrousspeculative investment in Buenos Aires. The bank was bailed out by aconsortium arranged by the Bank of England (Ziegler, 1988), an action itwas not able to repeat a century later. Barings appeared chastened by thisexperience, and the family-dominated firm turned its back on high-risk,potentially high-return trading, opting to pursue conventional bankinginstead (Gapper and Denton, 1997). Constrained by the lower returns onoffer from this strategy, Barings’ influence declined during the 20thCentury; it was still a prestigious name, but one that had been left behindin the world of a deregulated global financial marketplace.

In the 1980s, Barings executives decided to attempt to make up forsome of the ground they had lost to more risk-inclined merchant banks,and brought in a financier named Christopher Heath to create a neworganization, Barings Securities. Heath was a spectacular success, invest-ing heavily in ‘equity warrants’, which were financial assets which, in hisparticular case, were linked to the value of the Japanese stock market. Asthe Nikkei rose, so did the value of Heath’s assets, and Barings Securities’profits soared. Heath appeared to have cornered the marketplace, andwas making remarkable profits without apparent risk. Heath became thebest-paid businessman in the City, with a reward package based largelyon bonuses of some £2.5 million. Barings Bank executives congratulatedthemselves on their wise decision to bring Heath in, and shared in hisprofits by awarding themselves substantial bonuses as well. Barings


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Securities was given the Queen’s Award for Exporting twice and grewrapidly, but created an organization almost entirely different from theworld of the bank itself. Heath employed deal-makers not bankers,people who left others to tidy up the paper work and account for theprofits they had made. This was tolerated by the bankers so long as theprofits kept appearing, but once the Japanese equity market stalled atthe end of the decade, Barings Securities tipped into loss, and thebankers reasserted control, ousting Heath and putting one of their own,an ambitious young boundary-spanner named Peter Norris, in charge.This, however, left the bankers with a significant problem—where werethey to find a new source of the bonuses to which they had become soaccustomed? This is a crucial question because it is the obligatorypassage point for the Barings case—the problematization around whichinterests would coalesce to provide explanations and solutions for thefuture of the bank.

The problematization of the situation at Barings clearly links to exist-ing accounts of what happened at the bank. Analysis attempting toexplain the collapse of Barings in a structuralist way suggest that thetestosterone-driven, high-competition marketplace that modern financialinstitutions operate within will endemically cause occasional bankingcollapses because of its very nature (Sebag-Monterfiore, 1996; Shale;1995; Stupple, 1995). There is clearly sense in this—where extraordinaryfinancial rewards are on offer for traders generating the highest profits, abias towards taking extraordinary risks is always present. But this expla-nation is not enough in itself—it does not explain why it was Barings thatwent bankrupt rather than another bank, or how Leeson got to a positionwhere he was able to lose so much money. The ‘bad boys’ of financeexplanation gives us clues to the nature of the financial world in whichBarings were operating, providing links between the specific actor-network constructed by Leeson and the wider structural environment inwhich he worked, but offers us clues only to the initial problematizationof the situation at Barings, not the actual mechanics of Leeson’s fraud.

Barings’ obligatory passage point also takes us to a second explanatorycandidate from the existing literature for an explanation of Leeson’sfraud. Stein’s (2000) analysis of the case presents a psychoanalyticalaccount of the collapse of the bank. Stein suggests that Barings needed a‘saviour’ figure to restore profitability, and so bonuses, after Heath’sdeparture. When Leeson managed to present himself in such a role,according to Stein, Barings’ executives were inclined to believe in hisapparent profitability when they should have been more suspicious.Again, there is sense in this, but Stein’s account does not manage tointegrate Leeson’s activities with the specific context of the situation atBarings in the time of his fraud. The two are more analytically linkedthan Stein suggests. Stein also suggests that Barings’ saviour needed to beas different from Barings’ executives as was possible, a ‘shadow’ ofthemselves and a high-risk trader. This explanation understates the

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remarkable ignorance of Leeson’s activities displayed by Barings’ seniormanagers during his fraud. Barings’ executives, as Drummond (2002:236) points out, actually believed that Leeson’s activities were low risk,not high risk, and that he had somehow cornered the market in the sameway as Heath appeared to have done in the 1980s. Leeson was meant tobe engaged in low-risk, high-volume arbitrage activity, but a moment’sexamination of his trading would have led to a very different conclusion.Barings’ executives did not want a risk-taker, but someone who couldrestore Barings’ profitability, and so replenish the bonus fund. Whenasked during the Bank of England inquiry if he found the profitability ofLeeson’s supposedly low-risk activities at all odd, Peter Baring repliedthat they were ‘pleasantly surprising’ (quoted in Rawnsley, 1996: 133). Aswith the ‘bad boys’ explanation (see above) elements of Stein’s studyprovide us with clues as to the obligatory passage point at Barings, but donot take us far beyond that.

To return to the Barings case, we need to consider our main protago-nist. Nick Leeson was employed as book-keeper by Barings in London.He had a talent for tidying up the messes left by Barings Securities’traders and collecting money due, becoming a trusted and well-regardedemployee in the process. Leeson was bright and reliable, carving out forhimself a niche as a specialist with knowledge in short supply; he knewhow to account for derivatives, even if he did not really understand thecomplex means by which they were priced and traded. Leeson, however,did not want to just work in the ‘back office’—he wanted to be where theaction was—on the trading floor, with its potentially massive rewardsand high profile. Leeson had applied to be a trader in London, but wasrejected because of unpaid debts and County Court judgements againsthis name (Gapper and Denton, 1997). When Barings opened a new officein Singapore to trade on the expanding SIMEX exchange, Leeson was anobvious candidate to manage it—he understood how to account for theassets to be traded there, and was trusted by Barings to do the job well.But Leeson, as we noted above, wanted more than this—he wanted to bea successful and powerful trader. This is important because, as we willsee in a moment, Leeson managed to construct an actor-network thatresulted in him coming to be seen as such a figure, but also, synony-mously, the answer to Barings’ profitability problem.

We must also introduce a number of other actors at this point. Aproblem with the actor-network approach comes in where we demarcatethe network—there is always the problem of focussing on too few actorsand so missing relevant entities, or in succumbing to the temptation toinclude the entire world (Bloomfield and Vurdubakis, 1999). This prob-lem is especially acute in Leeson’s case—a tale involving an actor-network stretching across the globe, earthquakes, and the floors ofinternational money exchanges. Necessarily, this involves some com-promise; we will restrict ourselves in this part of our account with thoseactors with whom Leeson had immediate contact—those he attempted


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directly to influence, to exert discretion over. Later, we will introduceothers who, through Leeson’s implicit reliance upon them, came to besignificant in undermining his attempts to cover up his fraud.

With this in mind, we must introduce some dissenters at Barings. InLondon, Tony Hawes, the Treasurer of Barings Investment Bank, althoughhe did not understand Leeson’s activities, continually asked him forfurther information about them, sending long lists of questions andasking for justifications for his frequent funding requests. Hawes was notalone in his opposition to Leeson; Ian Hopkins, the Head of Treasury andRisk, fought a long battle with the Securities and Futures Authority (SFA)to prove he ‘warned senior managers at Barings of weaknesses in thebank’s controls before its collapse, but was ignored’ (Financial Times,1997a). These figures, structurally important at Barings, clearly stood togain from bonuses as well as other executives at the bank, but were alsotasked with Treasury functions to safeguard Barings’ money.

The next entity in our case is Barings’ financial reporting system.Despite having very little in the way of financial controls in place (alegacy of the days of Barings Securities), Barings did have a computerizedsystem to report activity from Singapore based around a financial report-ing software package called ‘First Futures’. But this software had aproblem—it was not able to cope with the complexities involved incalculating payments on derivatives traded on SIMEX (the ‘margin pay-ments’ the exchange demanded) and was prone to freezing (Gapper andDenton, 1997). To alleviate this, Leeson purchased an off-the-shelf pack-age called ‘Contac’ which could account for derivatives. If the goal ofusing financial reporting system was to record and report financialinformation accurately, then we will see Leeson subvert this goal throughthe moments of Contac’s interessement and enrolment.

Other traders on the floor of SIMEX had goals that directly contradictedBarings’ problematization—their role was to make as much money aspossible for their respective employers. But this meant that they becameinextricably tied up in Leeson’s fraud—Barings’ need for profits, andLeeson’s need to deliver them, clearly became a part of their everydayactivities. They therefore shared the obligatory passage point we dis-cussed above.

Leeson’s staff in Singapore were also caught up in Barings’ problem-atization. Success for Barings, for them, became synonymous with suc-cess for Leeson. If Leeson was a success, they got to keep their jobs in oneof the most deliberalized and insecure job markets in the world. It was intheir interests to look after and protect him where they could. We willexpand more on this key group and their activities in a moment, but fornow make clear that it was impossible for Leeson to perpetrate his fraudwithout the help of others in his office.

Finally, we have a number of regulatory bodies that intersect withBarings’ obligatory passage point. First, the internal auditors of the firm,employed, as were Hawes and Hopkins, to ensure that financial rules

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were being followed within the bank. This therefore puts them into adifficult relationship with Leeson immediately, but also with Baringsexecutives who appeared to not want distractions such as audit tointerfere with reports of profitability from their company (Drummond,2002). Second, we have an external audit company, Coopers andLybrand (Singapore), who were employed by Barings to ensure the truthand fairness of their company accounts, and so verify Leeson’s profits.This puts them in a similar situation to the internal audit team with theadded complication that, should they have been too vociferous in theirconcerns about Barings’ finances, they could possibly risk losing themas clients—they were independent of Barings, but also extraordinaryinterdependent—they had to provide ‘client service’ (Grey, 2003).Finally, we have external regulatory bodies—those at the SIMEXexchange and the Bank of England. The latter group did not deal withLeeson directly, so their role will be examined later. The SIMEXexchange was relatively new at the time of Barings’ arrival in Singapore,a competitor with the established Osaka exchange in Japan needing newbusiness. Deregulation was seen as the key to its future (BBC, 1996).Once again, then, there were tensions between its apparent role (makingsure traders complied with exchange rules) and the need to provideclient service to avoid driving potentially profitable business away to arival exchange.

Having introduced our main group of actors, we now move onto thestrategy through which Leeson came to enrol them in his actor-network—his interessement.

Interessement and Mobilization: Leeson’s Fraud Gathers Pace

In our theoretical discussion above, we treated interessement and mobili-zation as separate. In terms of our account, however, so intertwined arethey in Barings case that it is difficult to separate them. So successful wasLeeson’s interessement that he succeeded, albeit precariously, in enroll-ing most of the entities in his actor-network, at least to some extent.

Leeson, as we noted above, wanted to be a successful and powerfultrader. But he had a problem—he could not trade in London because ofhis previous financial misdemeanours. Leeson had been appointed torun the ‘back-office’ in Singapore—he was not employed to be a traderthere. But he had an opportunity—Leeson’s position in the chain ofcommand at Barings was not clear. Barings Securities’ rather chaoticorganizational form led to ‘holes’ appearing in lines of accountability. Itwas not clear to whom Leeson was supposed to be reporting; Head ofSouth Asian operations, James Bax, raised this issue with London beforeLeeson’s appointment, making it clear that there were both reportingand accountability problems present (Ministry of Finance, 1995). Effec-tively left without a line manager, Leeson had the opportunity to‘expand’ his role, he sat trading exams, and then applied for and got a


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trading license in Singapore, not disclosing the background that pre-vented him from gaining one in London. He now had a dual role, hewas both trader and book-keeper.

Even though Leeson could now both trade and report on his trading, hestill had a problem—he did not really know how to trade in the ‘rocketscience’ (Rawnsley, 1996) based world of financial derivatives wherecomplex trading formulae dominates much of the behaviour of traderswhen it comes to pricing and selling options. But Leeson had to presentBarings with coherent accounts of his trading that did not make himappear to be anything less than a success. As we noted above, Leeson hadpurchased a software program called ‘Contac’ in Singapore to report onBarings’ trading on SIMEX. Despite Contac’s increased functionality, itled to reconciliation problems with Barings’ software in London. On 3July 1992, Barings Securities’ Head of Futures Settlements, GordonBowser, asked Leeson not to send the balance of an error account(numbered ‘99905’) in his transmissions to London because of thisproblem. Leeson complied, setting up another error account he numbered‘88888’ (eight is a lucky number in Singapore, so Leeson reasoned ‘fiveeights’ would be especially fortunate) and got Contac modified so that itsbalance was not sent to London. Instead, only the margin paymentrequirement was to be transmitted (Drummond, 2003). The margin pay-ment figure was far smaller than the overall balance on the ‘five eights’account, representing a required goodwill payment to SIMEX to showthat Barings could cover its debts rather than the total figure the bankowed to the exchange. Contac acted as a key actor in the Barings fraud—because of the technicalities of the reporting system at Barings, itconcealed the ‘true’ picture of Leeson’s indebtedness, and offered himthe opportunity to present himself as a successful trader. Leeson hadsuccessfully enroled it to his own ends. Contac was not a power—itcarried no discretion—but was a key authority in allowing him toperpetuate his fraud.

Leeson’s unique position became even stronger because his Singaporestaff quickly became fiercely loyal to him; he was able to dominate thepredominantly female staff in his operation because of a mixture of thepatriarchal culture of Singapore, the acute lack of job security there, and hisloyalty to them. Leeson did his best to cover for his employees when theymade mistakes, and gave them bonuses from his own pocket when they didwell: ‘They’re young girls. They were just doing what the boss said. That’soffice politics. He was the top dog, a guy that used to go out to dinner withthe Chairman of Simex’ (Mike Killian, Barings Tokyo and Osaka Head ofFutures and Options, quoted in Rawnsley, 1996: 166). As a result of thisloyalty, Barings’ executives could neither look to other managers nor toworkers within Barings Singapore to discuss Leeson’s activities. They hadto go to the man himself. Leeson could, therefore, always speak for himselfto senior managers at Barings—they could not get reports of his activities

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from others, so no-one else’s opinion or gloss could get in the way ofLeeson’s presentation of his trading as a success.

Leeson also managed to secure the support of other traders on SIMEXin order to manipulate his trading figures to make him appear a success.This was the case in two specific ways. First Leeson needed, in order tomaintain some flexibility (and so credibility) in the reporting of hisfinancial position to Barings, to perform ‘cross trades’. Leeson effectivelytranslated losses into profits by sending them into account ‘88888’, andpresenting a corresponding, double-entry for profit elsewhere in hisreturns. But in order to make this ‘double entry’ on the floor of theexchange, Leeson needed other traders to comply with him. Second,Leeson needed to appear to be a success on the floor of SIMEX evenwhere he was making losses. He needed credibility, he needed a means ofpresenting a narrative of success to professional traders to avoid hisdiscovery by them.

To explain how he achieved this, we need a little more background.Leeson was a very visible figure at SIMEX. He was a tall, bulky Westernerwith a loud voice. Barings’ trading jackets, in contrast to the majority ofthose on the exchange, were yellow, rather than the usual red, againmaking him distinctive (red is a ‘lucky’ colour in Singapore, so oftenworn by traders there). Leeson was also very much perceived to be arising star on the exchange because of the considerable volumes oftrading he did on behalf of his mystery clients (clients that subsequentlyproved not to exist). He was also the personal friend of many of the othertraders. In a similar way to his cultivation of friendships with his officestaff, he drank with other traders, spending a considerable amount oftime and money socializing with them. When he asked, they went alongwith his requests to perform cross trades, as a personal favour, but alsoperhaps hoping that Leeson’s apparent luck would rub off on them. Othertraders, apparently in competition with him, had to think twice before‘betting against’ the positions Leeson was holding on the exchange—‘Ihad such a large and growing position that the entire trading floor wasbeginning to look to me as the barometer’ (Leeson, 1996: 146). In hisvisibility, his performing of cross trades, and his sharing of ‘success’ withother traders, Leeson managed to enrol a substantial part of the SIMEXexchange to his cause.

The next group of actors we will deal with together as they lie in directtension with one another. On the one hand we have those at Barings whowere prepared to believe him—many of the Barings’ executives who, aswe noted above, stood to gain substantially in terms of their annualbonuses from Leeson’s apparent profitability. Against Leeson, however,we have figures in the Bank who were suspicious of him, notably Hawes,and both internal and external audit teams. Any ‘translation’ of an actor-network is never complete, and so the means through which Leeson’sactor-network dealt with this apparent dissent is crucial.


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Barings executives, as we noted above, were instrumental in formingthe obligatory passage point, the restoration of profits and the preserva-tion of their bonuses. This was combined with an incentive structure atBarings to form a centre of calculation that made malfeasance potentiallyrewarding for Leeson at very low opportunity cost. Because Barings wasnot a plc, managers could not be rewarded through the use of shareoptions, and so their basic salaries were supplemented instead throughthe widespread use of extremely large bonuses (Gapper and Denton,1997). Heath’s success in the 1980s meant that Barings’ executives hadgrown used to their large bonuses, and were looking for the next potentialsource to support the lifestyles to which they had grown accustomed(Whitby, 1996). Equally, Heath’s spectacular success using financialinstruments the bankers did not really understand appeared to create anodd effect in their minds; that the principle underpinning any invest-ment, that of a trade-off between risk and reward, did not necessarilyapply (Drummond, 2002: 236). Barings’ executives appeared to believethat they could ‘buck’ the market, making large returns for low risk,provided they employed clever people like Heath who understood ‘new’markets and the opportunities that existed within them. They not onlybelieved it, but their bonuses depended upon it.

Barings executives’ enrolment can be illustrated by one of manypossible examples. On 6 February 1995, mere days before the collapse ofthe bank, Hawes’ latest list of questions about Leeson’s activities reachedRon Baker, the Head of Derivatives Trading, who reacted furiously, andcomplained to Norris in violent and angry language, about this harass-ment of his star trader (Gapper and Denton, 1996: 308). Hawes’ questionswent unanswered, and Leeson continued with his fraud at a time whenhis losses were growing exponentially.

If we consider the audit teams charged with investigating the validityof Leeson’s profits, we see a similar picture emerging. In the case of theinternal audit, Leeson was fortunate—the team’s major protagonist, AshLewis, was called away to a problem in Barings’ new American sub-sidiary, and so was not a part of the review of his Singapore branch(Leeson, 1996: 115). The rest of the audit team, because Leeson’s backoffice staff would not co-operate with them, were forced to base theirentire proceedings around him. This was made worse by the additionalenrolment of James Bax’s local manager, Simon Jones, in Leeson’s socio-technical network. Jones regarded any interference from London into hisoperations (even though he was not Leeson’s manager) as unjustified, andso refused to help the audit team. ‘There was no control system . . . Nickwas the system’ (quoted in Economist, 1995b: 20). The Singapore opera-tion, distant from London in both space and time, was also organization-ally distant. Leeson maintains that he still expected the internal auditteam to locate his fraud (Leeson, 1996), but, weakened by the absence ofAsh Lewis, an apparent lack of technical expertise, and the need tonegotiate entirely with Leeson, his office was given a clear bill of health,

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and gained in credibility within Barings—its managers could now claimthat they had good reason to believe that his profits were genuine becausethey had been, in effect, internally validated.

At the time of their investigation, the external audit team, headed byCoopers and Lybrand (Singapore) found a ‘hole’ in Leeson’s accounts tothe tune of some £50 million, about the size of Leeson’s trading loss atthat time. Despite this, he managed to survive to continue his fraud(Eaglesham, 2001; Gapper and Denton, 1997: 304–6). Leeson concoctedan inconsistent story, with the aid of scissors and glue, his back officestaff, and some bank statements. That this mix of confusion and deceitwas accepted is, in itself, remarkable, especially when key documentsfrom Leeson were sent to the auditors from his home and stamped ‘fromNick and Lisa’ by his fax machine. But Leeson’s story was accepted by theauditors and Barings’ executives, even though it involved him conduct-ing a special ‘over the counter’ trade for a broking firm known as Spear,Leeds and Kellogg (SLK) which was within his remit to conduct. Theauditors passed the accounts, with Bax requesting that the SLK traderemain out of their report (Gapper and Denton, 1997: 310). An inquiryinto Leeson’s dual role as both trader and book-keeper led to a recom-mendation that he cease to run both front and back offices but theappointment of a new back-office manager was never made. As a con-sequence of these events, Leeson’s activities were brought to the attentionof Barings’ Assets and Liabilities Committee, but still he was not pre-vented from trading further. Leeson therefore appeared to have enroledboth internal and external audit teams into his network—their investiga-tions of him resulted in his increased legitimacy and credibility and,where criticisms of him were made, Barings’ executives allowed him toescape censure—he had become their ‘cash cow’.

In terms of external regulators, Leeson also had conflict to face to retainhis problematization as Barings’ major source of profit. SIMEX regulatorswere aware of Leeson’s cross-trading activities, and his breach of theirexchange regulations, but did not act firmly to stop him. Leeson’s largetrading volumes were quickly becoming important for the exchange, andbeing a low regulation market was central to SIMEX’s strategy to wootrade from neighbouring Osaka. When SIMEX did complain about Lee-son’s activities to Barings, James Bax delegated the writing of theresponse to Simon Jones who, not really understanding Leeson’s activ-ities, and busy with family problems, in turn delegated it back to Leeson.Leeson’s version of events went direct from him to SIMEX, acquiring thelegitimacy of Barings’ managers in the process. Leeson effectively enroledthe regulators of SIMEX into his fraud because of the remoteness ofBarings’ Singapore office from its London-based chain of command, andthe reluctance of the SIMEX regulators to confront him.

Finally, there is the role of the Bank of England—a remarkable exten-sion of Leeson’s network as he was not directly involved in it at all. The


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Bank’s enquiry into the bankruptcy of Barings (Board of Banking Super-vision, 1995), not entirely surprisingly, found itself not guilty of failing inits duty as the regulator of UK Banking. The Singapore Report (Ministryof Finance, 1995), however, was rather more damning, blaming the Bankfor allowing Barings to send virtually their entire capital abroad, inbreach of its own financial regulations. The role of the Bank of England inthe Barings collapse is a complex one; it did appear to be aware thatBarings were in breach of its regulations, but did not act until it was toolate to demand that they comply. Barings’ executives appeared to believethey had been given special dispensation to send more than 25% theircapital abroad based around unminuted conversations with ChristopherThompson, a senior manager at the Bank (Gapper and Denton, 1997: 307).Hall (1995: 23) in a politely-worded criticism of the old boys networkthat appeared to dominate the Bank’s activities noted that ‘it wouldappear that the Bank has not yet learned to be less trusting and moreinquisitive’. Without the tacit compliance of the Bank, Leeson would nothave bankrupted Barings. His exploitation, intentionally or not, of thefriendly links between Barings and the Bank of England represents amobilization of the latter in his fraud. But it also represented somethingmore interesting than this—the beginnings of a moment in mobilizationover which Leeson had no discretion. This takes us onto Callon’s finalmoment of translation—mobilization, which is made complex for similarreasons—instead of Leeson coming to speak for his network, it oftencomes to speak for him.

Mobilization: Who Speaks for Whom?Leeson appears, from our discussion above, to be almost untouchable. Hehas enroled figures from Barings’ executive to his defence and has beenafforded legitimacy by successfully negotiating inquiries and audits intohis profitability. But his network did collapse, and his fraud did becomeapparent. How did this happen? Part of the answer comes in the momentof mobilization.

Leeson, as we described above, had come to speak for Barings in anumber of settings. His enrolment of Contac gave him the power to reportwhatever financial position he wished—he spoke for the profitability ofBarings’ Singapore office, supported absolutely by his staff there. He hadbecome synonymous with the Bank at SIMEX, and was, as a result of hisapparent trading success, held up as a role model by Barings to othertraders (BBC, 1996). Leeson also managed, through his trading, to come tospeak for the future of the Japanese stock market. His trading strategyrequired him to drive all volatility from futures in the Nikkei exchange—to individually hold the market steady. If it remained in that position,neither rising nor falling within a restricted range of values, Leesonwould be able reclaim the premiums on the options he had sold on theexchange, and begin to recoup his losses. Leeson’s dominant position onthe exchange was based on the massive volume of transactions he was

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conducting. As such there was always doubt in the minds of othertraders, fuelled by Leeson’s hints that he was conducting business for amystery client (Leeson, 1996), and his claims that his trading positionswould become hugely profitable, so that those ‘betting against him’would incur a loss. The price of the assets in which Leeson traded,allegedly representative of the entire Japanese economy, were massivelydistorted by his activities—we can claim that, at the height of his power,he was effectively speaking for the financial future of Japan. He spoke forBarings’ executives because of their support for him as their major sourceof profit, and they were speaking for him, outside of his control, inrepresenting the Bank in meetings with the Bank of England. Baringsmanagers’ lack of interest in confronting Leeson allowed him to speak forthem in his dealings with both internal and external auditors, as well aswith SIMEX. Given the power of his enrolments, he surely was nowunstoppable?

From Mobilization to RemobilizationThe remobilization of Leeson’s network against him is perhaps an oddclaim, but can be substantiated by consideration of the case. If Leesonwas being protected by Barings’ executives without having even the needto ask for their support, they had become authorities rather than powers(Barnes, 1986), acting on behalf of Leeson without their discretion. Theyacted without discretion because, having supported him, Barings’ execu-tives now faced appearing foolish if they were seen to change their mindsabout Leeson. On top of this, the bonuses accruing to Barings’ executivesdepended upon his profitability being genuine. But, in their acting onbehalf of Leeson, Leeson himself lost discretion—he could no longerchoose whether or not he required managerial protection—it happenedwithout his knowledge or choice. Leeson effectively lost the choice to beheld to account—if, as Stein (2000) suggests, he was sub-consciouslybehaving in a self-destructive manner in order to be found out, this wasnever likely to happen because of his socio-technical network’s built-inprotection mechanisms.

The precariousness of the sheer enormity of Leeson’s mobilization ofthe SIMEX trading floor clearly contained the seeds of its own destruc-tion. When Leeson’s trading positions became extraordinarily large, othertraders began to question the existence of Leeson’s mystery client, and torefer to the Barings ‘overhang’ on the exchange (Hunt and Heinrich,1996). Briefings began to be circulated within trading institutions onSIMEX questioning Barings’ position, and wondering how it might beexploited (Gapper and Denton, 1997). Leeson described his position onthe SIMEX exchange as becoming a ‘monster’, in the face of which he waspowerless (Leeson, 1996). This is because Leeson’s trading position, andhis handling of the ‘five eights’ account acquired both a dynamic and amomentum of their own. Once Leeson had no choice but to continue, wecannot really ascribe him as holding discretion over the results of his


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trading. Leeson had to continue or admit to having committed fraud tothe extent of millions of pounds. The opportunity cost of continuing withthe fraud was effectively zero—he was compelled to do so for fear ofbeing discovered. We might hypothesize a ‘tipping point’ on SIMEXwhere he had no choice but to continue trading; the alternative, facing upto his losses, was simply too awful to comprehend—’Rationally I knew Ishould now sell. I should now sell everything in the 88888s account,hold up my hands and be escorted off the trading floor into a police vanor a padded cell . . . But I couldn’t sell’ (Leeson, 1996: 146). He wastrapped in a cycle of having to declare greater and greater profitability tocontinue (on Wednesday 25 January alone, Leeson claimed to have madewell over £1 million in profit). Leeson had gone from being the ‘king ofthe exchange’ (BBC, 1996) to the more common experience of a completeloss of control over the destiny of his financial position. The ‘monster’ ofSIMEX, apparently having been reduced to an authority to do his biddingby Leeson, had remobilized against him.

As Leeson’s losses grew bigger, and he required greater and greaterfunding from London, he came under increasing pressure to declare evengreater profitability. But then a third example of Leeson’s loss of discretionover his network intervened that brought the final end to his activities.

On 17 January, an earthquake measuring 7.2 on the Richter scaleerupted under the Island of Awajishima, some sixty miles off the port ofKobe, destroying 25,000 buildings and killing 3000 people. It was theworst earthquake in Japan since 1923. Kobe is at the heart of industrialproduction in Japan, and only eighteen miles from Osaka, the financialexchange from which Leeson had been busy extracting business onbehalf of SIMEX. Leeson had been betting that the Japanese stock marketwould remain flat, and he had done all he could to remove any volatilityfrom futures in the Nikkei index. If it fell, Leeson’s losses would riseexponentially. For a short time, while traders waited for the reaction ofthe government and from other traders, the market held relativelysteady—events could still have worked out for Leeson had the Japanesegovernment launched a huge reconstruction plan. Leeson bought furi-ously in the market, desperate to make it hold its value (Gapper andDenton, 1997: 282–3). On Monday 23 January the market briefly rose, andthen came crashing down, falling an astonishing 1175 points during theday, and losing Leeson over £100 million. Leeson then began a franticperiod of ‘doubling’ (Brown and Steenbeck, 2001) his trading position toattempt to drive the market back up virtually alone, a classic gambler’sstrategy, but one that was doomed to fail—Leeson no longer held thecredibility in the eyes of other traders on the exchange who now believedthat there was no mystery client backing him amongst rumours that hewas investing Barings’ money alone (Gapper and Denton, 1997). Thesheer momentum behind the downward movement of the exchangefurther demonstrated its remobilization away from Leeson’s control.International Banks lending to Barings to cover Leeson’s trading called in

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their loans. Barings’ executives finally called Leeson to account—but toolate. Realizing the game was up he ran away, boarded an aeroplane to aholiday resort with his wife, and attempted to hide.

The Aftermath: Disentanglement

We have seen above how Leeson effectively lost control over the socio-technical network he had created, and how it remobilized against him,resulting in the collapse of the Bank. As well as this, there was a doublemoment of ‘disentanglement’ as actors attempted to escape from Leeson’snetwork. First, Leeson himself tried to escape; second, those enroledwithin Leeson’s network, who might appear to have been complicit in hisactivities, also had to distentangle themselves from him.

Leeson tried to escape from Asia, quickly coming to the conclusion hewas more likely to get a sympathetic legal hearing if he managed to betried in London. Leeson tried to travel half-way around the world withhis face appearing on every financial briefing and newspaper. Geographyhad long been his friend, making it difficult for Barings in London tosupervise him closely. It was now his enemy. Leeson managed to get asfar as Germany before being intercepted by the police, and was even-tually extradited back to Singapore for trial. In that time, he madenumerous appeals to be tried in London, but the Serious Fraud Office didnot request he be sent back home. The financial records that Leeson hadso cleverly manipulated for so long now came back to haunt him as thefull position of his fraud became apparent. The distorted electronictransmissions Leeson had sent to London had safeguarded his positionon the early part of his fraud but with his loss of discretion over them, hehad come to hate them, hiding them in his office drawers (Leeson, 1996).Finally, they presented, once the filing cabinets had been ‘cracked open’in his office (Gapper and Denton, 1997) on the night of the discovery ofhis fraud, durable records of what he had done.

Other parties too had to distentangle themselves from Leeson. It is hardnot to see Leeson’s unheard requests for extradition from Singapore toLondon as a deliberate attempt by the regulatory bodies in London todistentangle themselves from as much blame as possible (Pollard, 1995).Internal memoranda either protecting or criticising Leeson became keydocuments in the prosecution or defence of him, and appeared in booksand inquiries into the collapse of the bank. The Bank of Englandauthored the inquiry of the role of the Bank of England in the collapse ofBarings, presenting itself to have been in no way involved in the collapse(Economist, 1995a). It is also hard not to see some role for conspiracy ininterpreting the reasons why Barings’ executives were not held to bemore culpable in the collapse of the Bank; the subsequent inquiry by theSFA appears to be noticeable for its reticence to prosecute senior Baringsmanagement but found ‘lesser officers . . . arraigned in front of us andshot’ (Economist, 1996). Barings figures such as Ron Baker and James Bax


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felt that they were being sacrificed to protect senior managers andappealed against their SFA penalties (Financial Times, 1997b).

Conclusion: The Trouble with Being a Rogue Trader

Leeson’s fame, such as it now is, rests upon him being the architect ofBarings’ collapse. But this created a significant problem for him in theimmediate aftermath of the discovery of his fraud. Upon his capture,Leeson faced a dilemma. In order to attempt to save himself from alengthy jail sentence in Singapore, Leeson had to pass as much blame aspossible onto other figures in Barings; he had to show that what hadhappened was that his activities had spiralled out of control (or in ourterms, that his socio-technical network had remobilized against him) andthat, as a consequence, he was only responsible to a degree, with otherssharing in the blame (in our terms again, that he attempted to dis-tentangle himself, and present a new problematization that enroledothers as being complicit). But Leeson also had to present himself to theworld and the media, in order to secure a future income stream forhimself, as a ‘rogue trader’—the individual that had brought down thebank. This was a marketable story that could be published, and even beturned into a film. Leeson’s own account of events (Leeson, 1996) fallsbetween the two stools; he blamed Barings’ managers for his behaviour,presenting himself as a rather passive figure in the process, but at thesame time calling his book ‘Rogue Trader’, and attempting to present hismanagers as fools. In the media, the rogue trader figure is understandablymore popular; it represents a far more attractive, sellable and straightfor-ward story than the one presented above.

It is interesting that whenever significant financial trading fraudoccurs, the central protagonist is always portrayed in a similar way toLeeson, as acting alone and subverting the system (see, for exampleMerrell, 2001). But malfeasance does not work like this, as we have seen.For significant fraud to occur, the fraudster must be trusted and evenprotected by those around him or her (Granovetter, 1985). We haveattempted to explain how Leeson managed to do this in the case ofBarings, and how he implicated a range of other actors to varying degreesin the process. Equally, the socio-technical network Leeson built meantthat even sceptical managers could not question his activities because ofthe pressure brought to bear on them from those prepared to come to hisdefence. A crucial moment occurred where Leeson lost control of eventsaround him, and no longer held discretion over the network he created.As a result, a number of small, contingent circumstances conspired tocreate a major fraud; it would never have happened if Barings had a riskmanagement system in place (Talmor, 1995) or if their corporate govern-ance systems had been better (Hogan, 1997), or if the regulatory systemshad been tighter (Economist, 1995c). All of these arguments may becorrect, but overlook crucial aspects of the case which we have attemptedto present here. It was not the absence of any of these factors individually

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that allowed Barings to be brought down, but their arrangement inLeeson’s actor-network. As Leeson’s fraud grew, and as he lost discretionover whether to continue or not, he took greater and greater risks, leadingto the almost inevitable remobilization of his actor-network against him,and a trail of records from which he could not distentangle himself. Thisgives a new way of thinking about financial malfeasance as Leeson wasnot the origin of the problematization that led to the fall of Barings;instead, it lies with Barings’ executives and their skewed incentivesystem. Leeson was responsible for the construction of his actor-network,and conducted a concerted fraud in an effort to make himself appear asuccessful trader, but was not responsible for Barings’ executives comingto speak for him—they should have been more careful and more suspi-cious, especially after what happened with Heath in the 1980s. Byconstructing an account of the events at Barings around Leeson’s actor-network, this becomes clearer, and provides us with fresh insights intowhat has become a benchmark case in business collapse.

NotesThanks to the anonymous reviewers for their excellent and helpful comments onhow the paper might be improved, to Professor Helga Drummond for her thoughtson an earlier version of the paper, and to Sue Richardson for her suggestions onhow it might be written more clearly.

1 The ‘sociology of translation’ is one approach amongst many to the study ofactor-networks, but the terms ‘sociology of translation’ and ‘actor-networktheory’ will be used synonymously here.

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Ian Greener is Senior Lecturer and Research Lead at the Centre for Public Policy andManagement at Manchester Business School, University of Manchester. He haspublished widely on public sector reform, and is especially interested in gainingsocial-theoretical understandings of how organizations reproduce themselves orcollapse. Address: Manchester Business School, The University of Manchester,Booth Street West, Manchester M15 6PB, UK. [email: [email protected]]


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