Business Failure the First and Perhaps the Term Paper

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Business Failure

The first and perhaps the most obvious cause for business failure is fraud. Indeed, fraud is quintessential to business failure, mainly because it takes different forms and appearances, from intentional bad management to accounting frauds that lead to legal issues.

The most important example of how fraud brought down a bank that had been financing many important operations for the last three hundred of years is the Barings Bank. Unfortunately, Barings was also a perfect example of how one single employee can actually bankrupt a company.

Indeed, Nick Leeson began his activities with Barings after a short period spent with Morgan Stanley and he was soon sent to Singapore to clear the back office mess and futures trading that was on the way there. Initially operating only as general manager, Leeson soon began to trade on the Singapore Exchange (the SIMEX), especially in financial derivates, such as futures and options.

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The fist signs of alarm should have already appeared when Leeson cumulated several functions. Besides general manager and back office manager, he was also authorized, together with his brokers and traders, to "transact futures and options orders for clients or for other firms within the Barings organization" and "to arbitrage price differences between Nikkei futures traded on the SIMEX and Japan's Osaka exchange." If we look only at these two dimensions, we can already notice that Leeson's activity was quite risky indeed.

Leeson began speculating on the futures market in Singapore and on the Nikkei futures market. Accounts clearly state that he lost money from the very beginning and that he used the 88888 account to hide all his losses from the Barings head management in London.

By the end of 1992, the 88888 account already accounted for close to….....

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