Professor of Corporate Governance at CSU, Justin O'Brien, is amazed that Jerome Kerviel, the rogue trader with Société Générale, managed to get away with the fraud for so long without being caught.
“This is a straightforward case of a failure of risk management controls. It is devastating to the reputation of Société Générale,” Professor O’Brien said.
“Last week, Société Générale was about to announce it had survived the recent US subprime mortgage meltdown with a loss of €2 billion - it still would have made an operating profit of €5.5 billion. Now all of that has evaporated.”
Professor O’Brien is concerned bank regulators might not have learned from recent similar cases in Britain and the United States.
“There are uncanny parallels to Nick Leeson in 1995, who brought down the UK-based Barings Bank, and John Rusnak in 2002, who brought down a subsidiary of Allied Irish Banks in the US.”
He believes that answer lies in better testing of existing controls rather than adding new ones.
“Already we have seen calls from the French parliament for tougher new controls to be introduced. I think there are sleepless nights ahead for banking executives and for banking regulators in this new climate.”
Professor O’Brien is a member of the Centre for Applied Philosophy and Public Ethics (CAPPE), a collaborative research centre with the world’s largest concentration of applied philosophers from CSU, Australian National University and the University of Melbourne.
The Centre recently launched a book that addresses the implications of private equity for the governance of corporations, the capital markets in which they operate and the professionals who provide corporate advisory services.
Edited by Professor O'Brien, Private Equity, Corporate Governance and the Dynamics of Capital Market Regulation addresses such key issues as managing conflicts of interest, fiduciary duties, the role of enforcement, different forms of regulation, complying to rules, and embedding accountability and integrity into financial markets.
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