Société Générale : lack of control or systemic failure ?

I’m sure you heard about what happend to French Bank Societe Generale who lost 5 billions euros because of one of its traders. Many question came about the efficiency of the controls which failed. I even read blogs saying that, considering it was a matter of control, of visibility, of trust, enterprise 2.0 would have been the solution to avoid such problems. Stupid !

Enterprise 2.0 (especially software) would not have helped in any way. On the other hand, something in the 2.0 philosophy would have been useful : management 2.0. In my opinion, what brought Société Générale to such a disaster is not a question of control or software, it was caused by the same things that prevent people from getting involved in collaborative and social dynamics : lack of communication between silos that make people face contradictory messages.

• Lack of control

Trading and risk management need control. That’s the typical example that proves me future is not about abolishing control and processes. Of course less control isn’t a good thing, but I’m not sure more control is the solution : every process has its weaknesses and people who know them will always have an advantage over those who try to build efficient processes. Especially in this case, Jerome Kerviel, the trader, was a former back office employee so he knew all the weaknesses of the control process.

• One essential point : it was no swindle

Kerviel didn’t overrun control il order to take money for himself, he just did it to improve his own results.

• A matter of double bind

Here’s the point I find an obvious common point with E2.0. What prevent people from behaving 2.0 despite they have the appropriated softwares at their disposal is purely organizational : in the one hand they’re asked to give time to social activities, to help others, tho share their experience, and in the other hand they’re evaluated on only what their job supposes them to do. Being focused on what is produced locally whith means they allocate, managers often consider the rest as a waste of ressources. Confronted to this double bind (company wants me to social (net)work and my manager want me to do nothing but my job), most employees chose to follow their managers.

Kerviel was in the same situation. Hierarchy told him to make money. More money than last year, more than his colleagues. Reaching such a point of performance he had to take more and more risks to meet those expectations. In the other hand control told him not to take such risks. In fact both orders came from his hierarchy, so he had to choose. Considering that his ability to meet performance’s expectations had also a big HR impact (his bonus, his career…) he made a choise and overran the control.

This is very interesting.

For people who set the objectives, their bind is legitimate. For HR people, considering that the ability to achieve objectives is key in determining salary and managing an employee’s career is obvious. It’s an implicit demand. For people in charge of control, setting processes that prevent people to take too much risk is obvious too. Both were aware of the impact of their demand.

But, did those people, at any time, discuss together of the impact of both those three demands on a single person ? The one said “do that”, the second (implicitly) said “if you don’t, it will affect your salary and your career”, and the third said “you have only limited ressources and risk to satisfy the first’s bind”. Guess what happened ?

I read a lof ot people trying to explain what the system failed. They were all about banking industry and control. I’m disappointed nobody pointed out it’s rather a matter of organization and it could happen with anybody in any industry. Sometimes, for sales people, it leads staight to a backhander system.

As long as people who set your objectives, those who manage your career, and those who define what you’re allowed and not allowed to don’t discuss of the joint impacts of their individual decisions the risk will remain.

So, in my opinion, it’s rather a matter of collaboration, of sharing informations and (above all) discussing through silos. E2.0 wouldn’t have helped Kerviel, but it would have helped the company not to ask the impossible. We exactly face the same barriers as for E.20 : global decisions in silos and local evaluation without consideration of global interest.

Head of People and Business Delivery @Emakina / Former consulting director / Crossroads of people, business and technology / Speaker / Compulsive traveler
Head of People and Business Delivery @Emakina / Former consulting director / Crossroads of people, business and technology / Speaker / Compulsive traveler

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