Control as a Key Governance Measure

Abstract

On Friday, February 24, 1995 at 7:15 in the morning, Peter Baring, the Chairman of the oldest Merchant Bank in the United Kingdom, received a call from Singapore that he had been dreading: a ‘big hole’ in the accounts was confirmed. Just how big was not yet known, but it was clearly greater than the bank’s capital. A ‘rogue’ trader had run up massive losses¹ on unauthorised derivatives dealings in the Far East, which threatened to bring down the bank. Following time-honoured tradition, Baring sought an interview with the Governor of the Bank of England. Because the Governor, Eddy George, was away on a skiing holiday, Baring was seen by Rupert Pennant-Rea, the Deputy Governor. Senior representatives of 15 or so UK Clearing and Merchant banks were called to the Bank of England. There was frenzied activity throughout the weekend. On receiving the news, George immediately returned from Geneva, and the assembled bankers and their professional advisors were asked to put together a rescue package, although the extent of Baring’s obligations was not known. Neither the Bank of England nor the Treasury would provide a ‘cap’, or limit, to the potential liability, and the Chancellor of the Exchequer, Kenneth Clark, would not sanction the application of public funds. The bankers were not prepared to take an unquantified risk with their shareholders’ funds ….

I claim not to have controlled events, but confess plainly that events have controlled me

(Abraham Lincoln, US president, 1809–65)