About Us | Search | FAQ | Contact Us
Operational risk: The bonus culture 'anomie'
"It was a filthy profession, but the money was addicting, and one addiction led to another, and they were all going to hell" Po Bronson's opening lines from his Bombardiers neatly encapsulate the challenge posed to modern business management by the activities of their employees. Drawing on his experiences as a trader in a leading US bond trading operation, Bronson charts the degeneration, both moral and operational, of people forced to work in the world of global financial corporatism.
Increasing alienation in the workplace is a growing threat from the risk-intensive activities of disgruntled or disenfranchised employees who have found that the increasing demands being made of them to perform in a bonus-driven, success-measurement culture, mean that they can not compete effectively on conventional terms.
We are living in an age of schism, when accepted wisdoms are being constantly challenged and tested, and concepts which we formerly held to be truisms are being rejected. The day of the 'job for life' is over, and with it has gone the loyalty which a company could once expect from its employees. The static, career worker is generally being replaced by the 'mobile road warrior', who is more likely to work for a fixed contractual period or term, and then move on to seek new challenges and opportunities. Possessed of the latest means of communication and information technology, working for the highest bidder, and paying his self-employed earnings through his offshore company into his offshore bank account, he or she possesses no outmoded sense of loyalty to an employer. The work environment which does not provide the necessary degree of job satisfaction, however defined, can easily be swapped for another.
This degree of personal mobility, with its short-term, selfish horizons, is mirrored by the equally short-termist requirements of modern management. Their primary duty is to remain operationally responsive to the demands of the market, and their effectiveness is measured solely by their ability to deliver ever-increasing levels of profitability and growth, to fuel the insatiable demands of stock exchange indices.
The promotion of this high degree of shorttermist thinking in upper-levels of management leads to the creation of a dangerously unstable working environment in the mezzanine and ground-floor employment environments. Not every worker can possess the negotiating privileges afforded by the degree of absolute mobility enjoyed by the 'road warriors'. And it is these static men and women who are becoming increasingly subjected to growing levels of demand provision from increasingly insecure tiers of management, whose performance in turn is subject to constant re-assessment. As market demand spirals upwards, the demands upon these employees to contribute ever-greater levels of personal commitment to meet the unrealistic contribution targets of their macho managers creates increasing levels of tension, resentment and alienation.
It is one thing to be personally engaged in making a contribution to the profitability of the business in which you work, and which you can see and measure and share. It is another thing altogether to be an increasingly anonymous part of a global business culture which returns varying levels of bonus provision, but subject all the while to demands for increasing levels of unquantifiable pre-commitment and value-added contribution.
The bonus culture thus described ceases to be a means of rewarding good work, freely given for a tangible return, and becomes instead a means of exploiting weakness and insecurity, which are themselves amplifiers of risk and catalysts for risk-related activities. And this is where the real underlying danger lies.
Nick Leeson, who single-handedly brought down Barings Bank, one of the oldest and most prestigious bank in the City of London, worked in just such an environment. When his attempts to recoup losses resulted in his having to return bigger and bigger fictitious profit figures to justify the levels of capital margin payments he was demanding, he was able to get away with his deceptions because no-one in the organisation wanted to believe that the figures were based on anything other than genuine profits. If they did think that, they wanted to suppress that belief in order to be able to realise the bonuses which would be dependent on those figures being accepted as real by management. In Leeson's own words in his book Rogue Trader: "By Christmas 1994, the losses in the 88888 account were over £170 million. I was drinking more and more. I had been arrested in a club for indecent behaviour while drunk, and I was beginning to lose complete control of the trading situation in the accounts. I was under immense pressure to produce even greater profits, because the London office needed them to create a record year...and record bonuses..."
What Leeson was identifying was what the American sociologist Robert Merton had defined 40 years earlier in his seminal work on the concept of 'anomie', or alienation from ordinary norms. Merton found that business repeatedly made demands upon its employees which forced them to replace the means by which normative or legitimate methods of recognition of worth and value were measured, with an over-emphasis on the merely technically efficient means of production.
Merton noted that money frequently became consecrated as a value in itself, over and above its use simply for necessary consumption. External stimuli, both direct and subliminal, place intense pressure on individuals to strive for further income to acquire recognised status symbols, or to attain financial targets which are rewarded in the form of some symbol representing value but which is recognised only within the industry sector itself. Wall plaques or desk furniture, framed certificates, or the right to sit at certain tables at annual conventions are all intrinsically worthless in themselves but become imbued with intense symbolic value, denoting high achievement.
Those individuals who found themselves unable to succeed in the increasingly competitive environment would be forced to find other ways (increasingly non-normative or 'anomic' ways), to reach their desired outcome. Such individuals might cheat, suppress information, over-record hours worked or submit false returns in order to meet the unrealistic individual targets set by overbearing managers, or to achieve the level of financial profits required by the bonus structures.
Where employees are working in groups, and bonuses are dependent upon the group as a whole realising the relevant targets in order for each member to receive the payment, increased pressure can be brought to bear on those members of the group who are perceived to be failing to keep up with the others. Such pressure will lead, inevitably, to an increased likelihood of anomic behaviour, and an increased temptation to adopt other, more risk-laden methods of action to achieve the required performance level.
When it is realised that in excess of 80% of all frauds in business are committed by employees, and that over 50% of those frauds are committed by management, the level of operational risk posed to business by this increasingly alienating environment should become a matter of greater concern than it presently is.56% of UK Financial Services Companies Know They Are Vulnerable to Online Fraud 70% of more than 1,000 UK services companies surveyed in a study recognised themselves as cyber fraud targets, with a staggering 56% openly stating they knew they were vulnerable to online fraud.
The survey, conducted by e-business solutions provider Unisys, also found that one third had no fraud policy whatsoever. For those that have fraud policies in place, more than one third had not been updated in the last year, leaving them outdated in the fast-moving Internet economy.
The survey's other key findings revealed that:
n Less than half of the companies surveyed trained their staff in any form of fraud detection and prevention, with 95% of board members receiving absolutely no fraud awareness training.
n Nearly 10% of respondents reported that they did not monitor customer account activity for suspicious financial transactions indicative of fraud.
n 85% of companies had not adapted their 'know your customer' identification procedures to the Internet.
These findings show that many UK online financial services companies are leaving themselves wide open to fraudulent activities. Too few companies are investing in fraud prevention training, and awareness at the decision-making board level is alarmingly low; something needs to be done immediately before financial services companies and their customers are badly burned."
Consolidated findings of the report, which can be obtained from Unisys, are:
n The use of internet-based systems by financial services companies has increased significantly in the previous year
n The message of effective Customer Relationship Management is still not being transmitted
n Fraud awareness and systems to combat fraud have reportedly decreased in the last year
n Investment in anti-fraud training has reportedly decreased in the last year
|Home | About Us | Search | FAQ | Contact Us|