Jerome Kerviel seems to have received a reasonable sentence in terms of jail time. I guess you can argue to that the civil damages of $US9 billion is a responsible penalty as well, though I don't see him as fully responsible for the damage. Squarely it was Societe General's responsibility to manage its clients and shareholders funds. Regardless of whether Jerome took methods to deceive the company of his losses; the reality is that its the responsibility of the company to protect the wealth of shareholders and customers. You cannot say...sorry...one of our staff members broke the rules. The reality is that we have to do what it takes to achieve objectives...and not hide behind the law.
The implication is that Societe General's executives ought to be responsible for their role in the action. We are accustomed to seeing people being punitively attacked as scapegoats. This problem is bigger than Jerome Kerviel's insecurities and need to delude people. There was a responsibility by senior executives responsible for security to anticipate the problems. The pertinent issues in prosecuting these executives ought to be:
1. Was the rogue trader given too much responsibility?
2. Were their adequate checks and balances in the system?
3. Were their efforts made to check the viability of the security measures?
4. Were their efforts to avoid systematic theft/fraud?
5. Was the company exercising industry 'best practice'
6. Had the company had its systems audited by competent parties?
I don't know the answer to these questions, but Jerome Kerviel ought not to be the person sole responsible for the error. The government as regulator simply ought not to have a role, because you can't expect a government, which has a legal sanction to extort taxation from people to care whether you or I are extorted...that is proof of their lack of interest in taxpayer's interests. That is where their interest stops. That is why taxation is fully-financed whilst justice is under-funded.
The next layer of responsibility falls upon shareholders. It is easy to blame executives, government regulators and rogue traders. The reality is that ultimate responsibility depends upon the victim to anticipate, to protect, and in this case to ultimately diversify one's investments to protect oneself. I remember getting angry recently because I lost money because I fraudulent disclosure by a mining company. The reality is that I knew the risks and simply some element of hope allowed me to take decisions I should not have made. Of course, that is not where I think my responsibility ends. I want to make the system better. I can start with lax regulation. The problem however is far more fundamental than that. The problem is education. People deal with such matters on a superficial level...if only we had better regulation...if only people were less selfish. The problem is more fundamental. The problem is not even education....its why people don't get an education. Its not even their value system. Its their theory of knowledge, and in some cases their sense of reality....or more correctly their ambivalent sense of reality. Clearly in this respect, I was not perfect because in the context of my burden of responsibilities that I have taken on in the last few years, I took my eye off my investments and lost money because of another's deception. Not just once, but because of systematic losses, it actually happened several times. You buy a company because it looks undervalued...as it turns out it can be undervalued for reasons...because there are things you don't know.
Now based on conversations...I do not expect everyone to grasp the nature of the problem. There are a great number of business people out there who think I'm deluded. When I engage with them I get all types of disparaging remarks, or arguments like they don't have time to deal with deluded people. In truth...yes my perception of truth...is that they have no time for ideas. They are ultimately moral sceptics. Ayn Rand, a novelist who defined a philosophy, which has greatly influenced mine, gave business people a great tribute. The problem was her accolade could be taken as a validation of business. I actually find the thinking of a great many business people as contemptible. I think society is the way it is because of business....not in spite of it. Why? Simply because business is too important to compromise on standards. We accept China might default, extort some manner of our 'liberal Western tradition', and we accept that as if it is ok. Our governments extort wealth, and we pretend that it is ok because some nominal good comes out of it.
Of course business people cannot be critiqued as a collective. They each have their own minds....but the reality is that few sparingly use it to the extent they should....and it shows in our social values. Now...I'm not saying the blame stops there. I am saying...if the world is to be saved...it starts with intellectuals and business people.
Business people can finance China...the bad aspect of China...or they can apply some standards and say we will act in principle. Too many businesses wait for a government action. They don't take a proactive position. One current issue is the illegal mining of tantalum in the Republic of Congo. The proceeds of that action are being used to finance the civil war which is allowing the rape, death and dispossession of the local population. This is occurring because business with low standards allow it to happen by not taking a proactive stand, or even profiting from it.
In history, we can see that change only happens when people see an opportunity to profit. i.e. The British offered slaves in the US land and freedom if they joined them in the civil war. More recently, I see that Gippsland Ltd has supported the end of illegal mining of tantalum in Africa. Is that because they believe in principles or because its in their interests? i.e. Of course any curtailment of mining in the Congo will increase demand and thus increase the appeal of Gippsland's project. But would the directors of that enterprise be so 'principled' if the shoe was on the other foot...if there protect was in the Congo. I wonder...actually I don't. I seldom see companies taking proactive decisions to see the 'broader common good' of moral standards. The problem is not with individual companies...the problem is they fail to seek some higher objective standard....even if their peak industry bodies were only to lobby voters or their governments.
We are not accustomed to seeing companies as moral agents. Given the appeal of money and their control over the great bulk of it; I think it is important we do. I am not suggesting that companies perform some noble gesture... actually I simply am encouraging them to act in their broader 'enlightened' self-interest. Higher objective standards are good for all concerned. They are like the tide which raises all boats. Not a good analogy since tides fall on the other side of the world...so you have to discard that analogy....i'll have to think of another. :)