On Tuesday 7 June 2016, a landmark judgment was issued and Société Générale was ordered to pay unfair dismissal award to his former employee, Jérôme Kerviel, who caused the French bank significant losses in trading.
The reason why this is a landmark judgment is that the Tribunal agreed with Mr. Kerviel’s argument that his risky trades were accepted, tolerated and even “tacitly” encouraged by his managers provided they were profitable. Basically, profits at all costs…..
This means that the Société Générale managers removed, or reduced the strength of, controls in purpose. This is what this sentence is highlighting and blaming the bank for.
Further, in 2014, the France’s Court de Cassation threw out a lower’s court order for Mr. Kerviel to fully compensate the bank for its losses. The Court de Cassation ruling reflects that clearly Mr. Kerviel was not alone on this, so all the additional parties involved (i.e.: his line managers, the internal auditors and compliance department) should be brought in front of Justice and compensate the bank and its shareholders.
This is the direction in which the investigation and assessment of many corporative scandals should be heading to: review the internal control framework and assess whether controls were removed, or their strength reduced, by senior management.
Internal auditors and compliance department failing to spot (or lacking the courage to raise) the lack or weaknesses of the controls, have to be evaluated for incompetence, or even misconduct.
I know of some companies where senior management wrongdoings (in the form of lack of controls and/or weakened controls) go ahead with the connivance of internal audit and compliance as well.
This is also good news for shareholders impacted by the senior management’s wrongdoings and incompetence.
Regulators are also benefited, as this judgment opens the scope of the fraud and corruption cases, due to lack of controls or control weaknesses, to senior management, in particular when the lack of controls has been due to a corporate decision.
Moreover, politicians should think twice who in the corporate world they deal with, as campaigning for good governance and dealing with senior executives linked directly or indirectly to fraud or corruption (or just conscious poor governance) may* be perceived as antagonistic.
So, again, vive la France and their Labour Tribunals. Hope the reasoning of this judgment spreads to other countries and Tribunals in and outside Europe.
*For the avoidance of doubt, “may” has an ironic meaning in the context of the sentence above.