Société Générale and Notions of Corporate Officer Responsibility

Imagine a major U.S. bank with a world-class equity derivatives trading practice; a "rogue" trader bypasses internal risk controls to place risky bets over the course of a few years.  At first, the rogue trader earns accolades as his risky bets pay off.  Over the course of a few months, the trader's fruits turn sour as his trades now earn the bank a $7.2 billion dollar loss. Aside from the direct and indirect economic loss, the bank becomes the subject of an international investigation, and becomes prey for takeover bids. The CEO of this bank, astonishingly, remains in his position while all this is ongoing.

This wouldnever happen in the U.S., of course.  Shareholders would clamor for action and the board of directors would determine accountability.  InFrance, however, things aredifferent.  In the recent scandal at Société Générale ("SG"), the CEO in question, Mr. Daniel Bouton, offered to resign- an offerunanimously rejectedby the bank's board.  In France, if a CEO is responsible for a scandal, it doesn't mean dismissal, it means the officer mustfix the mess they've made. Mr. Bouton is expected to remain CEO at least through SG's next board meeting in May - in one recent interview, Mr. Bouton announced that his resignation is "no longer on the table."  This is despite multiple warnings between 2006 and 2007 from Bank of France regulators that SG's risk controls, especially human-factor risk controls,were inadequate.  The French President, Mr. Nicolas Sarkozy, has called for Mr. Bouton's resignation, a desire that, some in France say, has actually helped Mr. Bouton, given Mr. Sarkozy's lack of popularity. 

Mr. Bouton and other managers may yet be held responsible for what has occured at SG.  The investigation of the behavior is not solely the domain of French officials.  In addition, published reports indicate thatthe SEC is involved.  Perhaps with an outside regulator looking at the facts, there is a greater likelihood that the entire truth will be uncovered and the responsible parties identified. 

Comments

[Elizabeth Nowicki]

Mr. Banaei, thank you for a thoughtful post on an important topic.
The one quibble I would have, however, is with your comment that "This would never happen in the U.S., of course. Shareholders would clamor for action and the board of directors would determine accountability."

That is not true. I can think of a range of US corporations which kept incumbent CEOs through a morass of troubles incurred on the watch of said CEO.

My experience has been that overseas firms are quicker to impose accountability, not slower or less likely. (Frank Guvurtz wrote a sort-of related piece titled "Disney in a Comparative Light.")

[B. Salman Banaei]

Ms. Nowicki, thanks for your comment. I made the comments you quoted somewhat sarcastically. This is not to say that the contrast I made is completely imaginary: contrast how CitiGroup and Merrill Lynch treated their similarly risk-embracing CEOs, for example, versus how M. Bouton has dodged any kind of meaningful censure hitherto. The perception of this difference in how M. Bouton was treated and how other countries' boards may have dealt with the issue is something the French are cognizant of as well. Best,

B. Salman Banaei