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Nab’s Rouge Trader

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    Abstract National Australia Bank’s (NAB) foreign currency options desk is located in Melbourne. Its senior staff members were found guilty of unprincipled practices causing $350 million in losses in one year, which led to the imprisonment of a few senior traders due to securities violations. Several executives, including the chief executive and chairman, lost their jobs as a result of events that led up to the crisis. Prior to this, junior trader Dennis Gentilin had been aware that his boss, Duffy, was altering transaction records. Gentilin reported Duffy’s unethical practices to Duffy’s boss, Gary Dillon, expecting the issue to be resolved.

    A day later, Duffy arranged a private meeting with Gentilin and told him, “[i]f you want to stay in the team, I demand loyalty and don’t want you going to Dillon about what’s happening in the team. ” Afterwards, Gentilin was transferred to NAB’s London office. Employees who interfered with Duffy’s plans were mocked into submission, according to Duffy’s admission in court. Despite recently being warned to stop unethical practices in NAB, Duffy, Dillon, and a few other senior traders continued to consider themselves as invincible and continued to abuse their power and position in the company.

    Karma soon struck back as Duffy and his senior rogue trading unit placed an unfortunate bet against the rising Australian dollar. Once Gentilin became aware of the escalating cover-ups and fake trades to compensate for the losses, he asked a junior trader in Duffy’s department in Melbourne, Vanessa McCallum, to disclose Duffy’s transactions to others. The results showed evidence of countless transaction record irregularities and over 800 breaches of the bank’s trading limits. Discussion

    Due to the loss of $350 million, including reputation damages, the decision that needs to be made is how NAB is going to correct the actions of its former seniors and how to prevent unethical practices from occurring in the future. The unethical practices and sources of power that Duffy and his rogue trading unit used included the uses of assertiveness, information control, coalition formation, persuasion, as well as the use of organizational politics as a tactic and Machiavellian values. Power overwhelmed Duffy and his unit to cause them to believe they had the power and freedom to continue with their practices.

    They based their values on Machiavelli: they had a high need for personal power and used deceitful ways to achieve their goals. Using organizational tactics, Duffy and a few other senior traders achieved their goals at the expense of the organization and of its employees. An example of this is the resulting loss of $350 million from the altering of transaction records in order to put more money in their pockets. These tactics decrease employee motivation, job satisfaction, commitment, task performance, and organizational citizenship, and overall decrease the organization’s functionality.

    According to Gentilin, Duffy used his assertive power to threaten Gentilin’s position in the company if he did not comply with Duffy’s plans. Duffy followed through with his threat and removed Gentilin from the Melbourne location and placed him in a London office. The second source of power Duffy used was his ability to control information. This included his capability of controlling situations and attitudes as well as behaviours of employees to his will. An example of this from the case is when Duffy and other seniors participated in altering transaction processes to benefit themselves.

    This information was evidently withheld from employees of NAB, which would cause employees to continue to commit to Duffy and the seniors based upon a trust relationship due to their position in the organization and expertise. Lastly, what strengthened Duffy’s position and power was his formation of a coalition of senior traders who supported his plans. When Gentilin initially confronted Duffy’s boss, Gary Dillon, with a complaint about Duffy’s organizational misconduct, the situation did not change because of Duffy’s position in the company as well as his coalition formed with Dillon and other seniors.

    The number of members and influence each member had made them “untouchable” as Gentilin explained. In addition, Duffy was also known to mock employees who did not submit to his goals until they complied. Some of the contingencies that strengthened Luke Duffy’s power at NAB’s foreign currency options desk is his substitutability and his nonsubstitutability. Substitutability refers to the power he possesses because of his expertise which cannot be easily replaced, so resources are scarce. His nonsubstitutability is his ability to control such resources because of the power he already holds.

    As mentioned previously, Duffy withholds information from employees in order to maintain his position. A second attribute of his contingencies include his centrality in the organization. This is his importance based on the degree of his position in relation to others. Centrality directly benefits organizations if employees see that their employer is actively a part of the company. His presence promotes performance and assumes the organization is running smoothly. Duffy and his rogue trading team had the power to make decisions freely and own their own. Employees had an understanding, like all, that their employer has discretion.

    This refers to the ability to make decisions responsibly and is the third contingency of power. Lastly, Duffy displayed visibility in the organization by continually asserting his position and role relative to others. He demanded loyalty and mocked, threatened, and looked down on anyone who opposed his goals and power. His presence and ability to do what he pleased in the organization made him more visible to others. All of these contingencies contribute to Luke Duffy’s overall power and influence in the National Australia Bank’s foreign currency options. Recommendations

    The recommendations I would make based on the issues present in the case that will help solve the problem of unethical practices in NAB include: setting up a unanimous hotline and for the board of directors to get more directly involved in company activities. By setting up a unanimous hotline, employees have the ability to discretely express their concerns to a higher authority, particularly the board of directors, so that a situation such as Gentilin’s will be avoided and the problem will be taken into more consideration and investigated further before the problem escalates.

    In addition to this, I would recommend that the board of directors pay more attention to the activities of the organization, especially major decisions such as trades going over limit. If board directors required authorization to allow trades before they occurred and had a more vital role in the company as well as established procedures, a crisis such as what occurred in this case could have been avoided.

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    Nab’s Rouge Trader. (2016, Oct 15). Retrieved from

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