INTERGRATED CASE STUDY

AN ANALYSIS: SOCIETE GENERALE (A) : JEROME KERVIEL CASE.

by

STANY TEMASANG MBU

B0394ABAB1111

Presented as part of the requirement for the award of MBA at University of Gloucestershire (UOG)

JULY 2013

SUPERVISOR : DR K.V SHENAI

An Analysis : Societe Generale A : Jerome Kerviel case

Contents page

Acknowledgements

Executive summary
1
Chapter one: Introduction
1.1 Background of the study
1.2 Terms of reference
1.3 Statement of the problem
1.4 Research aims and objectives
1.5 Structure of the rest of the report

Chapter two: Case brief 4

Chapter three: Problem statement and Analysis 8

3.1 Statement of the problems in the case.
3.2 Relevant literature review
3.3 Proposed plan of analysis
3.4 Sources of Data

Chapter four: Analysis and Findings 18

4.1 Assessment of current position (SWOT).
4.2 Analysis with application of the concepts.

Chapter five: Proposed solution to Problems 30

5.1 Integrated discussion of the analysis
5.2 Recommendations
5.3 Proposed plan of action(Gantt Chart)
5.4 Limitations to the study , scope for further research.

Chapter six: Application to another case 35-45

6.1 Description of the comparator company’s situation
6.2 testing the recommendations on the comparator company.

Appendices 46-48

References
Acknowledgement

I wish to extend my sincere Gratitude to God , for the strength he provided for me through out this study .
Profound appreciation is extended to my supervisor, Dr Vijay Shenai for his guidance , honest criticisms and
patience through out the case analysis period.

A lot of thanks to my family who supported me with their love and prayers all through this period . And finally ,
my sincere thanks to my classmates whose advice and help enabled me to understand and carry out my case
analysis well.
EXECUTIVE SUMMARY

BACKGROUND
The stock market was greatly affected by the wars. During the franco-prussian war the basic financing of the
market was done by use of regular debt reflected a situation of stock real activity. Then, during the First World
War, the stock market was financed by short term debt, with capital markets keeping their freedom, stock prices
could be adjusted. Further was the Second World War which saw the German invasion saw the market into short
term debt financing and increase in stock prices. These wars all had a heavy effect and had the tendency to mold
the characteristics of the world stock market as the franco-prussian cause durable high interest rates, the First
World War affected the amplitude of stock movements and the Second World War affected the market
components. Thus , there has always and had always been global events that restructured and altered the stock
market worldwide causing positive effects for some and doom for others. The main variable that was always
used to estimate these effects was the market price studies with the use of indexes each of which related to a
region or country share activities. Thus, there was always a macro cause for fluctuations and instability in the
stock market but it was not common place to see the actions of a single individual to significantly affect the stock
market especially when the medium used to impact these effects was one of the biggest, at the time, derivative
trading companies, in name of societe generale.
Jerome kerviel, former trader of the Societe Generale Company was a significant example of the impact one
person can have on the stock market. This middle office candidate, recruited after his internship on a thirteen
month contract by the Societe Generale, learned, practice and sprouted into one of the most powerful traders the
stock market has known under the emblem of the Societe Generale.
For every study to be carried out there must be an identified problem that has caused a significant anomaly on
either the economic, political and or social platform. Thus, in this case we will identify the major problem to be
that of corporate governance. By corporate governance we are referring to a very wide variety in definition. But
it generally tends to fall in two categories , the first being the behavioral pattern of the company in question in
terms of ; performance, efficiency , growth, financial structure and treatment of shareholders and stakeholders.
Then a second part that concerns itself with the normative framework in which the company operates. By this we
are referring to the rules and regulations that have to be followed and respected by each and every company in
compliance with the laid down judicial system, financial market laws and factor market rules. Under a narrow
definition, the main target will be the rules in the capital markets that regulate and govern equities and public
firms that have been listed on the stock market. In detail, this will imply the fundamental requirements by
companies that will permit them to be listed on the stock market, the internal dealings and disclosure of all
accounts. With a further pattern or manner well set on the protection of minority shareholder rights.
Looking at corporate governance on an investor or finance perspective, it can be defined as the manner by which
an investor will protect himself against exploitation by inside traders. Andrei Sheifer and Robert Vishny in their
seminal review defined corporate governance as the manners by which suppliers of funds to companies
(investors) protect themselves against exploitation and ensure a return on their investment. But on a broader
scale, corporate governance can be defined as the complex set of constraints that determine the profits that a firm
will make in the relations and dealings it carries out. That is the determination of return on investment and the
allocation of these returns to the stakeholders. Thus bringing out the major actors that characterize the concept of
corporate governance by liaison. Which are the shareholders, the corporation, the creditors, the financial markets,
employees and the society as a whole. In analyzing corporate governance in a cross economy perspective.
In this light we will thus be focusing the study on the loop holds that existed and prevailed within Societe
Generale thus creating avenues and ‘escapes’ that Jerome kerveil used in order to ferociously invest and
simultaneously taking positions on huge investment values without being immediately stopped thus pushing him
to the might and beyond his given limits that accounted for the massive loss the company had to declare on the
24 of January, 2008, to the amount of f €4.9billion over irregular positions he had taken that amounted to the
worth of €50 billion causing a massive drop in the global stock markets. Hence, the problem statement of this
case will be the impact of ignoring the fundamentals of corporate governance in the Societe Generale,
From this aforementioned problem we will be trying to bring out an analysis of the company’s state before ,
during and after the recruitment of their “star” or “cash machine” candidate, as Jerome kerveil was referred to
by his colleagues with a vivid overview of his transaction activities which will lead or give us a better
understanding of the concrete path he used and in line bring out the various loop holes that existed within the
company’s hierarchical and command structure so as to attempt a close explanation for the things he did and how
he did them . then we will further the study to define the limits to which this company was supposed to operate
and the various security alerts that existed but were overridden by both the executive medium and the agent
himself in order to explicitly define the disruption in the corporate governance medium existing at the time . The
study will then attempt to bring out the impact of this activities both on the company and the market altogether
so that proposed solutions can be rooted out from these that will or can be implemented in other companies so
that they do not get into such situations in the future and thus will uphold the foundational concept every
company works on so as to ensure sustainability and regularity within the company and market in which it exist.
Following the already mentioned overview of the aim of this study we will the proceed to an objective and
conceptual analysis of the problems in detail with the use of financial concepts like SWOT analysis that will help
bring out the strengths the company had, the weaknesses they were experiencing, the opportunities they had
within their grasp and the threats the faced within the company and the market. we will also make use of general
concepts like corporate governance that will help in showing where and how Jerome kerveil obtained the means
of over-riding laws and regulations put in place for the various fraudulent transactions he carried out, thus
helping us to identify the loop holes in the company’s corporate governance faults. Then, we will also be using
the concept of principal agency theory to show how most of the transactions Jerome kerveil did were affected out
of the grasp or knowledge of his superiors thus enhancing the problem at stack which evidently wasn’t just a
person problem but a company one as well.
With the use of these findings we will then be able to defend the allegations on the company’s situation and
bring out proposed solutions as to how this situation can be avoided in the future and how these solutions can be
implemented on other companies so that situations like this will not occur unalarmed or stopped.

CHAPTER ONE: INTRODUCTION

1.1 BACKGROUND OF THE CASE STUDY.
In line with the prime requirements of the Masters in Business Administration, this case study sets out to show
an elaborate understanding of the course idea. By course idea here we are referring to the reason and subject
focus of the Masters in Business Administration, which is the study and obtaining of vital managerial analytic
skills and application of fundamental business theories in real life situations so as to create or develop sustainable
solutions and or business patterns that businesses could apply or use in order to solve, create or maintain good
and sustainable business growth in the market. Therefore , this case study is a vivid analysis and application of
the concepts and ideas study throughout the course in order to produce a solution for the Societe Generale
problem and enable the businesses not to make the same mistakes by applying the suggested solutions and or
patterns of thought obtained as a result of the critical analysis of this situation at hand., with a realistic approach
made to it by applying relevant theories and statistical analysis validating it but not making it finite due to the
changing patterns of the business world.
1.2 TERMS OF REFERENCE
With respect to this study, all terms and references related to the case study have been a deduction of the original
document writes up produced by the Harvard University publication. All information on the background goes up
to the creation of the company and data information is within the limits of the years 2010 to the year 2013.
1.3 PROBLEM STATEMENT
Evidence from the extract show the heavy loss Societe Generale inquired as a result of ignoring fundamental
bureaucracy format rules of operation that then saw the dynamic, though reckless trader Jerome Kerviel,
exploiting this loop holes within the system to amass wealth for the company under the supervision of very able
and qualified superiors. In this light we can deduce some questions as below; Problem statement here to be “the
inefficiency in corporate governance that instigated the heavy loss incurred by Societe Generale, under the
actions of Jerome kerviel”.
1.3 AIM OF THIS ANALYSIS AND OBJECTIVES
The aim of this case research will be to evaluate the actions of the Societe Generale “rogue” trader in the existing
economic, political, social and corporate atmosphere existing at the time in order to bring out the faults and
reasons as to why he was able to do what he did for a long time without being intercepted or stopped. The case
study will also try to bring out the weaknesses in every section of the company’s activities that were supposed to
detect and restrict reckless trading activities. Then will we focus on relating the corporate character to the
individual’s character so as to root it to the evidence uncovered about the trader’s reckless activities to show the
impact of corporate culture on corporate responsibility. The objective here will be to make an objective analysis
of the general situation and extract potential solutions that will be corporate oriented and not individual judgment
focused.

1.4 STRUCTURE OF THE CASE STUDY

The case study will present a straight forward and précised structure with an executive summary of the case and
the first chapter dedicated to an introduction of the case and the highlighted problems. Then will follow a case
brief in the second chapter that will incorporate the research problem statement, aim of the analysis and the
structure of the case study. Then, the third chapter will be the statement of the case problem and the strategy of
the analysis to be carried out on the case. The fourth chapter will be an analysis of the various findings from the
analysis of the problem statement. Chapter five will carry the proposed solutions to the problem and chapter six
will be a suggested application of the solutions to another case.
CHAPTER TWO: CASE BRIEF

2.1 INTRODUCTION
The study is a complex one that seeks not to carry a judgment but to bring out faults on two main parties to the
situation so as to make an objective conclusion and propose sustainable solutions that will enhance any
company’s growth acting in this sector of business. Therefore, we will be giving a background on both the
company and their employee so that with this, a genesis, act and effect medium can be established so that the
analysis will be of an objective point of view.
Societe Generale is a French bank that has been existing in Europe since the beginning of the twentieth century,
precisely on the 4th of May 1864 by a decree signed by Napoleon the 3rd and obtained a considerable strength in
position just before the First World War. Thus, this bank has had the opportunity of experiencing the various
economic and financial variability’s that all European countries faced during this period. This foremost French
bank had its ambitions reflected in its article of association when it was founded as a limited company, of rare
nature at the time. It had a very large start of capital of one hundred and twenty million francs with an
Actual pay of sixty million francs. Its name, Societe Generale was a reflection of its aims and targets, which was
to provide trade and industrial development in France. This was to meet the new demands of the economic
changes that had begun to sprout by tapping general public deposits, provide the means for the creation of new
companies and obtain stakes in other companies as well as providing them with loans for their business growth
and ventures. Over a period of one hundred and forty years, Societe Generale grew and adapted to the changing
Patterns and challenges that were set by each and every era, within France and abroad, especially with the
unification of the European market as one. This company is one of the leading companies in the provision of
financial services in the euro zone with a market capitalization figure of about 46.2 billion as of December 31st,
2007. With a very diverse employee constitute having about one hundred and fifty-one thousand people
worldwide from over one hundred and nineteen nationalities and eighty-two countries which ha seen a major
growth enhancement factor the group. Rated on the 15th of February, 2008 by Moody’s as an “Aa2” company
and by
Fitch and standard and Poor’s as an “AA” company Societe Generale has sustained a reputation and growth
within the global economy and the euro zone.
The pattern of growth of the Societe Generale was evidence after the second world war recovery where the
growth of home production opened up new markets for the banking sector. Thus , the bank tend to a more
precised form of banking of a more specialized nature and began to expand territorially into countries such as
Italy, and Mexico in pursuit of the emerging new markets. This the led to the French government giving up its
interest in the company and hence saw the company quotes in the Paris Bourse exchange on the 29th of July,
1987. Then, in 1997, the Societe Generale acquired the Credit du Nord that increased its retail opportunities and
later on the further expanded into euro and beyond with focus on its corporate and investment banking
department under the reign of Daniel Bouton who joined the company in 1991 taking over from Marc Vincent,
all Graduates of the Institut d’etude Politiques and ENA. This bank as aforementioned focused on the operation
of equities, mergers fixed income, brokerages on organized futures and acquisitions.

With respect to its structure, Societe Generale has 3 main business sectors, which are retail banking and financial
services, Global investment management and services, corporate and investment banking. Its retail and financial
service division has been present in thirty seven countries with major positioning in central and Eastern Europe,
Africa and French overseas territories. It has about two thousand seven hundred and ninety-five branches and
forty thousand employee who provide services to about 8.8 million customers and is in control of about seven
hundred and thirty thousand businesses. Its Global investment management and service has 5 main business line
which are asset management, private banking, newedge, security services and online banking. Its corporate and
investment banking line was involved in equities and derivatives, which incorporated fixed income, currency,
capital raising and financing and commodities. With and asset holding of three hundred and thirty-six billion
under management worldwide. The company has a well spelled out structure with the Global equities and
derivatives department and the fixed income, currency and commodities department being involved in the
research , engineering, sales and trading. The main responsibilities of the trading team is to price and execute
transactions on behalf of the customers or the bank. This department is also in-charge of maintaining and
updating current economic trends and financial market condition changes and variations. This gives them the
edge in anticipation of changing trends in order to react, as well as the ability of this department to implement
profitable trading strategies on behalf of their clients and employers. This unique skill set of people who run the
daily activities of this department have been the driving force for the success of the Societe Generale with the
utilization of derivatives that provide payoffs on the value of assets. The main types of derivatives that were dealt
with here were the options, forwards and swaps. These derivatives were meant to be hedging instruments but
tend to be used as speculative trading strategies by traders who wish to take advantage of the leverage potential.
The global equities and derivatives solutions focused on arbitrage which is an idea that consists of selling
undervalued products and or buying them. Index arbitrage was what the global equities and derivatives
department of the Societe Generale focused on by taking advantage of the differences in prices of stock, equity
borrowing and lending as well as risk arbitrage and fund arbitrage. Derivative trading accounted. A Merrill
Lynch analyst argued that the Societe Generale possessed probably the best quantitative and qualitative equity
derivatives in the world which by estimates from analyst accounted for 20 percent of the banks total profits in
2007. But the strength of the Societe Generale was implanted worldwide when it undertook the investment
in information technology infrastructure and human capital. Even though, since the 1980s the bank had
pioneered complex products and a central information technology system which allowed it to gain more trading
opportunities and gave them a comparative efficiency advantage over its competitors . The growth in strength of
Societe Generale can also be accounted for by the banks promotion of risky investment with its own funds and
this practice dates far back to when
the “soldier monks” as the new recruit graduates , from the engineering schools where recruited and where given
the resources to bet their risk and manage it through complex computer models for which the took absolute pride
in developing and enhancing.
Now with regards to Jerome kerviel, he was and average school student who got entrance specially into the the
Societe Generale after doing an internship with the company. Then as a middle office staff he showed a lot of
promise and engagement as such he was given an forward push . Initially contracted for a 32,000 euro pay
package a year. two years later his contraction , he earned a promotion on the basis of his efficiency and gained
access to the trading floor where he learned and went forth to design complex derivative strategies and finally
specialized in turbo warrants stock options which are a complex type of derivative with a knock-out barrier
feature. Despite his unusual career path from middle to front office in the company , reasons for this were clearly
on efficiency basis and potential fully exploited. As, unlike other
paths in the company that started with the recruitment of the traders from the big French schools
like Polytechnique and central, HEC, ESSEc and ENSAE9Ecole Nationale de la Statistique et de
l’Administration Economique) he , Jerome kerviel had eclipsed these societal segregation and
showed proof of the potential of hard work and determination of an individual to achieve
business goals and take up challenges that were generally believed to be meant for the exceptional students from
the prestigious schools. What made his strength was a combination of
his ability to speculate large directional positions as was evidenced in 25 when he started with a
10million short selling position in Allianz one of the world’s biggest insurance companies.
Though out of his initial scope of work, this turned out to coincide with the terrorist attacks in
London thus making him rips huge profits. Then in 206, he increased his position to about
135million with an exposure of over 5 million euros in stocks in Allianz and two othe German
based companies and taking positions in the Dax index . Then, in 2007, he took intriguing 850
million euro short positions in the DAX which grew at a geometrical rate from 850 million to
2.6 billion to later rise again to 5.6 billion and peak at over 30 billion all in the space of three
months. Not forgetting the different directional positions he took on individual stocks worth 350
million euros. Relating to the company, Jerome kerviel reported earnings of 25 million on
proprietary trading in 2007, which was far above the expected 3 million he generated via his
arbitrage on turbo warrants . His trading’s alone accounted for 59percent of the trading desk
income in 2007. He was not an extravagant spender and despite his results barley made 48,000
euros in the year as salary with a very modest 60,000 euros as bonus on trading’s which was
evidently unfair compared to his colleagues who got up to a million. Being anything but human in
the first place this pushed him to work harder and take more risk in order to make a point and get ranked and
valued as worthy as his colleagues who were still despite his output administratively
and structurally classed above him due to their academic background source which from this
study shows to be of no strict and finite measure for efficiency and output potential despite his
short comings on the patterns he used to attain the goals he attained. This will the bring us to ask
the fundamental question as to what was the real origin of the Societe Generale rumble as will be
seen in the genesis of the problem.
CHAPTER THREE

3.1 STATEMENT OF PROBLEMS IN THE CASE

As aforementioned and backed by the evidence in the case, we are dealing with two parties of
significant concern that had a significant role in the events that saw the Societe Generale incure
heavy losses. The corporation itself (Societe Generale and their “star” trader Jerome Kerviel.
Thus, the problem statement will have o be a cut off between both parties, the company and the
trader . The reason for this is that, being only a trader within the company, whose progression
path was unusual to that which is normally followed by the new recruits and already existing
traders, Jerome Kerviel was able to single handedly instigated and led the company into a slump
despite the fact that he was meant to be under supervision . On the other hand, the company
structure and hierarchical definition played a strategic role in the manner by which Jerome
Kerviel was able to conceal his transactions and hide his activities. With an extended thought on
the fact that he might , speculatively, have been covered or protected as well, owing to the mass
of wealth he amassed for the company. From this we can then proceed to pointing out the key
problems of this study , which are;
Research questions
- What internal reasons put the Societe Generale in this situation?
- What external factors influence the loss of the Societe Generale?
- What role was played by the management in instigating this outcome?
- What role did the employee have in the loss financial situation of the Societe Generale?
- What were the General effects of the internal and external influence on the financial loss of the Societe
Generale?
- What strategy will be recommended to solve the situation in which the Societe Generale found itself?
 3.2 RELEVANT LITERATURE REVIEW

Research conceptual framework

Corporate culture and

Corporate Governance ethics Banking Risk Derivatives

Figure 3.2 : Conceptual framework; prepared by ; Author

3.2.1 CORPORATE GOVERNANCE

When we refer to the ideology of corporate governance we are trying to enhance a clear
understanding of the specific roles of the board of directors and management are mandatorily
due as well as the shareholders of an organization and its employees. This will include their
respective relationship with each other and with stakeholders. Thus revealing some kind of link
relationship as seen below;

Shareholders

Employees
Board of directors and Community
management

Government

Corporate governace relationship between main actors

Thus, form the diagram above , we can see a vivid definition of the relationship that must exist
primarily , with the board of directors and the other acting denominations of the economy in
which the corporation operates . from this we can the move on to deducing this respective
relationships which are as follow:
In the first instance , there exist a very important relationship between the board of directors
and or management with the company’s shareholders. This relationship is characterized by
transparency and engagement. By transparency and engagement here we mean that the board of
directors have a duty to the shareholders to provide valid , up to date and correct detailed
information of all company activities including the revenues and expenses. And by engagement
here the board of directors owe it as a duty to the shareholders to be committed and serious in
their duties and role so as to ensure effectiveness and full optimization of performance. This
relationship is important because , the shareholders are investors and need return on their
investments and need to be sure of long term growth and sustainability. This can only be
harmonized if the role of the board of directors is effectively respected and operated by qualified
and diligent chief executive officer and senior management .
The next relationship the board of directors has to maintain is that with the employees. This
relationship is characterized by fairness. By fairness we are referring to the way the management
treat the employees . This has a whole lot to influence the productivity of the company and instill
a corporate culture along the line . Therefore, if the board of directors and management trea their
employees appropriately with the use of good human resource policies, this will enhance
productivity by boosting the employees morals and instigating a full engagement and
commitment spirit. On the other hand if the board of directors and management tend to ignore
the relevance and importance of the employees and focus on goal achievement , then there tends
to be discontent and even the instigation of personal achievement that destroy the unanimity
within the company and instill a fierce competitive spirit that will push some employees into
dishonest undertakings and activities so as to ensure their stay within the company as could be
assumed in the case of Jerome Kerviel the Societe Generale trader.
Furthermore , there existence of good citizenship of the corporation within the community is a
prime characteristic the board of directors and management have to maintain with the
community within which it operates. By good citizenship here will be referring to the company’s
commitment and participation in the community development and growth through the
construction of roads for example and development of aerial structures that will help the
community . There is also the aspect of respect of the community environment for corporations
that may have production centers within the heart of a community . The good citizenship practice
here will be to ensure appropriate disposal of waste and reduction in nuisance within the
community in the course of production. Thus maintaining a convenient good citizenship image
is a very fundamental relationship the board of directors have to maintain with the community.

Again, the next relationship the board of directors and management have to maintain is that with
the government. This relationship is sole fundamental to the existence of the company as a
whole because it has the idea of maintain and complying with all the laws and corporate
regulations for operation set by the legal and administrative committee of the community. This
here will be referring to the regulatory laws set down to ensure that the company is in conformity
before they are given permission to operate as well as the regulations the company will have to
maintain in order to be in line with the requirements of the government. Thus, making it a
fundamental relationship the board of directors will have to maintain with the government.

From the above characteristic relationship that are fundamentally binding to the company’s
success , we will observe that the board of directors stands out as central revolving focus
bringing us to the key roles of the board of directors and management.

Firstly, the board of directors have as prime function to oversee the daily affairs of the company
on behalf of the shareholders. Thus, they have the responsibility of dealing with arising situations
and providing immediate action through decision making and delegation of the senior
management and the chief executive officer. This oversight is carried out by the board of
directors in various ways for example , the board of directors have to supervise and oversee plans
of the senior management on development and succession. They should also review and monitor
the implementation of the corporate strategy, plans and budget for the business semesters,
checking the clarity of financial statements , approving important corporate actions, and
overseeing legal and ethical compliance so as to ensure that the company is in line with its
specific requirements

Again, the board of directors has the responsibility of evaluating and compensating every well
qualified and ethical chief executive officer. Thus the are the evaluation committee for every
chief executive officer and it should not be left out that the board of directors is responsible for
the appointment and approval of senior management teams.

Furthermore, the board of directors are the source of the company’s moral culture as should be
evidenced by every board members characteristics which should not be of personal interest but
should be characterized by integrity, respect and sound judgment , and should represent the
interest of the shareholders.

The next role of the board of directors is to be able to maintain a constructive atmosphere by the
in depth investigation of each and every prime activity and being the carriers of the shareholders
interest, the have to be in control of the integrity and diligence of the corporate management
and be in possession of honest and straight forward answers to arising questions that may have a
detrimental effect on the corporation .

More so , the variety in mix of the board of director is important for the smooth running and
oversight of the company’s activities. By this we mean that the board of directors should be made
up of members with a variety of skill and expertise . This will enable a better understanding of
the company’s situation in every aspect and make managerial probing much more effective as no
stone will be left unturned and this will avoid mistakes and cover up situations as was the case
with the concealments Jerome Kerviel was able to make in the Societe Generale .

Also, the board of directors must be up to date with every aspect relating to the company.
whatever the impact on the economy the company will be ready and able to react . In order for the
board of directors to do this the must be abreast with the company’s operations and relevant
developments through managerial briefings, reviewing industrial journals press and analyst
reports . Thus, the boards of directors have as role the inability to be lazy over current
events if not they ,may miss out on changing patterns and will not be able to evaluate the
managerial responsiveness with concrete evidence. This knowledge will also enable the board of
directors to provide advice to the management .

From the board of directors we move to the chief executive officers and management whose roles
are as seen below;

Firstly, the chief executive officer and management are in charge for the day to day running of
the business. Thus they must have a strict understanding of the company’s product, the earnings
of the company , and are in charge of the carrying out the corporations strategic objectives and
planned annual budget which the board of directors have reviewed.

Then, the chief executive officer and management are in charge of the strategic planning. This is
because being in the field they should have a better understanding of all the opportunities at their
grasp so the have the duty of developing strategic plans and designs so as to create long term
value for the corporation.

Furthermore , the chief executive officer and management are bound with the roles of selecting
qualified staff and establishing an effective organizational structural framework . By the
selection of qualified staff, here we are referring to the role of the management being responsible
for the thorough evaluation and choosing of the administrative and duty staff the company
employs so that the human capital resource would be exploited to its full capacity and thus
enhance company growth and efficiency.

More so, the chief executive officer and the management have as role the provision of accurate
and clear information on the company’s financial reports. This role is important because it will
ensure transparency in the company’s transactions and activities and increase their credibility insight of the board
of directors. This will also go a long way in preventing concealment of
information by functional employees and avoiding irregularities as was seen in the case of
Jerome kerviel of the Societe Generale who was able to conceal information concerning his
transactions since due to the inefficient screening of the chief executive officer and the
management at the time thus leading to the crushing loss the company experienced.

Then in the train of the corporate governance structure will be highlighted the role of the
operational and functional staff as below;

Firstly, the operational and functional have as prime duty to follow the rules set by the chief
executive officer and the management . This is to instill a respect of a chain of command and
ensure the full respect of the company rules so as to build a solid, transparent and in line create a
responsible company culture that will enhance performance and ensure sustainability.

Again , the operational and functional staff have a role to inform and signal the management on
irregularities and glitches that will be noticed within the operational and functional processes .
This is to ensure that the company does not fall into a situation where they will have to
experience unforeseen disruptions in the production process and enhance transparency in the
company. A good example of this was the Societe Generale inside notifications of the
irregularities of Jerome kerviel’s transaction methods and loop holes that where not consistent
with the normal trading rules that governed the warrant derivative transactions even though in
this case, this warnings and internal alerts were given a deaf ear as the management were content
with the revenue their star trader was generating for them.

These concept is a fundamental pillar of the case discussion because it is one of the basic roots of
the problem that the Societe Generale experienced and that led the company to have to incur
massive losses in 2007 due to the rogue trading activities of Jerome Kerviel thus creating this
dilemma as to who is to blame on the events despite the pointing fingers already thrown at the
trader.
3.2.2 Corporate ethics and culture

As defined by the Institute of Business Ethics as an application of values that are socially in
regulation with the society laws into a business .When we talk of business ethics , we are
referring to the principles and standards that define what is an acceptable way of behavior within
a company. Many customers belief that the success of a company should not be focused only on
the profits they make but should be a consideration of the company’s social impact with respect
to its responsibilities. The basic ethical and social responsibilities concerned with a company
have been codified in the laws of every society to associate with the society standards and
values. But in this line, it’s not all actions that are defined by society as unethical that tend to be
necessarily illegal. But then, the fundamental problems that arise within a company with regards
to the ethical values are mainly as a result of conflict in in interest, communication, fairness and
business association. Three of the aforementioned could be easily given as reason for the manner
with which Jerome Kerviel had to behave , as his ambitions and targets were a primordial factor
to his work, the company’s unfairness with regard to the rewarding of the traders as he got less
than what other trader actually earned as bonus despite his achievements and the fact that he was
dishonest by concealing the irregularities of his transactions.

By concept . the Ethics Resource Centre in the united states of America carried a survey and
tried making appropriate definition surveys on the cultural ethic situations of many companies , in an attempt to
determine the ways in which the management, supervisors and coworkers are
expected to behave within the company. They were able to stratify eighteen elements that are
fundamental to this concept that can be seen in the illustration below:

-Communication of the importance of ethics

-Setting a good example for ethical conduct

-Respecting all commitments and keeping promises

-Transparency in the information related to the company

TOP
MANAGEMENT

-Communication of the importance of ethics

MIDDLE -Setting a good example of conduct

MANAGEMENT
-Respecting commitments and keeping promises

-The employees see the middle managers as responsible for any violations in
ethical values
 - Communication of the importance of ethics
SUPERVISORS
- Setting a good example of ethical conduct

- Respecting promises and keeping commitments

- Employees perception is the support of the employees in following

organization’s standard

COWORKERS - Make appropriate consideration in making decisions

- Setting a good example of ethical conduct

- Supporting the other employees in maintaining the organizational

standards

- The employees belief that the non-managers are responsible for any
ethical violations

Employee frame of mind or belief with respect to the way the top management, the middle management,
the supervisors and the coworkers are expected to conduct themselves and their responsibilities.

From the above table we can observe a trend pattern in the manner by which the employee in the company
conceptualizes and perceives the behavior of each and every section of operation
within the company. This attitude was proven by the Ethics Resource Centre survey to produce
significant impact of the working atmosphere and environment and went a long way in definition
the character and attitude of the workers within the company and setting the limits of actions
that could jeopardize the company. This is seen in the below;
- There was an observable reduction of any misconduct within the company

- There was an observable reduction in specific misconduct actions

- There was an increase in the reports on misconduct within the medium

- There was a subsequent increase in managerial response to reports on misconduct

- There was a general increase in the satisfaction of the organization

- There was a direct increase in the instant respond to the situations that could instigate
misconduct
 - There was a significant decrease in the pressure that could jeopardize the ethical
standards

Another of such surveys by the ethics Resource Centre in the United States of America

revealed the following information below that shows the percentile of employees who

considered that the violations to the corporate ethical structure were enacted by their

coworkers.

3.2.3 BANKING RISK

By the term risk we are referring to the uncertainties which drastically affect profits of a
company. This concept is very significant as well with banks. Some of the major types of risk
that a bank incurs ;
-Credit risk
-Interest rate risk
-Foreign exchange risk
-Liquidity risk
-Then we have other types of risk that affect the bank from an external point of view and are term
-Default risk and they include;
-Operational risk
-Country risk
-Settlement risk
-Performance risk
-Market risk just to name a few.
These aforementioned risk types have a great impact on the activities of a bank as they turn to
determine the bank’s profitability and performance and in our case two of these risk were
fundamental in the resulting losses the Societe Generale incurred due to the trading activities of
Jerome Kerviel. These are interest rate risks that affect the value of stocks in the stock market as it
has a direct correlation with the fluctuations in the economy. Then the foreign exchange risk as
well was another risk factor that influenced the outcome of the traders activities.

3.2.4 DERIVATIVES
By derivative we are referring to financial investment tools which are of value expiration I and
are determined by the price of its underlying financial assets at the expiration time. These
derivative products are the sole aspects of risk that occurs in the market and are controlled by
specific tools that operate in this financial market and are source of the transactions. We are
referring here to options, futures, forwards. Each of these derivatives carry a risk which have to
be covered or hedged for . These derivatives express a complexity that depend on the purpose.

3.3 PROPOSED PLAN OF ANALYSIS

A proposed plan for this case study will be as below:

-First we will produce a background of the study. In this section we will be throwing light on the
company’s activities as a whole and making specifications on the trading activities of the trader
Jerome Kerviel and the various company structural and hierarchical governance that enabled him
to access a lot of the information that gave him the tools to carry on his fraudulent activities.
-Then we will be making an in depth analysis of the company’s corporate governance and culture .
in this section we will be making and analysis on the company’s internal controls, neglect or
cover up of activity facts, faults in supervision and the concept of risk within the company.
-Analysis of Jerome Kerviels trading activities. In this section we will be looking at the manner
with which Kerviel evolved and concealed his fraudulent activities in light with the company
investigations and external alerts.
-Then an analysis of the financial situation of the company. Here we will be looking at the
financial activities before during and after the heavy loss the Societe Generale incurred as a result
of the activities of Jerome kerviel .
-In this next section we will be providing possible recommendations that will help avoid the re-
occurrence of this sort of situation happening in the company .
Then in this final section we will be making an application of the recommendations we have
made to another company in the same business sector of the financial market . This section will
be concerned with making a comparism of the Societe Generale and another company of the same
nature and apply the recommendations made.

3.4 REVIEW OF JOURNALS AND ARTICLES RELATED TO THIS CASE

In the telegraph of 2008 , Dey in his article wrote of the transactions on the derivatives as not being of implied
complexity . he specified that Jerome Kerviel could just identify the inverse directions of bank portfolio
movement in the market and bet on. Identifying that the main assumption of Jerome’s trading was to minimize
risk and trade in index futures. Pointing out that he was an expert in what he (Jerome Kerviel) did but was taking
a lot of risk and making a vast diversion from his initial task quoting that it looked like he was forgetting he was
becoming another Nick Leeson whose lone actions cost the closing of the untied kingdoms Baring bank. Jerome
started losing money and had to conceal his activities with the prospects of making up the losses but at some
point it was to late so it just had to be exposed.
In another article by Clark in 2011 wrote of the investments banks have made and the respective controls put in
place and existing to detect fraudulent trades. He identified that most traders have a limit on the access to money
the can have and clients as well and all positions taken by the traders are looked into in detail by information
technology software and risk management meeting on a daily basis. Jerome Kerviel had expertise in back office
operations thus enabling him by pass five different levels of control and had bet more than the firms’ value on
futures owing to his vast knowledge on the system.
In another article by Pratley in 2008 he admits that due to the fractional profits made from huge sums of money
but keeping massive sums like over thirty seven billion pounds was a massive risk placed under the control of
just a junior trader. He mentions that the risk management department was supposed to inquire profoundly as to
this situation as it already spilled out as irregular and dangerous to an uncontainable level. He puts significant
doubt on the claimed inquiries making mention of the fact that the only reason given as to the bypass of kerviel
was the fact that he used non cash movement transactions.
CHAPTER FOUR

4.0 ANALYSIS AND FINDINGS

4.1 AN ASSESSMENT OF THE CURRENT POSITION USING ‘SWOT’

In a general point of view the idea behind a SWOT analysis is to identify the competitive position or advantage
and resources available to a company that will enable this company to develop sustainable strategies that will
ensure sustainability and efficiency. The term SWOT is an abbreviation for the concept that seeks to bring out
the internal and external factors that affect the company. The internal factors will include the strengths and
weaknesses. Meanwhile, the external factors will include the opportunities and threats given the name SWOT.
With regards to the internal factors that affected Societe Genarale’s activities, we have two sides of a coin . the
first which is the strengths of the company in the market and the other includes the weaknesses of the company.
With regards to the internal controls we will be talking about the strengths and weaknesses as below;

4.1.2 STREGNTHS

Some of the strengths of the Societe Generale that gave it a comparative advantage both as a bank and as a stock
exchange investment company are as follow; Firstly, longevity. By longevity here, Societe Generale is one of the
oldest banks and institutions in Europe , dating back into the pre-war and war eras , this company has gained
time experience by adapting to the changing patterns of the economy over the years and molded its existing
situation into what it had to experience in the past . This is evidenced by its move from its status of a private
bank at its point of creation in 1864 to later on gain the status of an investment bank. Its existence for such a long
period was able to instill trust to its customers and being previously shared by the French government it had a lot
of security. Thus, creating a conducive atmosphere of customer trust and loyalty that enable the bank to grow
into the giant it is . Furthermore, this banks longevity in existence gives it a comparative advantage in the
knowledge of the market and patterns of trade that exist making it a significant expert in the market of trading
and portfolio investment. This making this company a strength to reckon with and giving it a comparative
advantage over its competitors.
Again, the Societe Generale possesses another strength in the quality of its staff . Most of the executive and staff
that were recruited by the company were from the big French engineering schools so there has been a very high
standard in the quality of staff that are recruited into the company. Being prepared for their entries into this big
institutions and graduating with high quality and potential, the Societe Generale has been equipped with a very
strong work force that give it a competitive advantage over its competitors as this staff are groomed into
efficiency from an already high standard.
Furthermore , the Societe Generale gained a lot of strength in expansion beyond the French territorial borders
and out of Europe. This is evidenced by its presence in thirty seven countries, in Europe, the Mediterranean
basin, Africa and French overseas territories. Having a network of two thousand seven hundred and ninety five
branches worldwide and four thousand employees. Being able to make market penetration very early it was able
to gain a considerable customer base in the market faster than its competitors there by making it a forward to its
competitors and thus explaining its solidification as a giant in the banking sector.

Moreso, the societe generale which started on the basis of private banking evolved into an investment bank and
has many other activities it carries out . this give the company a comparative advantage with regards to the
diversity in products they provide to their customers ranging from private banking to asset management , security
services, multi-asset brokerageand online banking. This give the customers and investors a variety of methods to
invest . This gives the company a comparative advantage over its competitors because being able to run a
multiple of investments schemes increased the customer base as the customers can bank, trade, and invest all
with the same company.
Again , another strength the Societe Generale was able to obtain was the efficient ability to process its trading
activities . This was enforced when the company decide to invest in information technology and human
resources. As this enable the bank to pioneer complex derivative products and in line use their soldier monks
(new recruits) to enhance and develop new and more complex trading software and systems that gave the bank
an upper hand in handling the trade with much more security. Thus, enhancing a high degree of trust in itself
within the arket hence an increase in its customer and investment base.

4.1.3 WEAKNESSES

One of the first weakness we will be looking at in this case will be directed to the company build up . by this I
am referring to the consideration given to employees and the reward of merit within the company. There was a
clear and significant inequality in reward that existed within the company with regards to the way the employees
were considered. Jerome Kerviel had proven himself to be resourceful and highly profitable in the short time he
had started working but since he was not a graduate of what they referred to as “grandes ecole” he was not rated
as his colleagues . this is evidenced by the bonuses he received which was worth sixty thousand pounds which
was far below consideration as to what his trading floor colleagues received( one million pounds exactly). This
made Jerome Kerviel to strive for more and like any human , try to be recognized on basis of his potential and
not his background so pushing him to yearn for more and thus into the abyss of faults that saw the company loss
huge sums of money.
Furthermore, the decentralized risk management system of the bank was another weakness. This is because in
2008 all desk managers were responsible for updates of the risk situation of the trades that went through their
desk. Hence , this prompted leniency in most of the checks that were fundamental and could have avoided the
situation. Evidence from the instance when kerviel boosted to his direct supervisor about his success in the
Allianz trade success due to the London bombing and all the supervisor responded was that he could have made
huge losses as well and not making an extra effort on cautioning against enormous risk taking so that the trader
would not be temped to attempt worst in the future for risk of failure. Thus, this created a weakness as the
Jerome Kerviel took advantage of this leniency and went further to do more and more in order to get more .
Another weakness linked to the bank was that of absolute trust. The fact that Jerome Kerviel’s supervisor
believed all he said when questions were asked by mere respond of the latter was faulty. This is because, if
everything was considered in that manner a lot of falsification will be introduced because there is the knowledge
that there are no checks that will be carried out to confirm the information given . Cordelle , Jerome Kerviel’s
supervisor , management style was solely of the basis of trust and so he just considered what Kerviel told him to
be valid and true , plus he had started the pursuit of different priorities and thus gave less concentration to the
traders activities within the company, hence paving the way to Jerome Kerviel’s rise .
4.1.4 OPPORTUNITIES

With respect to the opportunities adhering to the Societe Generale, we will attempt to look at this in a two
dimensional perspective.
Firstly, the opportunities that concerned the company alone; one of these opportunities was the new avenues of
more income generation that was created by the use of sophisticated and complex trading products and software.
This created and opportunity because , with this products, which the traders had a full mastery of , they were able
to invest and make more profits from the investments the made before the competitors could get a mastery of the
product and attempt using it. This gave the Societe Generale investment an upper hand in the trading markets
relative to its competitors.
Furthermore, the advent of the profitability that could be generated by trading in equities that had been affected
by the subprime crisis gave the bank new avenues for investment thus reason for the diversion in focus Cordelle
had during the second half of 2007.
Then, the opportunities that were at the grasp of the traders were;
Firstly, the wide spread of the banks activities gave its traders a very vast range of different markets they could
invest with and in. this is seen as Jerome Kerviel invested in German and stock market and other indexes of
European base. This opportunities in question refer to the ease and ability of the banks traders to gain access to
stocks in different stock markets, to invest in different types of stocks and use the resources available with ease ,
though under supervision. Thus, Jerome Kerviel took short positions in the DAX futures to the amount of eight
hundred and fifty million pounds in January 2007.

4.1.5 THREATS

With regards to the threats the company faced, the first and one of the most important threat was that of the
volatility of the market. Trading in equities and derivatives is known to be of high risk subject to the variability
in value they fall under . owing to the fact that these investment products are affected by market and economic
variants like interest rates, social unrest to name a few, they are subject to serious volatility index , hence the
reason for hedging. Thus, the Societe Generale being one of the main investors in these products, was subject to
these threats as well and this was fully evidenced by the crash of Jerome Kerviels positions that led to the 4.9
billion loss the company incurred in its 2007 net income announcements.
Again, the whole idea of trading in derivative is to speculate with less risk . This is a threat because there is a
high degree of uncertainty in the outcomes as you can never be sure that there will be a return to the investment
made. But , on the other hand if the speculations turn out to be good then huge amounts of money will be ripped
from the investment as is evidenced by the short-selling positions Jerome Kerviel took in Allianz, which, saw
him rip huge turn over from this position he took with a major credit to the London bombing that had a negative
impact on the stocks of the company as the stock insures price was greatly affected.
Furthermore, another threat the Societe Generale faces is that of competitors. Examples of other banks that deal
in derivative investments are the Barclays bank of the United Kingdom. these bank poses a significant threat to
the Societe Generale as they carry out they operate in the same investment fields and operate the same systems
with the aim of ripping the profits that accrue from their investments . This brings in the aspect of fierce
competition which the Societe Generale has to keep up with in other to stay in business as the bank has to keep
up with the trending patterns of change and watch its competitors closely , thus instigating innovation and
creativity to be primordial to its sustainability.

From the above we can see that like any other company in the investment sector , the Societe Generale was
subject to strengths that made it competitively strong, weaknesses that made it internally vulnerable to faults and
errors, opportunities that gave it and investment edge over its competitors and threats that affect each and every
investment it made be it in the banking or investment departments.

4.2 ANALYSIS WITH THE APPLICATION OF CONCEPTS

2.2.1 CORPORATE GOVERNANCE

As aforementioned, corporate governance refers to the specific relationship between the roles each part of a
business play in a hierarchical break down. By this I mean corporate governance is the structural delimitation
and stratification of roles carried out by each party to the business be it the board of directors, the employees, the
shareholders and the society. In our case study, the degree of corporate governance was fully existent as could be
noticed in the fact that Jerome Kerviel was administratively subordinate to Cordelle who was his supervisor. But
yet the efficiency of the corporate governance was a key aspect to look up to because it was without
doubt one of the fundamental mediums or pathways the trader was able to manipulate in his quests and
ambitions and that thus led to the heavy losses the Societe Generale incurred. Following the idea of corporate
governance, there is the existence of hierarchy and command and the fundamental aspect that guarantees the
success of a good corporate governance medium is the effectiveness and efficiency of communication between
the board of directors and the other parties to the business. We will make and evaluation of the levels of
interaction between some of these parties with the board the management and bring out the loop holes that
enabled the
situation to emanate .
Firstly,when we look at the relationship between Cordelle and Jerome Kerviel, we notice that and even stated in
the case that Cordelle practices a full trust kind of relationship with his subordinate and thus did not see the
essential need to go through detailed verifications of the processes and activities that his subordinate was
carrying out . Thus, even when he was warned, he just took the respond of the trader for a valid explanation and
let the matter pass . More of this laxity can be seen right from the begging when Jerome succeeded to make huge
profits from the London attack situation on Allianz stock , Cordelle barely a acknowledged the heavy risk he
took by just saying he would have made huge losses on a different situation . Judging by this we see that the
corporate governance relationship between management and employee was very inefficient because this and all
other things Jerome had done we overlooked for too long a time that questions could be asked on if it was
deliberate or just a very bad flow of specific information between hierarchy and floor. Again, on of the features
of corporate governance that is fundamental to the relationship between the management and the shareholders is
transparency in the details of information that is provided. In our case study, it can be assumed , everything being
equal, that there was a breach of transparency or merely a cover up of the Jerome Kerviel activities by the
management . This is because, after the first and subsequent warnings , from the external regulatory party
(EUREX) ,
serious discussion on the matter should have been brought to the shareholders on the situation in complete detail
so that they should be aware of the risk they were incurring by the one man’s activities . Lack of evidence of
such transmission of information or communications shows that there was some cover or breach in the rule of
full transparency the management owe the shareholders whose money is what is at risk.
More so, another instance to which the application of good corporate governance was inefficient is the fact that,
due to the fact that the Societe Generale was fundamental in the French investment economy and previously even
a “parastatal” , the information transparency between the company and the government was inefficient as can be
evidence by the furry of the French president Nicolas Sarkozy who called for the immediate resignation of the
Chef executive officer of the Societe Generale as he had been kept in the dark about this situation.
From the above analysis we see clearly that there was the existence of a streamlined medium of corporate
governance and transfer of information channels. But then it was inefficient. Many conclusions can be made
from this but importantly it could be that there was huge negligence on the part of management or a serious
protection system to keep the company making money and thus since Jerome had proven resourceful he was
being covered and his activities overlooked.
CHAPTER FIVE: PORPOSED SOLUTION TO THE PROBLEMS

In this section, we will be making and integrated discussion on the above analysis and explanations to be able to
come up with a deductible recommendation or recommendations that will help the company define an follow the
proposed plan of action set to solve this problem in which it is in, as well as evaluate the limitations of the case
study and the scope of the research.

5.1 INTERGRATED DISCUSSION OF THE ANALYSIS.

From the general and in depth analysis on the case of the Socite Generale, rogue trader, Jerome Kerviel, we are
able to observe that there was a culmination of activities and situations that paved the way to this unfortunate
situation . This events can critically be seen gearing to two directions;
Firstly, to the company. In this view we have seen and analyze the faults and mistakes the company had, most
specifically in the aspect of its corporate governance as seen in the loop holes within the structure , culture and
hierarchy that gave Jerome Kerviel the opportunities he needed to carry on his activities to completion.
On the other hand, the study also reveals the unscrupulous nature and deceptive character a trader can
impersonate in order to achieve personal goals which in the end may turn out to be detrimental to a whole lot of
people, who have invested so much in a business as was the situation of the losses he impacted on the Societe
Generale.
Thus, pointing a finger and blaming one side will be making a basis judgment on the whole study . Thus,
objectively we identify the roots of the problems in both corporate and employee milieus and from this we strive
to provide a good sustainable recommendation to the problem.

5.2 RECOMMENDATIONS

With respect to the situation in which the Societe Generale finds itself, we are able to deduce some
recommendations as follows;
1- Centralization of supervisory system
We will be recommending the company to restructure its supervision framework so as to limit the extent of
centralization of information. This will enable situations like this to re occur in the future as, any alerts that may
be noticed will not only be a concern to the supervisors but to the whole company , so that all stakes will be clear
on the table.
2- Restructuring of the human resource department and employee based culture
We will recommend the development of a good human resource management scheme. By this our intension
will be to cut off the segregation of quality workers because of their background and also enabling the employees
to be treated on an equal platform and reward according to merit and hard work. . This will promote a feeling of
belonging and enhance the employees attitude to thinking of the company and not themselves first , as it has
been proven that human resource enhanced companies tend to fair better than profit focused companies due to
the establishment of sustainable growth.
3-Introduction of team work and harmonization of working practices
Furthermore, another recommendation that should be considered by the Societe Generale is the aspect of
promoting team work. The reason behind this recommendation is simply that, when people work as a team , the
margin of error and concealment is reduced to almost zero as not everybody will be having the same targets in
the group so there will be a limitation in the extent to which one person’s activities alone can jeopardize a whole
company’s ventures. Even if the scheme is not of a group like nature, the fact that work done by one person can
be given a second opinion all together changes the outcomes of unfortunate situations and reduces the risk
taking.
4-Practice of strict function roles and trading activity limits
More so, another recommendation to this case will be to promote effective and strict division of labor within the
company and introduction and enhancement of fraudulent transaction alerts. The reason being that , if Jerome
Kerviel carried out just the trades and did not develop his own derivative products , then there will be a limitation
to the ease with which he was able to bypass major security checks . This will go a long way in limiting the
power a single person can possess in a big company as this case and thus enhance efficiency and transparency.
5.3 PROPOSED PLAN OF ACTION
Our proposed plan of action will be to apply the aforementioned recommendations in a structure pattern from the
corporate down to the employee level as will be represented on the Gantt chart below;

GANTT CHART REPRESENTATION OF THE PLAN OF ACTION FOR APPLYING THE

RECOMMENDATIONS
From our diagram above we have plotted a stage path for applying our recommendations.
Stage 1: will see more emphasis made on the corporate governance management of the company.
Stage 2 : will see the introduction of human resource management .
Stage 3 : will see the application of a good human resource management, good corporate governance and the
introduction of a good corporate work culture, that is the introduction of effective working mediums( division of
labor).
Stage 4 : will see the application of the corporate governance, human resource management, effective working
medium and the introduction and development of a solid working culture(group working).
Thus , from the vital introduction of good new sustainable aspects to attain a balanced company working scheme
that will help the Societe Generale get out of its problem and maintain sustainable growth.

5.4 LIMITATIONS OF THE STUDY , SCOPE OF THE RESEARCH

Some of the limitations we encountered in this case study were as follows;

-Firstly, there was the limitation of time to be able to get all the information and data that was needed in order to
develop and build up a whole reading material on all aspects on the case. Thus the reason why some definitions
are contained within the context of the work.
-Again, another limitation to our study was the whole analytic deductions was based on secondary data provided
from the case itself , prepared by the Harvard Business School and other sources listed in the References.
-Furthermore, due to the fact that this is a case that occurred approximately six to seven years ago , some of the
recommendations have already been put to application by the company.
- Due to the nature of the case study, that makes it an open one, some of the terms have been summarized in
order to minimize the rate of plagiarism.
-Finally, this case study was done for the purpose of academic validation. Thus there is a limitation to the
number of words and a strict format follow up.
6.0 CHAPTER SIX: APPLICATION TO ANOTHER CASE

6.1 DESCRIPTION OF COMPARATOR COMPANY SITUATION

During the late periods of the 19th century in France, the production sector of agriculture was in search of
suitable credit means , in long term, flexible and cheap methods of acquisition. After the several failed attempts
to set up agricultural banks in the year 1861 by the Credit Foncier.Then in the year 1884 the act on
professionalism and freedom of associations paved the path for the formation of farm unions. Thus, this created a
suitable investment ground and paved the way for the opening of agricultural banks, with the first being the
Societe de Credit Agricole de l’arrondissement in 1885through the local initiative of Louis Milcent. This then
was followed by the third republics need for farmers votes , which saw an act in the year 1894 to create the
Credit Agricole. This authorization gave the permission to local farm unions the permission to create this bank,
Thus , somehow a type of cooperative , the bank was going to be owned by their owners according to the
mutuality principle. Though the will of farmers to borrow money was deplorable, there was the incentive born by
the fact that these first banks consisted of local elites in different sectors of the economy like agronomy,
landlords, teachers and farmers in the minority that enable the borrowing processes to be of much more
confidence.
Through the determination of the farmers, the local banks became more responsive even though most of the
loans that were given out only consisted of short term loans, irrespective of the rise in savings inflows and
government subvention funds to the source of finance. The increment in savings inflows boosted the Credit
Agricole , which in turn became self-financing by the year 1963. Further in the year 1960 to 1962 the Credit
Agricole became a major tool in the financing of the agricultural sector by the government and with the
introduction of efficient managerial talent and schemes , the bank became and was transformed into a more
modern financial banking institution. This modernization saw the implementation and diversification of the
products the bank provided its customers ranging from basic loaning, private banking and saving to mortgages.
There was later on the need to expand and increase the scale of activity and so the Credit Agricole turn to
insurance and taking stakes in the Credit Lyonnais as well as acquiring the SOFICO , a customer financing
company and the FINAREF in 2003. This group grew in heights and was name by The Banker magazine as the
global bank of the year in 2007 and its further signature of the diversity charter in 2008, as well as setting the
target of fighting poverty by the creation of the Grameen Credit Agricole Foundation alongside professor Yunus.
It has thereafter, been on a sustainable growth and evolution rate tackling the difficulties of emerging economic
situations as the EURO crisis.
The evidence below shows the state or situation of affairs of the Credit Agricole from the year of the event of the
Societe Generale losses to the year 2012 within the capital market and investment banking framework
INCOME 2007 2008 2009 2010 2011
DENOMINATION
(in million euros)

Net banking 481 790 3,502 2,986 3,325

income

Gross operating 2,121 3,501 1,257 437 631

income

Pre-tax income 2,969 4,193 1,166 319 -518

Net income 1,925 2,884 874 215 -697

Net income – 1,976 2,891 851 -198 -1,133

GROUP SHARE

Representation of the revenue values of the Credit Agricole from the year 2007 to 2011

From the above we observe that the capital market which is the stock market has been growing from the year
2007 to the year 2008 and started experiencing reductions in 2009 , and finally incurred its first loss in 2010 in
the net income of the group share and later on further losses in the net income all together and the net income of
the group share in 2011.
It’s well off situation in 2007 during the Societe Generale , even though subsequent years in the future reveal it
in a struggle and incurring losses partly as a result of the Euro crisis and other macro-economic influences.
6.2 TESTING THE RECOMMENDATIONS ON THE COMPARATOR COMPANY

The existence of a centralized rick management department in the Credit Agricole goes a long way to account for
the minimal risk it has taken in the capital market over the years and greatly accounts for it being better off ,
especially in the year 2007 during the Societe Generale crisis. This is because, the existence of this centralized
risk management department hindered the concealment of any transaction information or the accurate control of
risk taken by all its traders in the capital market thus avoiding a situation where in one person could jeopardize
the whole credibility of the company as was the case with the Societe Generale of Jerome
Kerviel.

Furthermore, the introduction of teamwork will enable the Credit Agricole to be able to develop new investment
strategies resulting from the brainstorming of the lot concerned. This comes of great utility to the Credit Agricole
especially during this present day period when it has experienced a fall in the total income it receives from
capital market operations.

REFERENCES
-Ethics and Revenue Centre,2006,survey on employee perception of top manament,1747 pennyslvania
avenue,Washington DC.

-Mark Hunter and Craig Smith, 2011, Societe Generale(A): The Rogue Trader, Business School of the World.

- Societe Generale ,2008, Annual Revenue Report 2004 -2006, France.

- D Le Bris , 2008 , Monetary and Financial structures : impact of political unrests and wars, Universite de paris
10 Nanterre.

-Stijn Claessen, 2003, Corporate Governance and Development, Washington DC.

- Sir Arian Cadbury, 2012 , Centre for Translational Legal Studies, London.

- Business Roundtable, 2012, Principles of Corporate Governance, United States of America.

- Societe Generale Group, 2007 , Annual Report of Societe Generale and Trust, Luxemburg.

-Bhandari,D.R, 2003, Banking and Insurance. 4th ed. Kathmandu: Utsav Books and stationery

-Hull, J.C, 2006, Options, Futures and Other derivatives, 6th ed. New Jersy prentice hall.

-Jaque, L.L, 2010, Global Derivative Debacles from Theory to Malpractice, World Scientific Publishing Co.ltd.

WEB

-Quarterly report of the Societe Generale, available at : http:/www.investorSocGen.com/phoenix

.zhtml?c=69575&p=irol-results&nyo=0.
Appendix 1

Exhibit 1

Stock market trends beginning 2007, source: www.marketoracle.co.uk

Exhibit 2
 Stock market trends ending 2007 , Source :www.marketoracle.co.uk

Exhibit 3

GROUP

QUATERLYRESU
LTS
(in millions of Q Q Q Q 2 Q Q Q Q 2 Q Q
euros) 1 11 2 11 3 11 4 11 011 1 12 2 12 3 12 4 12 012 1 13 1 vs
Q1
Group
Net banking 6 6 6 6 2 6 6 5 5 2 5 -
income ,619 ,503 ,504 ,010 5,63 ,311 ,272 ,397 ,130 3,11 ,088 19.4
6 0 %
Operatin - - - - - - - - - - - -
g expenses 4,37 4,24 4,01 4,40 17,0 4,33 3,98 3,98 4,13 16,4 4,06 6.1%
6 1 8 1 36 3 6 1 8 38 7
Gross 2 2 2 1 8 1 2 1 9 6 1 -
operating ,243 ,262 ,486 ,609 ,600 ,978 ,286 ,416 92 ,672 ,021 48.4
income %
Net cost - - - - - - - - - - - +
of risk 878 1,18 1,19 1,07 4,33 902 822 897 1,31 3,93 927 2.8%
5 2 5 0 4 5
Operatin 1 1 1 5 4 1 1 5 - 2 9 -
g income ,365 ,077 ,294 34 ,270 ,076 ,464 19 322 ,737 4 91.3
%
Net 1 6 2 - 1 1 - - - - 4 N
income from 3 0 72 2 5 22 484 16 507 49 M
other assets
Net 3 4 3 - 9 4 1 4 5 1 3 -
income from 8 0 2 16 4 7 4 3 0 54 9 17.0
companies %
accounted for by
the equity
method
 Impairm 0 0 - - - 0 - 0 - - 0 N
ent losses on 200 65 265 450 392 842 M
goodwill
Income - - - - - - - 1 2 - - -
tax 370 317 455 181 1,32 299 440 21 84 334 120 59.9
3 %
Net 1 8 6 2 2 8 5 1 - 1 4 -
income ,034 63 91 00 ,788 39 66 99 396 ,208 62 44.9
%
O.w. non 1 1 6 1 4 1 1 1 8 4 9 -
controlling 18 16 9 00 03 07 33 14 0 34 8 8.4%
interests
Group 9 7 6 1 2 7 4 8 - 7 3 -
net income 16 47 22 00 ,385 32 33 5 476 74 64 50.3
%
Average 3 3 4 4 3 4 4 4 4 4 4
allocated capital 7,97 8,77 0,11 1,07 9,48 1,60 2,16 2,44 2,06 2,07 1,56
2 2 4 2 3 1 9 4 6 1 7
Group 8 6 5 3 6 6 3 0 N 1 2
ROE (after tax) .8% .9% .4% .1% .0% .4% .5% .1% M .1% .7%
C/I ratio 6 6 7 8 6 6 6 6 7 6 6
(excluding 2.7% 5.4% 0.7% 2.9% 9.6 6.7% 5.7% 6.5% 1.1% 7.5 6.3%
revaluation of % %
own financial
liabilities)

Quarterly results of Societe Generale , source: www.investorSocGen.com