Northern Rock – a Lesson for Recruiters

What went wrong? What can recruiters learn?

What has the crisis at Northern Rock got to do with recruitment or assessment? To achieve its phenomenal growth from a small building society to a major mortgage player we now know that it entailed a high level of risk exposure to the way it conducted its business. The reality is that many companies striving to grow and enhance its profits will take a certain degree of risk. Although it might be the companies that pick up the risks: it is people that make the decisions and take the risks. The classic example of bad decision making would be Nick Leeson: one individual who brought down Barings Bank.

Companies reward the talent that can bring new income into the business. Taking bigger risks leads to potentially bigger rewards, so the system can push individuals towards greater (and potentially reckless) risk taking. So are Northern Rock and Barings Bank isolated cases? Not at all. These are just the big cases where the risk exposure went disastrously wrong and made the headlines. There are many incidents of poor risk management in business whereby the poor outcomes might be ‘covered up’ or not merit wider media coverage. Often a reckless executive has the luck of pulling a risky decision off. Then they are often rewarded as a ‘talent’ of the company – until their unbalanced attitude to risk puts the business in serious trouble next time.

Whether staff are traders, managers or senior executives, risk is inherent in all commercial decisions and exposure to the business should be balanced objectively. The Northern Rock executives had all their eggs in one basket in terms of their mortgage strategy and saw the probability of things going wrong as being too remote. This is analogous to not insuring your car because you think you are a great driver! Talk of Northern Rock ‘falling victim’ to international monetary problems is a very forgiving way of looking at what was essentially, bad decision making.

Managing risk exposure is a very complex psychological skill, and a combination of conceptual reasoning, technical skill, tacit knowledge and underlying personality traits.

Quest have developed holistic assessment methodology to ensure organisations optimise their risk taking and maximise their trading performance. We use leading edge technology to assess candidates’ potential to become top traders. At Senior Executive level our strategic-level business exercises predict board level decision making and ability to take calculated risks to transform businesses. The Identity - self-perception questionnaire also contains a measure of candidates' risk taking behaviour whereas other personality tools do not look at this area.