Early-warning-signals management: A lesson from the Barings crisis

The collapse of Barings was not an isolated event of its type. Rather, it characterizes an increasingly prevalent aspect of business settings as we approach the end of the second millennium. This paper surveys theoretical references in the crisis-and-decline literature to factors triggering crises. In particular, it emphasizes perceived organizational failure to notice and act on early-warning-signals (EWS). The paper presents a framework of organizational crisis-causal factors. These factors are tabulated to form a basis for models illustrating causes of organizational crises and poor EWS management. Validity and usefulness of the framework are tested through application to the Barings crisis. The presentation of some causal factors framework provides a diagnostic/predictive tool for use by crisis management (CM) strategists and regulators. It permits the un-learning of a frequent, yet detrimental, repercussion of managerial ineptitude. The paper proceeds by, first, discussing EWS management as contributing to the CM theory base. These contributions are presented as general categories of crisis-creating and EWS management-averting factors. Categories of crisis sources and pertinent key issues are then tabulated, followed by formal propositions. Next, the paper presents, and analyses against the background of crisis-causal factors, the case of the Barings debacle of 1995. A research agenda is proposed aimed at enhancing the empirical approach to studying EWS. Finally, comment is offered on the validity of the framework presented in the paper and the ways in which it might be used by CM strategists.