Early-Warning-Signals Management: A Lesson from the Barings Crisis

This chapter surveys theoretical references in the crisis-and-decline literature to factors triggering crises. It emphasizes perceived organizational failure to notice and act on early-warning-signals (EWS). The chapter presents a framework of organizational crisis-causal factors. The Barings failure is an archetypal case of crisis-causal factors at work in an organizational setting, including the disregard of, allegedly, noticeable EWS. A substantial part of the business-failure literature focuses on identifying EWS stemming from organizational financial-performance information. The chapter examines the 1995 Barings crisis against the background of the crisis-causal factors categorized. The discussion proceeds through an orderly arrangement of the factors to create a chain of cause-effect relationships. The safe, secure and relatively introverted psychology of traditional top-management at Barings had much to do with the complacent and somewhat detached manner in which it managed market changes on the one hand and treated its new business units on the other.