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My first contact with the business world took place in the back room of a store in Pelham, New York, called Klein’s Pharmacy. I was in grade school at the time and Joseph Klein, the proprietor and my maternal grandfather, had put me to work.
It was a rite of passage on my Klein side. Once you entered into his orbit, Joe Klein had a job for you to do at the store. My grandmother ran his cosmetics counter. My uncles made deliveries. And soon after I learnt to count, I found myself in the back room, filling bottles with pills – under his direct supervision.
Family labour of this sort had multiple advantages for my grandfather. Relatives were cheap and they could be expected to keep their hands out of the till – no small matter in the precarious world of a modest store. Family lore had it that my grandfather once discovered a trusted employee stealing from him – and sent the man on his way.
So I felt a pang of recognition last week when the news broke that a 31-year-old UBS trader in London named Kweku Adoboli had been accused of causing a $2.3bn loss at the Swiss bank by pulling a fast one on his bosses. Mr Adoboli has yet to enter a plea in the case and he should be considered innocent until proved otherwise, but I couldn’t help but view his situation through the ancestral prism of Klein’s Pharmacy.
Like the man my grandfather let go, Mr Adoboli was an employee who knew his way around the proverbial store. During his early years at UBS, he worked in the back office of the bank, where accounts are settled. Once he was made a trader, according to bank sources, Mr Adoboli allegedly used his knowledge of back-office procedures to create a record of fictitious trades, which helped him disguise huge loss-making positions.
The discovery of these losses has led to all sorts of public moaning by senior managers at UBS and their sympathisers in the press. I have even heard suggestions from certain crypto-feudal quarters that the case suggests back-office employees of banks should never be promoted to the trading floors of their companies.
But as the grandson of a proper storekeeper, I would like to suggest that this case also raises questions about the basic business acumen of today’s banking elite. Maybe I’m just small minded, or small time, but it strikes me that if some kid with a few years of back office experience knows more about running the cash register than you, you are cruising for a bruising – in the P&L sense.
Not so long ago, many of the more successful trading operations in banking were structured along the lines of a store like Klein’s Pharmacy. They were partnerships, often based, at least initially, on family ties. Note, for example, how many times the word “brothers” appeared in the names of such outfits – Salomon Brothers, Lehman Brothers, and so on.
These trading-oriented firms were also relatively small and contained in one place, like a store, enabling partners to watch over their charges as closely as Joe Klein watched over his. In his memoir of life on Wall Street, On Money and Markets, Henry Kaufman, the Salomon Brothers economist, notes that when he showed up for his first day of work in 1962, “most partners sat on the trading floor, including Billy Salomon, the managing partner.
“Everyone’s actions were open to the scrutiny of everyone else,” Mr Kaufman remembers. “It was easy to look over a trader’s shoulder at his desk blotter and learn his trading positions, and easier still to note changes in facial expressions or intonation. Accomplishments were quietly noted, as were failures.”
This familiarity was lost as banks sold shares to the public, expanded internationally and combined to form sprawling financial supermarkets. As time passed, top executives no longer camped out on trading floors where they could observe the perspiration patterns of lower-percentile performers, but became global grandees, jetting around the world to lunch and lobby, oblivious to the dangers lurking in their back offices and trading floors.
I’m biased, of course, but I would argue that there would be fewer “rogue” traders in our midst if there were more hands-on, Joe Klein-style managers. It has been years since my grandfather died and decades since he sold his pharmacy, but the owners that followed him never changed his store’s name (apart from dropping the apostrophe; it’s Klein Pharmacy now). There could be no more fitting tribute. He made it his business to know everything that happened in that store. No detail was beneath him.