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CAO did not
face pressure to engage in speculative trading activities. However, after it started
to incur losses shortly after, there was pressure for it to continue the
activities to recoup the losses. (Lay Hong, 2009) This was due to several
reasons:

Firstly, Mr
Chen had sat on the boards of several prestigious institutes and earned many accolades
in the year prior, such as being one of Asia’s top business leaders under 45 by
the World Economic Forum. He also hoped to gain the attention of the new
generation of government leaders in Beijing and was already making headway with
CAO’s increasing success. Therefore, Mr Chen would want not want the losses
from these trading activities to negatively affect the impression the leaders
have of him. (Pottinger & Prystay, 2004)

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Furthermore,
in the year prior to the scandal, China’s former Ambassador to Singapore described
CAO as “the cream of overseas Chinese enterprises”, and China’s Communist Party
magazine, “Seeking Truth” had urged Chinese companies to study CAO’s management
to help build “a great renaissance of the Chinese nation.” With such strong
trust from the leaders in China, Mr Chen would face large pressure living up to
the standards set and creating more profits. Therefore, when faced with a loss,
he might have felt highly pressured to turn the losses around. (Pottinger & Prystay, 2004)

Lastly, and
most importantly, as an overseas-based company, CAO was barred from speculative
derivatives trading, which was what led to the losses. Furthermore, the trading
took place without board approval and aimed more to increase its profits rather
than hedge its risks, (Yinzhi, 2012) meaning that the executives
at CAO overrode many of the risk management controls applying to options trades.
By breaking so many rules and even the law, CAO and its executives would not
want this activity to be widely known by others. Therefore, when the losses mounted,
they would want to recoup the losses, which could be done by increasing the
bets placed, thus beginning the cycle which was the scandal. (Burton, 2005)

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