Wednesday, May 16, 2012

DIMON PASSES CRISIS TEST WITH FLYING COLORS

By Richard E. Nicolazzo

The massive trading loss at JPMorgan Chase is a first-class business debacle, but it’s difficult to find fault with the way CEO Jamie Dimon has managed the initial communications challenge.

In April, Dimon dismissed rumors of trading problems as “a tempest in a teapot,” but things quickly turned ugly on May 11 when Dimon admitted on a hastily-arranged conference call that the firm had, in fact, lost $2 billion from a trading portfolio.

Taking cues from the modern-day crisis management playbook, Dimon stepped up and took responsibility. His first public comments, which made headlines around the world in a matter of minutes, were refreshingly blunt.

“The portfolio has proved to be riskier, more volatile and less effective as an economic hedge than we thought," Dimon told reporters. "There were many errors, sloppiness and bad judgment…We will admit it, we will learn from it, we will fix it, and we will move on.”

Not exactly the kind of comments you usually hear from CEOs under siege.
Dimon’s next move was a calculated risk, but seemed to play out fairly well. By agreeing to tape an interview that day with David Gregory that aired Sunday, May 13, on NBC’s “Meet the Press,” he used a relatively comfortable setting to “frame the story” and speak directly to the American public, unfiltered by the news media.

Gregory’s key question was simple: “How did this happen?”

Dimon’s answer: “We made a mistake. We got very defensive and people started justifying everything we did. You know, the benefit in life is to say, ‘Maybe you made a mistake, let’s dig deep.’ And the mistake had been brewing for a while, so it wasn’t just any one thing.”

The answer sounded a bit muddy, but clearly does not come across as the kind of corporate-speak we are used to hearing from Wall Street heavyweights.  By allowing a painful smile to play on his lips, he appealed to the very instinct that we can all relate to: Human beings make mistakes.

Story Stays Alive

Crisis experts often tell clients, “Let’s make this a one-day story.”  No such luck in this case, since JP Morgan’s annual shareholders’ meeting was scheduled to occur just four days after the startling announcement. That fact prompted two more days of stories speculating how Dimon would handle himself in front of the people who actually own the company.

Annual meetings typically open with management recapping a company’s financial and operational status.  Not this time. Appearing a bit subdued, Dimon again faced the music.

Wasting no time, he addressed the obvious elephant in the room, saying, “I want to start with what is probably on your mind.” He called the trading bet “poorly vetted and poorly executed,” adding that a change in management had taken place and the bank had appointed an executive to work full-time on investigating the lapse. He added, “The buck stops with me.”

In reality, with the vast majority of votes already counted, Dimon had little chance of losing his job. In fact, shareholders voted that he continue as chairman of the board and CEO.  Shareholders also approved his executive compensation package.

It’s interesting to note how JPMorgan Chase managed to achieve what were likely their goals in this crisis:

  • The issue was framed based on facts.
  • The bank moved aggressively to control the message before it controlled them.
  • It ensured the distribution of timely and accurate information.
  • In an extremely difficult situation, the CEO took center stage and worked diligently to maintain brand, management, and corporate reputation.
  • The bank avoided “denial” and “secrecy.”
  • Dimon was the only spokesperson to comment publicly; he also understood how to engage with high-level media.
  • The CEO was forthcoming and attempted to answer all the tough questions on an analyst call, with national print/broadcast media outlets, and at the shareholders’ meeting.
  • Remedial action was immediately addressed and executed.

There is still plenty of criticism being directed at the nation’s largest bank. This is as it should be. The loss of $2 billion is nothing to take lightly, and the SEC and FBI should investigate whether laws were broken.  Already, two shareholder lawsuits have been filed, claiming Dimon misrepresented risk to investors. 

However, the hysteria from regulators, politicians, and news commentators is somewhat over the top. After the losses, JPMorgan Chase still has $127 billion in equity and is highly profitable. Massive trading losses have unfortunately become a by-product of the complex system constructed by the financial services industry over the past decade.

In my view, most of the hue and cry is centered around the politics of regulators issuing their final interpretation of the so-called Volcker Rule, which makes it illegal for banks to take proprietary positions in certain securities.

Where this will end up is anyone’s guess. Clearly, when it comes to the actual trading blunder, there are many more questions that  need to be answered.

As a result of the fallout, Jamie Dimon may ultimately lose his seat on the board of the New York Fed and his star may not shine as brightly as it once did, but so far he comes across as a stand-up guy who can take the “heat in the kitchen.”

In the world of crisis management, it’s often not the crisis itself but how management handles the crisis that determines the outcome. 

In the case of JPMorgan Chase, so far Jamie Dimon gets Straight “A”s. 

# # #

Richard E. Nicolazzo is Managing Partner of Nicolazzo & Associates, a strategic communications and crisis management firm headquartered in Boston, Mass.

Joe M. Grillo, Partner, and Linda Harvey, Client Services Director at Nicolazzo & Associates, contributed to this blog.

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