J.P. Morgan Chase’s Gift to the Opposition

Posted on May 12, 2012 by
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J.P Morgan Chase CEO Jamie Dimond: From the catbird seat to the hot seat.

J.P. Morgan Chase has revealed losses of at least $2 billion resulting from hedge trading at its London office, conducted by Bruno Michel Iksil, a trader with the ominous and inelegant nickname of “The London Whale.” These trades were made as part of standing instructions from company executives to offset anticipated losses from the worsening European market. Eurozone troubles have been the basis of another high-profile financial industry crisis, the collapse of MF Global led by former governor/senator/Goldman Sachs chief Jon Corzine.

The news has wiped out billions of dollars of value for J.P. Morgan Chase, reflected in the trading blunders themselves and the sudden drop of its stock value. It has also wiped out the argument to halt or roll back regulation under Dodd-Frank, the sweeping legislation meant to tame the financial industry following its 2008 collapse. A leading voice to curb Dodd-Frank has been Jamie Dimon, J.P. Morgan Chase’s CEO, heralded as the rare banking chief executive who understood media relations and government relations (including past praise from this writer.)

Dimon has traded the catbird seat for the hot seat. The SEC has launched a probe into J.P. Morgan Chase’s disastrous London trading. Dimon himself has been targeted for anger and ridicule. He has offered mea culpas in keeping with his communication style, more prompt and forthcoming than often seen from CEOs of major companies. As part of his initial apologies, he said sardonically that he should have paid more attention to newspapers in the run-up to J.P. Morgan Chase’s debacle, as early reports questioned the company’s practices and called out The London Whale. Ironically, Dimon jabbed the newspaper industry earlier in the year for paying what he called unwarranted salaries while it assailed financial industry executives for the size of their compensation. (The old maxim of not picking a fight with someone who buys ink by the barrel still applies in the age of the pixel.)

J.P. Morgan Chase’s crisis stems from public relations errors as well as financial miscalculations. These PR issues include:

Never mistake superior reputation for invulnerability. Johnson & Johnson has learned this hard way, going from PR gold standard during the 1980s Tylenol crisis to “just another company” beset with product recalls and public mistrust.

Conduct PR risk analysis as well as financial risk analysis for every corporate activity. J.P. Morgan Chase should have scrutinized The London Whale in this manner. No decision should be based solely on dollars and cents.

Act quickly on initial media reports. The Wall Street Journal red-flagged The London Whale a month before the story broke on the $2 billion loss. It may have been too late at this point to stem the monetary damage but a proactive PR approach would have helped J.P. Morgan Chase take charge of its media destiny through early disclosure.

Understand the responsibility of being an industry spokesperson. While other financial industry leaders stumble in the spotlight or shun it all together, Jamie Dimond welcomes visibility and has acquitted himself well until now. However, being an industry spokesperson entails the added responsibility of setting a constant example. Extreme risk and inadequate oversight violate this responsibility and make a subsequent fall from grace that much harder.

In the end, J.P. Morgan Chase has given a gigantic gift to the opposition. Any softening of Dodd-Frank is now extraordinarily unlikely. Jamie Dimond may still be held in higher regard than other industry CEOs such as Goldman Sachs’ Lloyd Blankfein and Bank of America’s Brian Moynihan, but he has lost his unique ability to push back against politicians and critics, a shortfall that may overshadow the $2 billion consumed by The London Whale.

J.P. Morgan Chase is likely to recoup its trading losses relatively soon. However, the damage to its reputation and the effects of Dodd-Frank untrammeled will last for years to come.

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Wal-Mart’s Mexico Crisis: Main Street Goes Global

Posted on April 25, 2012 by

The New York Times has revealed evidence that Wal-Mart used widescale bribery in Mexico to win and expedite approvals for building stores and then covered up the illegality. While allegations have yet to be proven, Wal-Mart’s growing controversy provides important lessons in two key subjects: globalization and crisis communication.

Globalization

As its U.S. sales and expansion have slowed, Wal-Mart has looked to global markets to sustain corporate growth. A textbook I’m currently teaching from, Marketing: The Core, advises that a company must analyze factors such as economic infrastructure–communication, transportation, financial and distribution systems–and consumer purchasing power for each potential market.

A company must also understand the customs of the markets it wants to enter. Marketing: The Core discusses patterns of bribery as part of this consideration along with the Foreign Corrupt Practices Act, the U.S. law frequently mentioned in coverage of Wal-Mart and its problems in Mexico. In short, it’s been illegal for U.S. companies to engage in overseas payoffs for more than 30 years. “That’s the way they do it over there” will not hold up in a court of law…or the court of public opinion.

On the topic of public opinion, Wal-Mart is learning that its global business practices have an effect at home. Nike took a hard lesson in the 1990s as details emerged about substandard working conditions at the factories of its Asian suppliers. Apple has recently endured similar controversy regarding the treatment of workers at the Chinese facilities manufacturing its products. Globalization means global standards of conduct. What happens on Main Street affects what happens around the globe, and vice versa.

Crisis Communications

If a Wal-Mart cover-up is confirmed, it will show the company’s ignorance of crisis communications. The desire to avert negative publicity is understandable. Attempting this through concealment inevitably leads to more crisis. “The cover-up is worse than the crime” is a term that came into vogue in the Watergate era, as the Nixon administration’s efforts to hide involvement in the bugging of DNC offices became more onerous than the break-in itself.

Wal-Mart has labored under bad PR for years. Opponents paint it as a destroyer of small business, an oppressor of workers, and a despoiler of the environment. The company has made sincere attempts to improve its image in the past decade. The Mexico bribery crisis is a bonanza for Wal-Mart’s foes, one that could have been largely avoided with early transparency.

If anyone in Bentonville said, “we need to keep this quiet,” he or she was dreaming. If that senior executive had said, “we need to keep the volume low on this,” such a declaration would have prompted action and disclosure at the appropriate time. And per Sarah Connor’s mission in “The Terminator,” it would have prevented a dire future, namely terrible headlines, falling stock prices, and potential criminal charges for company leaders in 2012.

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Happy Birthday, “Blue Thunder”

Posted on April 2, 2012 by

30 years ago, I bought the electric bass that I play to this day, a G&L L-1000. G&L was the final company of the legendary Leo Fender, creator of the modern electric bass, the Fender Precision. With G&L, Leo applied the collective wisdom from the original Fender company (sold in the 1960s to CBS) and his subsequent enterprise, Music Man, where he created another landmark bass, the Stingray.

I named my vividly blue bass “Blue Thunder,” inspired by an action flick of the early 1980s. I have played this instrument during recording sessions, on stage and in numerous garages. It has a remarkable tonal range and a great slap sound. It waited faithfully in the back of the closet during the years when I walked away from music. It jumped back into my hands when I started playing again, sounding as good as it did when its namesake was appearing in the theaters.

Happy birthday, Blue Thunder. You are proof that the power and joy of music has no age limit!

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